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Corporate Governance – Audit Committee


J.D. McCourt	Dr. P.F. deV. Cluver

Membership and responsibilities

Dr P F deV Clüver was a member of the committee throughout 2007. R B Hynes and G B Scanlan were members of the committee until their retirement from the Board on 30 April 2007. J D McCourt was appointed to the committee and assumed the role of Chairman on 30 April 2007.

The Board believes that J D McCourt satisfied the recommendation in the 2006 FRC Combined Code that at least one member of the audit committee should have recent relevant financial experience. It is also satisfied that Dr P F deV Clüver, inter alia through his membership of the committee, was sufficiently knowledgeable in relevant financial matters to enable him to fulfil his responsibilities on the committee.

These responsibilities, which were reviewed and updated in line with best practice during the year, are set out in the terms of reference of the audit committee. They are summarised below:

to approve the terms of engagement and remuneration of the external auditor and to recommend to the Board, when appropriate, any change in the external auditor;
to agree, in advance, with the external auditor the nature and scope of the audit as set out in their audit plan;
to review the Group’s preliminary and interim financial information and full year financial statements and to report to the Board on the outcome of this review. As part of this process, the committee considers:
- the appropriateness of the Groups’ accounting policies, including any changes in these policies;
- any significant judgemental matters;
- any significant audit adjustments;
- the continuing appropriateness of the going concern assumption;
- the contents of the directors’ report, the operating and financial review and chairman’s statement as set out in the annual report;
- compliance with relevant financial reporting standards;
- compliance with legal and Stock Exchange requirements.
to review any issues raised by the external auditor during the conduct of the audit. As part of this review, the committee considers any report from the external auditor on their findings in relation to the Group’s financial systems and controls, together with any management responses. In addition, the committee reviews any representation letter required by the external auditor as part of the audit, prior to its endorsement by the Board. As appropriate, the committee also meets the external auditor independently of management at least annually;
to annually assess and monitor the independence, objectivity and effectiveness of the external auditor. As part of this process, the committee reviews the implementation of its policy in relation to the provision of non-audit services by the external audit, taking into account relevant ethical guidance. In addition, the committee has agreed with the Board a policy on the employment by the Group of former employees of the external auditor, which it monitors on an ongoing basis;
to meet regularly with the Group’s head of internal audit (including, as appropriate, independently of management) in order to review the internal audit programme and to consider his findings on completed audits. The committee also reviews the adequacy of the resources of the internal audit team and the co-ordination between the internal and external auditor. The committee is responsible, in consultation with the Chairman of the Board, for the appointment or removal of the head of internal audit;
to address any other topics as requested by the Board, including to consider the findings of any internal investigations and the response of management;
to review the Group’s arrangements for employees to raise concerns, in confidence, about possible impropriety in financial reporting or other matters and to ensure there is provision for a proportionate investigation and follow-up of such matters; and
to review, at least annually, the committee’s own performance and terms of reference and to recommend any changes it considers necessary to the Board for approval.

Committee meetings in 2007

The audit committee schedules three or four routine meetings annually. There is a formal agenda for all meetings, which follows the financial reporting cycle of the Company. Meetings are attended as appropriate by the Group finance director, the Group financial controller, the head of internal audit and representatives of the external auditor. The main items on the agendas of each of the audit committee meetings held during 2007 were as follows:

March meeting

Review of the draft statutory financial statements for the year ended 30 December 2006 (including the directors’ report, the Chairman’s statement, the operating and financial review and the corporate governance report for the year), together with the draft preliminary results announcement to the Stock Exchange.
Review with the external auditor the outcome of the audit of the 2006 financial statements, including any significant audit issues. This included a private meeting with the external auditor without management present.
Approval of the letter of representation required by the external auditor in connection with audit.
Recommendation of the draft statutory financial statements to the Board.
Consideration of any observations or recommendations raised by the external auditor in its management letter, including management responses.
Quarterly review with the head of internal audit.

June meeting

Quarterly review with the head of internal audit.
Private meeting with the head of internal audit without management.
Review of the internal audit plan for the year.
Review and update terms of reference of internal audit function.
Review of the effectiveness of the internal audit function.
Consideration of the ongoing appropriateness of the committee’s own terms of reference, the Group’s policies in relation to the provision of non-audit services by the external auditor, the employment of former employees of the external auditor and any other relevant matters.

August meeting

Review of the draft interim financial statements for the first half of the year, together with the draft interim results announcement to the Stock Exchange.
Consideration with the external auditor of their review of the interim financial statements.
Recommendation of the draft interim financial statements to the Board.
Quarterly review with the head of internal audit.

December meeting

Review with the external auditor of the nature and scope of the forthcoming audit as set out in the audit plan.
Review of the proposed audit fees for the year.
Consideration of the independence and objectivity of the external auditor, including assessment of the impact, in this regard, of any non-audit services provided.
Review of the report of the executive risk committee. Recommendation of this report for approval by the Board.
Quarterly review with the head of internal audit.
Review of the committee’s own effectiveness.

Independence of external auditor

As part of its annual review of the independence of the external auditor, the audit committee seeks confirmation from the external auditor that it is, in its professional judgement, independent of Fyffes. The committee also monitors the nature, extent and scope of the non-audit services provided by the external auditor. In this regard, the engagement of the external auditor to provide any non-audit services, where the expected costs exceed a pre-approved limit, requires the approval of the audit committee.

Four key principles underpin the provision of non-audit services by the external auditor, namely that the auditor shall not:

audit its own firm’s work;
make management decisions for the Group;
have a mutuality of financial interest with the Group; or
be put in the role of advocate for the Group.

The amounts paid to the external auditor during the year for audit and non-audit services is disclosed on page 62 of our Annual Report.

The committee also reviewed the Group’s practices in respect of the hiring of former employees of the external auditor in order to assess whether such appointments might affect, or appear to affect, the external auditor’s independence. The committee is advised in advance of any such proposed appointments.

Performance evaluation

Towards the end of 2007, the committee, as part of the overall evaluation of the Board and its directors, undertook a self-evaluation of its effectiveness. The outcome of this review, which was satisfactory, was reported to, and considered by, the Board in December 2007.