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Corporate Governance

Board of Directors Audit Committee Charter

Introduction

Following the admission of Merrion Pharmaceuticals plc and its subsidiaries (together the 'Group') to IEX in December 2007, the Groups attention to financial reporting processes and corporate governance has intensified. Attention is being placed not only on the board of directors but also on those committees that have been delegated responsibility and accountability by the board.

The audit committee ('the committee') of the Group is viewed as a critical component in the overall corporate governance process. This Audit Committee Charter has been prepared to support the committee as they oversee the quality and integrity of the accounting, auditing and reporting practices of the Group. This charter has been drafted with reference to the Combined Code on Corporate Governance, Financial Reporting Council, June 2008.

1 Membership and organisation

1.1 The board shall appoint the committee. All members of the committee shall be independent non - executive directors of the Group. The committee shall not consist of less than three members. The board shall appoint the chairman of the committee from amongst the independent non-executive directors. One member of the audit committee should have recent and relevant financial experience.

1.2 The secretary of the Group shall be the secretary of the committee.

1.3 No one, other than the audit committee members shall be entitled to attend audit committee meetings. The chairman, other non -executive directors, CEO, CFO, representatives of external auditors or other persons shall attend meetings at the invite of the committee. There should be at least one meeting a year, or part thereof, where the audit committee meets the external auditors without the executive board members present. Meetings shall be held not less than two times a year. The timing of these meetings should coincide with the key dates in the Group's financial reporting cycle. External auditors may request a meeting if they consider that one is necessary.

1.4 At least annually, this charter shall be reviewed and reassessed by the Committee and any proposed changes shall be submitted to the Board of Directors for approval. Members shall establish guidelines for the performance evaluation of the committee and annually assess the performance of the committee in light of those guidelines.

1.5 The quorum necessary for the legitimacy of a compensation committee meeting shall be two. A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee.

2 Authority

2.1 The committee is authorized by the board to :

  • Investigate any activity within its terms of reference;
  • Seek any information that it requires from any employee of the group and all employees are directed to cooperate with any request made by the committee;
  • Obtain outside legal or independent professional advice, at the group's expense, and secure the attendance of outsiders with relevant experience and expertise if it considers this necessary.

3 Duties and Responsibilities

The Audit Committee shall have the following duties and responsibilities:

3.1 Financial Reporting

3.1.1 To review and challenge where necessary, the actions and judgments of management, in relation to the group's financial statements, press releases, operating and financial review, interim reports, preliminary announcements and related formal statements before submission to, and approval by the board, and before clearance by the auditors. Particular attention should be paid to:

  • critical accounting policies and practices, and any change in them;
  • decisions requiring a significant element of judgment
  • the extent to which the financial statements are affected by any unusual transactions in the year end how they are disclosed
  • the clarity of disclosures
  • significant adjustments resulting from the audit
  • the going concern assumption
  • compliance with accounting standards
  • compliance with stock exchange and other legal requirements and to consider other topics, as defined by the board

3.2 Internal control and risk management

3.2.1 To review the group's procedures for detecting fraud and whistle blowing and ensure that arrangements are in place by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting, financial control or any other matters.

3.2.2 To review management's and the internal auditor's reports on the effectiveness of the systems for internal financial control, financial reporting and risk management.

3.2.3 To monitor the integrity of the Groups internal financial controls.

3.2.4 To review the statement in the annual report and accounts on the group's internal controls and risk management framework.

3.2.5 To assess the scope and effectiveness of the systems established by management to identify, assess, manage and monitor financial and non-financial risks.

3.3 External audit

3.3.1 To oversee the group's relations with the external auditor.

3.3.2 To consider, and make recommendations on the appointment, reappointment and removal of the external auditor.

3.3.3 To approve the terms of the engagement and the remuneration to be paid to the external auditor in respect of audit services provided.

3.3.4 To assess the qualification, expertise and resources, effectiveness and independence of the external auditors annually.

Steps to consider include;

  • seeking assurance that the auditors and their staff have no family, financial, employment, investment or business relationship with the group (other than in the normal course of business);
  • seeking from the audit firm, on an annual basis, information about policies and processes for maintaining independence and monitoring compliance with relevant requirements, including current requirement regarding the rotation of audit partners and staff;
  • monitoring the external audit firms compliance with applicable ethical guidance relating to the rotation of audit partners, the level of fees that the company pays in proportion to the overall fee income of the firm, office and partner and other related regulatory requirements;
  • agreeing with the board and monitoring the group's policy for the employment of former employees of the external auditor.

3.3.5 To discuss the external auditor, before the audit commences the nature and scope of the audit.

3.3.6 To review with the external auditors, the findings of their work, including, any major issues that arose during the course of the audit and have subsequently been resolved and those issues that have been left unresolved; key accounting and audit judgments; levels of errors identified during the audit, obtaining explanations from management and, where necessary the external auditors, as to why certain errors might remain unadjusted.

3.3.7 To review the audit representation letter before consideration by the board, giving particular consideration to matters that relate to non -standard issues.

3.3.8 To assess, at the end of the audit cycle, the effectiveness of the audit process by:

  • reviewing whether the audit has met the agreed audit plan and understanding the reasons for any changes, including changes in perceived audit risks and the work undertaken by the external auditors to address those risks;
  • consideration of the robustness and perceptiveness of the auditors in their handling of the key accounting and audit judgments identified and in responding to questions from the audit committee and their commentary, where appropriate, on the systems of internal control;
  • obtaining feedback about the conduct of the audit from key people involved.

3.3.9 To review and monitor the content of the external auditor's management letter, in order to assess whether it is based on a good understanding of the company's business and establish whether recommendations have been acted upon and, if not, the reasons why they have not been acted upon.

3.3.10 To develop and recommend to the board the group's policy in relation to the provision of non -audit services by the auditor and ensure that the provision of such services does not impair the external auditor's independence or objectivity. In doing so, the audit committee should;

  • consider whether the skills and experience of the audit firm make it a suitable supplier of the non audit services;
  • consider whether there are safeguards in place to ensure that there is no threat to objectivity and independence in the conduct of the audit rsulting from the provision of such services by the external auditor;
  • consider the nature of the non-audit services, the related fee levels, and the fee levels individually and in aggregrate relative to the audit fee;
  • consider the criteria that govern the compensation of the individuals performing the audit; and
  • set and apply a formal policy specifying the types of non-audit work from which the external auditors are excluded; for which the external auditors can be engaged without referral to the audit committee; and for which a case -by-case decision is necessary.

3.4 Internal audit

3.4.1 The Board does not consider it necessary to operate a separate internal audit function at this time; however, this will be reviewed on an ongoing basis and this charter shall be appropriately amended.

3.5 Reporting

3.5.1 The Secretary shall circulate the minutes of meetings of the committee to all members of the board, and the chairman of the committee shall, as a minimum, attend the board meeting at which the accounts are approved.

3.5.2 The audit committee chairman shall attend the AGM and shall answer questions, through the chairman of the board, on the audit committee's activities and their responsibilities.

 

Committee Members

Committee Member Anthony Carragher
Committee Member Fintan Maher