Chaowei Power : Announcements and Notices - Terms of Reference of Audit Committee

Chaowei Power Holdings Limited 超 威動力 控 股 有 限 公 司

(the ''Company'')

(incorporated in the Cayman Islands with limited liability)

(Stock code: 951)

Terms of Reference of the Audit Committee (the ''Committee'')

of the Board of Directors (the ''Board'') of the Company

(amended and restated with effect from 1 January 2019)

1. Constitution

1.1 The Committee was established pursuant to a resolution passed by the Board at its meeting held on 7 June 2010 with its responsibilities:

• (a) to assist the Board in fulfilling its responsibilities by providing an independent review and supervision of financial reporting, by satisfying themselves as to the effectiveness of the risk management and internal controls of the Company and its subsidiaries (the ''Group''), and as to the adequacy of the external and internal audits;

• (b) to assure that appropriate accounting principles and reporting practices are followed;

• (c) to be primarily responsible for making recommendation to the Board on the appointment, re-appointment and removal of the authorized independent auditors (the ''External Auditors''), and to approve the remuneration and terms of engagement of the External Auditors, and any questions of its resignation or dismissal;

• (d) to serve as a focal point for communication between other directors, the External Auditors and the internal auditors or any person responsible for internal audit function (the ''IA People'') as regards their duties relating to financial and other reporting, internal controls, external and the IA People and such other matters as the Board determines from time to time;

(e) to review and monitor the External Auditors' independence and objectivity and the effectiveness of the audit process in accordance with applicable standards. The Committee should discuss with the External Auditors the nature and scope of the audit and reporting obligations before the audit commences, and ensure co-ordination where more than one audit firm is involved. Procedures to review and monitor the independence of the External Auditors may include:

(i) consider all relationship between the Group and the External Auditors (including non-audit services);

• (ii) obtain from the External Auditors annually, information about policies and processes for maintaining independence and monitoring compliance with relevant requirements, including those for rotation of audit partners and staff; and

• (iii) meet with the External Auditors, at least annually, in the absence of management, to discuss matters relating to its audit fees, any issues arising from the audit and any other matters the External Auditors may wish to raise.

(f) to develop and implement policy on engaging the External Auditors to supply non-audit services. For this purpose, ''External Auditor'' includes any entity that is under common control, ownership or management with the audit firm or any entity that a reasonable and informed third party knowing all relevant information would reasonably conclude to be part of the audit firm nationally or internationally. The Committee should report to the Board, identifying and making recommendations on any matters where action or improvement is needed. The Committee should ensure that the External Auditors' provision of non-audit services does not impair the External Auditors' independence or objectivity. When assessing the External Auditors' independent or objectivity in relation to the provision of non-audit services, the Committee may wish to consider:

(i) whether the skills and experience of the External Auditors make it a suitable supplier of the non-audit services;

(ii) whether there are safeguards in place to ensure that there is no threat to objectivity and independence of the audit because the External Auditors provide non-audit services;

• (iii) the nature of the non-audit services, the related fee levels and the fee levels individually and in aggregate relative to the External Auditors; and

• (iv) the criteria which govern the compensation of the individuals performing the audit.

(g) to monitor integrity of the Company's financial statements, annual report and accounts, half-year report and, if prepared for publication, quarterly report (including directors' report, chairman's statement and management discussion and analysis), and to review significant financial reporting judgments contained in them. In reviewing these reports before submission to the Board, the Committee should focus particularly on:

• (i) any changes in accounting policies and practices;

• (ii) major judgmental areas;

• (iii) significant adjustments resulting from the audit;

• (iv) the going concern assumption and any qualifications;

• (v) compliance with accounting and auditing standards;

• (vi) compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ''Listing Rules'') and legal requirements in relation to financial reporting; and

• (vii) reviewing the fairness of connected transactions and making disclosures in accordance with the Listing Rules and accounting standards.

• (h) Regarding (g) above:

  (i) members of the Committee should liaise with the Board and senior management and the Committee must meet, at least twice a year, with the External Auditors; and

  (ii) consider any significant or unusual items that are, or may need to be, reflected in the report and account and should give due consideration to any matters that have been raised by the financial controller and the compliance officer of the Company or the External Auditors;

• (i) to review audit and control related corporate representations made to the External Auditors, IA People and to the shareholders of the Company;

• (j) to review with the External Auditors and IA People, the Group's management, the adequacy of the group's policies and risk management and internal control systems (including financial, operational and compliance controls) and any statement by the directors to be included in the annual accounts prior to endorsement by the Board;

• (k) to review and monitor the effectiveness of the financial controls, and unless expressly addressed by a separate board risk committee, or by the Board itself, to review the Company's internal control and risk management systems;

• (l) to discuss the risk management and internal control systems with management to ensure that management has performed its duty to have effective systems, which should include the adequacy of resources, staff qualifications and experience, training programmers and budget of the Company's accounting and financing reporting function;

• (m) to consider major investigations findings on risk management and internal control matters as delegated by the Board or on its own initiative and management's response to these findings;

• (n) where an internal audit functions exists, to ensure co-ordination between the IA People and External Auditors, and to ensure that the internal audit function is adequately resourced and has appropriate standing within the Company, and to review and monitor its effectiveness;

(o) to review the Group's financial and accounting policies and practices;

(p) to review the External Auditor's management letter, any material queries raised by the auditor to management about the accounting records, financial accounts or system of control and management's response;

• (q) to ensure that the Board will provide a timely response to the issues raised in the External Auditor's management letter;

• (r) to report to the Board on the matters set out in the code provision C.3 of the Appendix 14 (Corporate Governance Code and Corporate Governance Report) to the Listing Rules;

• (s) to consider other topics as defined by the Board;

• (t) to consider agreeing with the Board the Company's policies on hiring employees or former employees of the External Auditors and monitoring the application of these policies. The Committee should then be in a position to consider whether there has been or appears to be any impairment of the External Auditor's judgment or independence for the audit;

• (u) where the Board disagrees with the Committee's view on the selection, appointment, resignation or dismissal of the External Auditors, the Committee should include in the Corporate Governance Report a statement explaining the Committee's recommendation and the reasons why the Board has taken a the different view;

• (v) to review arrangements employees of the Company can use, in confidence, to raise concerns about possible improprieties in financial reporting, internal control or other matters. The Committee should ensure that proper arrangements are in place for fair and independent investigation of these matters and for appropriate follow-up action; and

• (w) to act as the key representative body for overseeing the Company's relations with the External Auditors.

2. Membership

• 2.1 Members of the Committee shall be appointed by the Board from amongst the directors of the Company and shall consist of not less than three members, all of whom shall be independent non-executive directors and at least one of the Committee members shall be an independent non-executive director with appropriate qualifications or accounting or related financial management expertise as required under Rule 3.10(2) and 3.21 of the Listing Rules.

• 2.2 The chairman of the Committee (the ''Chairman'') shall be appointed by the Board and has to be an independent non-executive director of the Company.

• 2.3 A former partner, principal, shareholder, or professional employee of the Company's existing External Auditor is prohibited from acting as a Committee member for a period of two years as calculated under the Listing Rules and applicable auditor independence rules.

• 2.4 The appointment of the members of the Committee may be revoked, or additional members may be appointed to the Committee by separate resolutions passed by the Board and by the Committee.

• 2.5 The secretary of the Company shall act as the secretary of the Committee.

• 2.6 The constitution of the Committee shall comply with the requirements of the Listing Rules as amended from time to time.

• 3. Frequency and proceedings of meetings

  • 3.1 The Committee should meet at least two times per year. The Chairman may convene additional meetings at his discretion.

  • 3.2 The Committee shall meet with the External Auditors at least twice a year. At least one of the said meetings should be held in the absence of management.

  • 3.3 Notice of Meeting

    (a) Unless otherwise agreed by all the Committee members, a meeting shall be convened by at least fourteen (14) days' notice.

    • (b) A Committee member may at any time summon a Committee meeting.

    • (c) Notice shall be given to each Committee member in person orally or in writing or by telephone or by facsimile transmission or email at numbers or addresses from time to time notified to the secretary of the Company by such Committee member or in such other manner as the Committee members may from time to time determine.

    • (d) Any notice given orally shall be followed by confirmation in writing before the meeting.

    • (e) Notice of meeting shall state the time and place of the meeting and shall be accompanied by an agenda together with other documents which may be required to be considered by the members of the Committee for the purposes of the meeting.

  • 3.4 The quorum for the Committee meeting shall be two members of the Committee.

  • 3.5 Other Board members shall also have the right of attendance.

• 4. Alternate Committee members

  4.1 A Committee member may not appoint any alternate.