IDT International Limited – Corporate Governance : Terms of Reference of Audit Committee

Terms of Reference of Audit Committee

1. Functions and purposes

1.1 The Audit Committee (the "Committee") is appointed by the Board of Directors (the "Board") of IDT International Limited (the "Company") to assist in fulfilling its responsibilities to:-

	ensure adequate internal controls are in place and followed and to monitor the internal audit function;
	ensure the integrity of the Company's financial statements and the Company's accounting policies and financial reporting practices and to satisfy itself that good accounting and audit principles are applied on a consistent basis throughout the Company and its subsidiaries (the "Group");
	monitor the adequacy of the scope and direction of external and internal auditing;
	consider the qualifications, independence and remuneration of the external auditor;
	consider the adequacy of resources, qualifications and experience of staff of the Company’s accounting and financial reporting function, and their training programmes and budget; and
	contribute towards a climate of discipline, risk management awareness and control within the Group.

2. Authority

2.1 The Committee is authorised by the Board to investigate any activity within its terms of reference. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Committee.

2.2 The Committee shall have unrestricted access to the Executive Directors, other executive officers or employees, the external auditor and internal auditor.

2.3 The Committee is authorised by the Board to obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise if it considers this necessary.

3. Composition and Qualifications

3.1 The Committee shall be appointed by the Board from amongst the Non-Executive Directors of the Company and shall consist of at least three members.

3.2 The Chairman of the Committee, who shall be appointed by the Board, and the majority of its members must meet the independence requirements ("Independent Committee Members") of The Stock Exchange of Hong Kong Limited (the "Stock Exchange").

3.3 At least one of the Independent Committee Members must possess appropriate professional qualifications or accounting or related financial management expertise as required by the Stock Exchange.

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

4. Meetings

4.1 The Finance Director, the head of internal audit, and a representative of the external auditor shall attend meetings of the Committee. Other members of the Board shall also have the right of attendance.

4.2 The Committee shall ensure that sufficient opportunities exist for its members to meet separately with the external auditor, the head of internal audit, management of the Company, and to meet in private with only the Committee members present.

4.3 The company secretary shall act as the secretary to the Committee and must ensure that full minutes are kept of all meetings.

4.4 The Committee will meet at least four times each year and at such other times as it deems necessary to fulfil its responsibilities.

5. Duties and Responsibilities

5.1 The duties and responsibilities of the Committee include the following:

5.1.1 Relationship with external auditor

	to make recommendations to the Board on the appointment, re-appointment and removal of the external auditor;
	to approve the remuneration and terms of engagement of the external auditor, and any questions of resignation or dismissal of that auditor;
	to establish procedures to review and monitor the external auditor's independence and objectivity and the effectiveness of the audit process in accordance with applicable standard;
	to discuss with the external auditor 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;
	to develop and implement policy on the engagement of external auditor to supply non-audit services. The Committee should report to the Board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken;
	to agree with the Board the Company's policies relating to the hiring of employees or former employees of the external auditor and monitor the application of such policies on the basis that whether in the light of such employment there has been any impairment or appearance of impairment of the external auditor's judgement or independence in respect of audit of the Company; and
	to act as the key representative body for overseeing the Company's relationship with the external auditor.

5.1.2 Review of financial information of the Company

to monitor integrity of financial statements of the Company and the Company's annual report and accounts, half-year report and, if prepared for publication, quarterly reports, and to review significant financial reporting judgements contained in them. In this regard, in reviewing the Company's annual report and accounts, half-year report and, if prepared for publication, quarterly reports before submission to the Board, the Committee should focus particularly on:

		appropriateness of accounting policies and practices;
		major judgmental areas;
		adequacy of disclosure, including as to unusual items;
		any matters that have been raised by the Company’s staff responsible for the accounting and financial reporting function or auditors;
		consistency within the financial statements and with prior disclosure;
		significant adjustments resulting from the audit;
		the going concern assumption and any qualifications;
		compliance with accounting standards, the Rules Governing the Listing of Securities on the Stock Exchange ("Listing Rules") and other legal requirements in relation to financial reporting;
		the problems and reservations arising from the interim and final audits, and any matters which the external auditor may wish to discuss (in the absence of management where necessary);
		the review of the external auditor's management letter, any material queries raised by the external auditor to management in respect of the accounting records, financial accounts or systems of control and to ensure that the Board will provide a timely response to the issues raised in the external auditor's management letter;
		the review of the Company's financial controls, internal control and risk management systems;
		the review of the Group's operating, financial and accounting policies and practices;
		the discussion with the management the system of internal control and to ensure that management has discharged its duty to have an effective internal control system including the adequacy of resources, qualifications and experience of staff of the Company’s accounting and financial reporting function, and their training programmes and budget;
		the consideration of any findings of major investigations of internal control matters as delegated by the Board or on its own initiative and management's response;
		the review of the Company's statement on internal control systems where one is included in the annual report prior to endorsement by the Board;
		the co-ordination between the internal 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 the effectiveness of the internal audit function;
		the major findings of internal investigations and management's response;
		the reporting to the Board on matters set out in code provisions under the Code on Corporate Governance Practices in Appendix 14 to the Listing Rules to be implemented or from time to time implemented by the Stock Exchange; and
		the consideration of other topics, as defined by the Board.

5.1.3 Reporting procedures

	Reports to the Board and minutes of the Committee should be formally approved by the Committee before reporting to the Board;
	The secretary shall circulate the minutes of meetings and reports of the Committee to all members of the Board; and
	Minutes of the Committee should be sent to all members within a reasonable time (and generally within 4 weeks) after the meeting of the Committee is held.