Oxford Instruments plc: Terms of reference ofAudit and Risk committee
January 2024
Applicable principles from the UK Corporate Governance Code 2018
M. The board should establish formal and transparent policies and procedures to ensure theindependence and effectiveness of internal and external audit functions and satisfy itself on the
integrity of financial and narrative statements.
N. The board should present a fair, balanced and understandable assessment of the company’s
position and prospects.
O. The board should establish procedures to manage risk, oversee the internal control framework,and determine the nature and extent of the principal risks the company is willing to take in orderto achieve its long-term strategic objectives.
Terms of reference1.

Membership

1.1
The committee shall comprise at least three members, all of whom shall be independent
non-executive directors. At least one member shall have recent and relevant financial experienceand the committee as a whole shall have competence relevant to the sector in which thecompany operates. The chair of the board shall not be a member of the committee.
1.2
Members of the committee shall be appointed by the board, on the recommendation of
the nomination committee in consultation with the chair of the audit and risk committee and will
be subject to reappointment annually as part of the committee and board effectiveness process.
1.3
Only members of the committee have the right to attend committee meetings. However,
the Chief Financial Officer, Group Financial Controller, Group Head of Tax, Head of Internal Audit
and lead partner of the external auditor will be invited to attend meetings of the committee on aregular basis and other individuals may be invited to attend all or part of any meeting as andwhen appropriate.
1.4
The board shall appoint the committee chair. In the absence of the committee chair
and/or an appointed deputy at a committee meeting, the remaining members present shall electone of themselves to chair the meeting.
2.

Secretary

The company secretary, or their nominee, shall act as the secretary of the committee and will
ensure that the committee receives information and papers in a timely manner to enable full andproper consideration to be given to issues.

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3.

QuorumThe quorum necessary for the transaction of business shall be two members.
4.

Frequency of meetings

4.1
The committee shall meet at least three times a year at appropriate intervals in thefinancial reporting and audit cycle and otherwise as required.
4.2
Outside of the formal meeting programme, the committee chair will maintain a dialogue
with key individuals involved in the company’s governance, including the board chair, the Chief
Executive, the Chief Financial Officer, the lead partner of the Company’s external auditor and theHead of Internal Audit.
5.

Notice of meetings

5.1
Meetings of the committee shall be called by the secretary of the committee at therequest of the committee chair or any of its members, or at the request of the lead partner of theCompany’s external auditor or Head of Internal Audit if they consider it necessary.
5.2
Unless otherwise agreed, notice of each meeting confirming the venue, time and date
together with an agenda of items to be discussed, shall be forwarded to each member of thecommittee and any other person required to attend no later than five days before the date of themeeting. Supporting papers shall be sent to committee members and to other attendees, as
appropriate, at the same time.
6.

Minutes of meetings

6.1
The secretary shall minute the proceedings and decisions of all committee meetings,
including recording the names of those present and in attendance.
6.2
Draft minutes of committee meetings shall be circulated to all members of the committee.
Once approved, minutes should be circulated to all other members of the board and thecompany secretary unless, exceptionally, it would be inappropriate to do so.
7.

Engagement with shareholders

The committee chair should attend the annual general meeting to answer any shareholder
questions on the committee’s activities. In addition the committee chair should seek engagementwith shareholders on significant matters related to the committee’s areas of responsibility.

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8.

Duties

The committee should have oversight of the group as a whole and, unless required otherwise by
regulation, carry out the duties below for the parent company, major subsidiary undertakings andthe group as a whole, as appropriate.
8.1

Financial reporting
8.1.1 The committee shall monitor the integrity of the financial statements of thecompany, including its annual and half-yearly reports, preliminary announcements and anyother formal statements relating to its financial performance, and review and report to theboard on significant financial reporting issues and judgements which those statements
contain having regard to matters communicated to it by the auditor.
8.1.2

In particular, the committee shall review and challenge where necessary:
8.1.2.1 the application of significant accounting policies and any changes to these;
8.1.2.2 the methods used to account for significant or unusual transactions where
different approaches are possible;
8.1.2.3 whether the company has adopted appropriate accounting policies andmade appropriate estimates and judgements, taking into account the external
auditor’s views on the financial statements;
8.1.2.4 the clarity and completeness of disclosures in the financial statements andthe context in which statements are made;8.1.2.5 all material information presented with the financial statements, including thestrategic report and the corporate governance statements relating to the audit andto risk management.

8.1.3 The committee shall review any other statements requiring board approval whichcontain financial information first, where to carry out a review prior to board approval
would be practicable and consistent with any prompt reporting requirements under any
law or regulation including the Listing Rules, Prospectus Rules and Disclosure Guidance andTransparency Rules sourcebook.
8.1.4 Where the committee is not satisfied with any aspect of the proposed financial
reporting by the company, it shall report its views to the board.
8.2

Narrative reporting
Where requested by the board, the committee should review the content of the annual
report and accounts and advise the board on whether, taken as a whole, it is fair,balanced and understandable and provides the information necessary for shareholders toassess the company’s performance, business model and strategy and whether it informs
the board’s statement in the annual report on these matters that is required under the
Code.

8.3

Internal controls and risk management systems
The committee shall:
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8.3.1 keep under review the company’s internal financial controls systems that identify,
assess, manage and monitor financial risks, and other internal control and risk management
systems; and8.3.2 review and approve the statements to be included in the annual report concerninginternal control, risk management, including the assessment of principal risks and emerging
risks, and the viability statement.
8.4

Compliance, speaking up and fraud
The committee shall:
8.4.1 review the adequacy and security of the company’s arrangements for its
employees, contractors and external parties to raise concerns, in confidence, about
possible wrongdoing in financial reporting or other matters. The committee shall ensure thatthese arrangements allow proportionate and independent investigation of such mattersand appropriate follow up action;
8.4.2

review the company’s procedures for detecting fraud; and8.4.3 review the company’s systems and controls for the prevention of bribery andreceive reports on non-compliance.
8.5

Internal audit
The committee shall:
8.5.1 approve the appointment or termination of appointment of the Head of Internal
Audit;
8.5.2 review and approve the role and mandate of internal audit, monitor and review theeffectiveness of its work, ensuring it is appropriate for the current needs of the organisation;
8.5.3 review and approve the annual internal audit plan to ensure it is aligned to the key
risks of the business, and receive regular reports on work carried out;
8.5.4 ensure internal audit has unrestricted scope, the necessary resources and access to
information to enable it to fulfil its mandate, ensure there is open communication between
different functions and that the internal audit function evaluates the effectiveness of thesefunctions as part of its internal audit plan, and ensure that the internal audit function isequipped to perform in accordance with appropriate professional standards for internal
auditors;
8.5.5 ensure the internal auditor has direct access to the board chair and to thecommittee chair, providing independence from the executive and accountability to thecommittee;
8.5.6 carry out an annual assessment of the effectiveness of the internal audit function
and as part of this assessment:
8.5.6.1 the committee chair to meet with the Head of Internal Audit to discuss theeffectiveness of the function;
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8.5.6.2 review and assess the annual internal audit work plan;
8.5.6.3 receive a report on the results of the internal auditor’s work;
8.5.6.4 determine whether it is satisfied that the quality, experience and expertise ofinternal audit is appropriate for the business; and8.5.6.5 review the actions taken by management to implement therecommendations of internal audit and to support the effective working of theinternal audit function.
8.5.7 monitor and assess the role and effectiveness of the internal audit function in theoverall context of the company’s risk management system and the work of compliance,
finance and the external auditor; and
8.5.8
8.6

consider whether an independent, third party review of processes is appropriate.

External Audit
The committee shall:
8.6.1 consider and make recommendations to the board, to be put to shareholders forapproval at the AGM, in relation to the appointment, re-appointment and removal of thecompany’s external auditor;
8.6.2 develop and oversee the selection procedure for the appointment of the audit firmin accordance with applicable Code and regulatory requirements, ensuring that all
tendering firms have access to all necessary information and individuals during thetendering process;8.6.3 if an external auditor resigns, investigate the issues leading to this and decide
whether any action is required;
8.6.4

oversee the relationship with the external auditor. In this context the committee shall:
8.6.4.1 approve their remuneration, including both fees for audit and non-audit
services, and ensure that the level of fees is appropriate to enable an effective andhigh-quality audit to be conducted; and8.6.4.2 approve their terms of engagement, including any engagement letter issued
at the start of each audit and the scope of the audit.

8.6.5 assess annually the external auditor’s independence and objectivity taking into
account relevant law, regulation, the Ethical Standard and other professional requirements
and the group’s relationship with the auditor as a whole, including any threats to theauditor’s independence and the safeguards applied to mitigate those threats including
the provision of any non-audit services;
8.6.6 satisfy itself that there are no relationships between the auditor and the company(other than in the ordinary course of business) which could adversely affect the auditor’s
independence and objectivity;58.6.7 agree with the board a policy on the employment of former employees of thecompany’s auditor, taking into account the Ethical Standard and legal requirements, andmonitor the application of this policy;
8.6.8 monitor the auditor’s processes for maintaining independence, its compliance with
relevant law, regulation, other professional requirements and the Ethical Standard,
including the guidance on the rotation of audit partner and staff;
8.6.9 monitor the level of fees paid by the company to the external auditor compared tothe overall fee income of the firm, office and partner and assess these in the context ofrelevant legal, professional and regulatory requirements, guidance and the EthicalStandard;
8.6.10 assess annually the qualifications, expertise and resources, and independence ofthe external auditor and the effectiveness of the external audit process, which shall include
a report from the external auditor on their own internal quality procedures;
8.6.11 seek to ensure coordination of the external audit with the activities of the internal
audit function;
8.6.12 evaluate the risks to the quality and effectiveness of the financial reporting process
in the light of the external auditor’s communications with the committee;
8.6.13 develop and recommend to the board the company’s formal policy on theprovision of non-audit services by the auditor, including prior approval of non-audit services
by the committee and specifying the types of non-audit service to be pre-approved, andassessment of whether non-audit services have a direct or material effect on the audited
financial statements. The policy should include consideration of the following matters:
8.6.13.1 threats to the independence and objectivity of the external auditor and any
safeguards in place;
8.6.13.2 the nature of the non-audit services;
8.6.13.3 whether the external audit firm is the most suitable supplier of the non- audit
service
8.6.13.4 the fees for the non-audit services, both individually and in aggregate,
relative to the audit fee; and8.6.13.5 the criteria governing compensation.
8.6.14 meet regularly with the external auditor (including once at the planning stage
before the audit and once after the audit at the reporting stage) and, at least once a
year, meet with the external auditor without management being present, to discuss theauditor’s remit and any issues arising from the audit;
8.6.15 discuss with the external auditor the factors that could affect audit quality andreview and approve the annual audit plan, ensuring it is consistent with the scope of theaudit engagement, having regard to the seniority, expertise and experience of the audit
team;6

8.6.16 review the findings of the audit with the external auditor. This shall include but not belimited to, the following:
8.6.16.1 a discussion of any major issues which arose during the audit;
8.6.16.2 the auditor’s explanation of how the risks to audit quality were addressed;
8.6.16.3 key accounting and audit judgements;
8.6.16.4 the auditor’s view of their interactions with senior management; and8.6.16.5 levels of errors identified during the audit.
8.6.17 review any representation letter(s) requested by the external auditor before it is(they are) signed by management;
8.6.18 review the management letter and management’s response to the auditor’sfindings and recommendations; and8.6.19 review the effectiveness of the audit process, including an assessment of the qualityof the audit, the handling of key judgements by the auditor, and the auditor’s response toquestions from the committee.
9.

Reporting responsibilities

9.1
The committee chair shall report formally to the board on its proceedings after eachmeeting as required on all matters within its duties and responsibilities and shall also formally reportto the board on how it has discharged its responsibilities. This report shall include:
9.1.1 the significant issues that it considered in relation to the financial statements(required under paragraph 8.1.1) and how these were addressed;
9.1.2 its assessment of the effectiveness of the external audit process (required underparagraph 8.6.10), the approach taken to the appointment or reappointment of theexternal auditor, length of tenure of audit firm, when a tender was last conducted andadvance notice of any retendering plans;
9.1.3

any other issues on which the board has requested the committee’s opinion;

9.2
The committee shall make whatever recommendations to the board it deems appropriate
on any area within its remit where action or improvement is needed.
9.3
The committee shall compile a report on its activities to be included in the company’s
annual report. The report should describe the work of the audit and risk committee, including:
9.3.1 the significant issues that the committee considered in relation to the financial
statements and how these issues were addressed;
9.3.2 an explanation of how the committee has assessed the independence andeffectiveness of the external audit process and the approach taken to the appointment orreappointment of the external auditor, information on the length of tenure of the current
audit firm, when a tender was last conducted and advance notice of any retenderingplans; and7

9.3.3 an explanation of how auditor independence and objectivity are safeguarded if
the external auditor provides non-audit services, having regard to matters communicatedto it by the auditor and all other information requirements set out in the Code.
9.4
In compiling the reports referred to in 9.1 and 9.3, the committee should exercise
judgement in deciding which of the issues it considers in relation to the financial statements are
significant, but should include at least those matters that have informed the board’s assessment of
whether the company is a going concern and the inputs to the board’s viability statement. The
report to shareholders need not repeat information disclosed elsewhere in the annual report andaccounts but could provide cross-references to that information.
10.

Other matters

The committee shall:
10.1 Have access to sufficient resources in order to carry out its duties, including access to thecompany secretariat for advice and assistance as required;10.2 Be provided with appropriate and timely training, both in the form of an induction
programme for new members and on an ongoing basis for all members;
10.3 Give due consideration to all relevant laws and regulations, the provisions of the Code andpublished guidance, the requirements of the FCA’s Listing Rules, Prospectus Rules and Disclosure
Guidance and Transparency Rules sourcebook and any other applicable rules, as appropriate;
10.4

Be responsible for oversight of the coordination of the internal and external auditors;

10.5

Oversee any investigation of activities which are within its terms of reference;

10.6 Work and liaise as necessary with all other board committees ensuring interaction between
committees and with the board is reviewed regularly, taking particular account of the impact ofrisk management and internal controls being delegated to different committees;
10.7

Ensure that a periodic evaluation of the committee’s performance is carried out;

10.8 At least annually, review its constitution and terms of reference to ensure it is operating at
maximum effectiveness and recommend any changes it considers necessary to the board forapproval.
11.

Authority

The committee is authorised to:11.1 Seek any information it requires from any employee of the company in order to perform its
duties;11.2 Obtain, at the company’s expense, independent legal, accounting or other professional
advice on any matter if it believes it necessary to do so;
11.3 Call any employee to be questioned at a meeting of the committee as and whenrequired; and8

11.4 Have the right to publish in the company’s annual report, details of any issues that cannot
be resolved between the committee and the board. If the board has not accepted thecommittee’s recommendation on the external auditor appointment, reappointment or removal,
the annual report should include a statement explaining the committee’s recommendation andthe reasons why the board has taken a different position.

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