Alumina Limited

Audit & Risk Management Committee Charter

1. Introduction

This Charter sets out the specific responsibilities delegated by the Alumina Limited Board to the Audit and Risk Management Committee and details the manner in which the Audit and Risk Management Committee will operate.

Objectives

To assist the Board in fulfilling its responsibilities for the Company's accounts and external reporting. This will be achieved by ensuring that appropriate processes are in place to support the Board in fulfilling its responsibilities, to exercise due care, diligence and skill in relation to Alumina's:

  • reporting of financial information to users of financial reports;
  • application of accounting policies;
  • financial management;
  • internal financial control systems;
  • the independent auditors qualifications and independence; and
  • the performance of the Company's independent auditors and internal audit function.

To assist the Board in overseeing and reviewing the risk management framework and the effectiveness of risk management in Alumina. Management is responsible for identifying, managing and reporting on and effecting measures to address risk.

To agree the scope, and monitor the progress, of the internal audit plan.

To review other issues which the Board or the CEO request.

To report, if required pursuant to the rules of the SEC, for inclusion in the Company's annual report.

2. Responsibilities

Duties and Responsibilities
  1. To achieve these objectives, the Committee shall:
    1. be satisfied that the financial accounts and external reports are the result of processes that justify authorisation by the Directors of the necessary certificates of compliance with statutory requirements;
    2. review the performance and compensation of the external auditors and be responsible for the appointment, retention, compensation, evaluation, re-appointment or termination of the external auditors (and any other public accounting firm engaged for the purpose of preparing or issuing an audit report or to perform audit, review or attestation services) including sole authority to approve all audit engagement fees and terms;
    3. meet regularly with management and with the internal auditors and ensure that the Company's financial processes and related internal controls are adequate;
    4. meet annually with both the internal and external auditors and review their audit plans and approve all external audit services to be provided;
    5. review the assessment of business risk across the Group to see that there is appropriate coverage in the internal audit plans;
    6. establish procedures to pre-approve all audit and non-audit related work which can be undertaken by the external auditors;
    7. review significant transactions if requested to do so by the Board or by the CEO;
    8. to ensure that the independent auditors prepare and deliver annually an Auditor's Statement (it being understood that the independent auditors are responsible for the accuracy and completeness of this Statement), and to discuss with the independent auditors any relationships or services disclosed in this Statement that may impact the quality of audit services or the objectivity and independence of the Company's independent auditors;
    9. to obtain from the independent auditors in connection with any audit a timely report relating to the Company's annual audited financial statements describing all critical accounting policies and practices used, all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditors, and any material written communications between the independent auditors and management, such as any "management" letter or schedule of unadjusted differences;
    10. to review and evaluate the qualifications, performance and independence of the lead partner of the independent auditors;
    11. to discuss with management the timing and process for implementing the rotation of the lead audit partner, the concurring partner and any other active audit engagement team partner and consider whether there should be a regular rotation of the audit firm itself; and
    12. to instruct the independent auditors that the independent auditors are ultimately accountable to the Board and the Audit and Risk Management Committee, as representatives of the shareholders.
  2. With respect to the internal audit function:
    1. to review the appointment and replacement of the internal auditor; and
    2. to advise the internal auditor that he or she is expected to provide to the Audit and Risk Management Committee summaries of and, as appropriate, the significant reports to management prepared by the internal auditor and management's responses thereto.
  3. With respect to financial reporting principles and policies and internal audit controls and procedures:
    1. to advise management, the internal auditor and the independent auditors that they are expected to provide to the Audit and Risk Management Committee a timely analysis of significant financial reporting issues and practices;
    2. to consider any reports or communications (and management's and/or the internal audit department's responses thereto) submitted to the Audit and Risk Management Committee by the independent auditors required by or referred to in SAS 61 (as codified by AU Section 380), as it may be modified or supplemented;
    3. to meet with management, the independent auditors and, if appropriate, the internal auditor:
      • to discuss the scope of the annual audit;
      • to discuss the annual audited financial statements and half yearly financial statements, including the Company's disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations";
      • to discuss any significant matters arising from any audit;
      • to discuss any difficulties the independent auditors encountered in the course of the audit, including any restrictions on their activities or access to requested information and any significant disagreements with management;
      • to discuss any "management" or "internal control" letter issued, or proposed to be issued, by the independent auditors to the Company;
      • to review the form of opinion the independent auditors propose to render to the Board of Directors and shareholders; and
      • to discuss any other major issues regarding accounting principles and financial statement presentations, internal controls, financial reporting issues, GAAP treatment, off-balance sheet exposures and other material accounting and financial reporting issues.
    4. to inquire of the Company's chief executive officer and chief financial officer as to the existence of any significant deficiencies and material weaknesses in the design or operation of the internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarise and report financial information, and any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting;
    5. to discuss guidelines and policies governing the process by which senior management of the Company and the relevant departments of the Company assess and manage the Company's exposure to risk, and to discuss the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures;
    6. to obtain from the independent auditors assurance that the audit was conducted in a manner consistent with Section 10A of the Securities Exchange Act of 1934, as amended, which sets forth certain procedures to be followed in any audit of financial statements required under the Securities Exchange Act of 1934;
    7. to discuss with the Company's General Counsel any significant legal, compliance or regulatory matters that may have a material effect on the financial statements or compliance policies, including material notices to or inquiries received from governmental agencies;
    8. to discuss and review the type and presentation of information to be included in earnings press releases;
    9. to establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and for the confidential, anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters, and;
    10. to establish hiring policies for employees or former employees of the independent auditors.
  4. In respect of risk management, the Committee performs the following functions to assist the Board in overseeing the Company's system of risk management:
    • Review and ratify management's actions in the identification, evaluation, management, monitoring and reporting of material operational, financial, compliance, structural and strategic risks, including reviewing the framework, systems and procedures for risk identification, rating and management at least annually to satisfy itself that it continues to be sound.
  5. Report to the Board regularly, including annually summarising the work of the Committee during the preceding year, including a performance evaluation and review of its objectives and duties.
  6. Undertake annually a performance evaluation and review of its objectives and duties.

3. Independent auditors

The independent auditors shall report directly to the Audit and Risk Committee.

The independent auditors shall submit to the Audit and Risk Committee annually a formal written statement (the "Auditors' Statement") describing: the auditors' internal quality-control procedures; any material issues raised by the most recent internal quality-control review or peer review of the auditors, or by any inquiry or investigation by governmental or professional authorise, within the preceding five years, respecting one or more independent audits carried out by the auditors, and any steps taken to deal with any such issues; and (to assess the auditors' independence) all relationships between the independent auditors and the Company including each non-audit service provided to the Company.

4. Administration matters

Composition of the Audit and Risk Management Committee

The Audit and Risk Management Committee of Alumina Limited shall be comprised of at least three non-executive directors appointed by the Board each of whom the Board has determined has no material relationship with the Company and each of whom is otherwise "independent" under the Sarbanes-Oxley Act of 2002. The Board shall also determine that each member is "financially literate", and that one member of the Audit and Risk Committee has "accounting or related financial management expertise" as such qualifications are interpreted by the Board of Directors in its business judgment and whether any member of the Audit and Risk Committee is an "audit committee financial expert", as defined by rules of the Securities and Exchange Commission.

No director may serve as a member of the Audit and Risk Management Committee if such director serves on the audit committees of more than two other public companies unless the Board of Directors determines that such simultaneous services would not impair the ability of such director to effectively serve on the Audit and Risk Management Committee. No member of the Audit and Risk Management Committee may receive, directly or indirectly, any consulting, advisory or other compensatory fee from the Company other than (i) director's fees, which may be received in cash, stock options or other in-kind consideration ordinarily available to directors; (ii) a pension or other deferred compensation for prior service that is not contingent on future service; and (iii) any other regular benefits that other directors receive. Members shall be appointed by the Board.

Chairman

The Board shall designate one member of the Audit and Risk Committee as its chairperson. In the event of a tied vote on any issue, the chairperson's vote shall decide the issue. Should the Chairman be absent from a meeting, the members of the Committee shall choose one of their number to be Chairman for the particular meeting.

Meetings

The Chairman will call a meeting of the Committee if so requested by any member of the Committee or by the internal or external auditors.

In addition to any meeting requested in accordance with the above position, the Committee shall (unless otherwise determined by the Chairman), meet at least four times per year.

Attendance at Meetings

A quorum at a meeting shall be two members.

The CEO and CFO will attend meetings unless deemed inappropriate. Other attendees may be the Financial Controller and a representative from both the internal and external auditors, as deemed appropriate. The Chairman may extend an invitation to other people as required.

Authority of the Committee

The Committee has the authority without seeking approval of the Board or management to:

  1. obtain independent professional or other advice (including, but not limited to, independent legal advice) in the fulfilment of its duties at the cost of the Company;
  2. obtain such resources and information from the Company in the fulfilment of its duties as it may reasonably require, and
  3. the Committee has direct access to the internal and external auditors to discuss and review specific issues, and the right to co-ordinate their respective roles.

The auditors have direct access to either the Committee or the Chairman of the Committee.

Review of Performance

The Committee will annually revisit its objectives and duties and evaluate the effectiveness of their performance.

5. Committee procedures

Agenda Items

Agenda items should be supported by written papers.

The following shall be standing agenda items:

  1. External auditor's report on progress of the audit programme.
  2. Internal auditor's report on progress of the audit programme.

In addition to reviewing financial processes and controls, the Committee should review and sign off on any:

  1. Significant accounting issues.
  2. Significant amendments to Group Accounting Policies.

6. Guidelines for non-audit related services

The policy Alumina Limited and PricewaterhouseCoopers have adopted is as follows:

  1. PwC services which have fees of up to A$100,000 shall require the prior approval of the Audit and Risk Committee Chairman. Such approval shall include the scope of the services and the approximate amount of fees and shall be reported to the next Audit and Risk Committee;
  2. For PwC services of more than A$100,000 and less than A$250,000, the provision of such services requires the prior approval of the Audit and Risk Committee;

For PwC services of more than A$250,000, proposed services to be put to competitive tender with requirement for CFO, CEO and Audit and Risk Committee Chairman's approval of inclusion of PwC in tender list. The provision of such services also require the prior approval of the Audit and Risk Committee.