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Corporate Governance

Terms of Reference of Audit Committee

Constitution
The Audit Committee (“the Committee”) shall be appointed by the Board from amongst their number (pursuant to a resolution of the Board of Directors) excluding alternate director and shall consist of not fewer than three (3) members of whom a majority must be independent directors as defined in the Main Market Listing Requirements (“Listing Requirements”).

 

The Committee shall ensure:

  1. All members of the Committee should be non-executive directors and financially literate; and

  2. At least one member of the Committee:-

  • must be a member of the Malaysian Institute of Accountants; or

  • if he is not a member of the Malaysian Institute of Accountants, he must have at least 3 years’ working experience and:

    • ​he must have passed the examinations specified in Part I of the 1st Schedule of the Accountants Act, 1967; or

    • he must be a member of one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act, 1967.

  • fulfils such other requirements as prescribed by the Bursa Malaysia Securities Berhad (“Bursa Securities”).

 

The members of the Committee shall select a Chairperson from amongst their number who shall be an independent director.

 

If a member of the Committee resigns, dies or for any other reason ceases to be member with the result that the number of members is reduced below three (3), the Board of Directors shall, within three (3) months of that event, appoint such number of new members as may be required to make up the minimum number of three (3) members. At least a two-year cooling-off period needs to be fulfilled before a former key audit partner can be considered to be appointed as a member of the Committee.


The Board shall review the terms of office and performance of the Committee and each of its members at least once every three (3) years.

 

Authority
The Committee shall, in accordance with a procedure to be determined by the Board of Directors and at the cost of Hup Seng Industries Berhad ("the Company") :-

  1. have authority to investigate any matter within its terms of reference;

  2. have the resources which are required to perform its duties;

  3. have full and unrestricted access to any information pertaining to the Company and its Subsidiaries (namely Hup Seng Perusahaan Makanan (M) Sdn. Bhjd., Hup Seng Hoon Yong Brothers Sdn. Bhd. and In-Comix Industries Sdn. Bhd.);

  4. have direct communication channels with the external auditors and person(s) carrying out the internal audit function or activity (if any);

  5. be able to obtain independent professional or other advice;

  6. be able to convene meeting(s) with the external auditors, the internal auditors or both, excluding the attendance of other directors and employees of the Company and its Subsidiaries, whenever deemed necessary; and

  7. have authority to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Committee.

 

Functions
Duties and Responsibilities
a) To review and report the following to the Board:

  1. with the external auditor, the audit plan;

  2. with the external auditor, his evaluation of the system of internal control;

  3. with the external auditor, his audit report;

  4. the assistance given by the Company’s officers to the external auditor;

  5. the quarterly results and year end financial statements, prior to the approval by the Board of Directors, focusing particularly on:-

    • ​​changes in or implementation of major accounting policy changes;

    • significant and unusual events; and

    • compliance with accounting standards and other legal requirements;

  6. ​the Independent Auditors’ Report which stated the independence and other ethical responsibilities of the auditors and the relevant professional and regulatory requirements that they fulfilled;

  7. the external auditor’s management letter and management’s response;

  8. any related party transaction and conflict of interest situation that may arise within the Company and its Subsidiaries, including any transaction, procedure or course of conduct that raises questions of management integrity;

  9. that the Committee is fully informed about significant matters related to the Company’s audit and its financial statements and addresses these matters;

  10. that the Committee appropriately communicates its insights, views and concerns about relevant transactions and events to internal and external auditors;

  11. that the Committee’s concerns on matters that may have an effect on the financial or audit of the company are communicated to the external auditor;

  12. there is co-ordination between internal and external auditors;

  13. any letter of resignation including the written explanations of the resignation from the external auditors of the Company; and

  14. whether there is any reason (supported by grounds) to believe that the Company’s external auditor is not suitable for re-appointment.

 

b) To do the following, in relation to the internal audit function:-

  • review the adequacy of the scope, functions, competency and resources of internal auditors, and that it has the necessary authority to carry out its work;

  • review the internal audit programmes, processes and results of the internal audit assessments, investigation undertaken and ensure that appropriate and prompt remedial  actions are taken by the Management on the recommendations of the internal audit;

  • review any appraisal or assessment of the performance of members of the internal auditors;

  • approve any appointment or termination of the internal auditors; and

  • decide on the budget of internal audit function

 

c) To recommend or consider the appointment, re-appointment and removal of external auditors together with such other functions as may be agreed to by the Committee and the Board of Directors. In making those recommendations, the Committee is authorised to conduct periodic reviews of the external auditor and address the appropriateness of audit fees to support a quality audit.

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d) The appointment, reappointment and removal of the external auditors will be assessed annually by following the policy and procedures set by the Committee.


Selection and Appointment
The Board has delegated to the Committee the responsibility for the appointment, remuneration and removal of external auditor.


Pursuant to Section 271 (1) of the Companies Act 2016, the Company shall at each annual general meeting appoint or re-appoint the external auditors of the Company, and the external auditors so appointed shall, hold office until the conclusion of the next annual general meeting of the Company.


Should the Committee determine a need for a change of external auditors, the Committee will follow the following procedures for selection and appointment of new external auditors:-

  1. the Committee to identify the audit firms who meet the criteria for appointment and to request for their proposals of engagement for consideration;

  2. the Committee will assess the proposals received and shortlist the suitable audit firms;

  3. the Committee will meet and/or interview the shortlisted candidates;

  4. the Committee will recommend the appropriate audit firm to the Board for appointment as external auditor; and

  5. the Board will if deemed appropriate, endorse the recommendation and seek shareholders’ approval for the appointment of the new external auditors and/or resignation/removal of the existing external auditors at the general meeting.

 

Objectivity and Independence of External Auditor
The independence of external auditor is essential to the provision of an objective opinion on the truth and fairness of the financial statements of the Company.


Pursuant to Practice 9.3 of Principle B of the Malaysian Code on Corporate Governance 2021, the Committee will assess objectivity, suitability and independence of the external auditor to safeguard the quality and reliability of the audited financial statements.

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The external auditor is precluded from providing any services that may impair their independence or conflict with their role as external auditor.

 

The Committee shall obtain a written assurance from the external auditor confirming that they are, and have been, independent throughout the conduct of the audit engagement in accordance with the terms of all relevant professional and regulatory requirements.


Non-audit Service
The external auditor can be engaged to perform non-audit services that are not, and are not perceived to be, in conflict with the role of the external auditor. This excludes audit related work in compliance with statutory requirements.


The prohibition of non-audit services is based on three (3) basic principles as follows:-

  1. external auditor cannot function in the role of Management;

  2. external auditor cannot audit their own work; and

  3. external auditor cannot serve in an advocacy role of the Company and its subsidiaries (“the Group”).


The external auditor shall observe and comply with the By-Laws of the Malaysian Institute of Accountants in relation to the provision of non-audit services, which include the following:-

  • accounting and book keeping services;

  • valuation services;

  • taxation services;

  • internal audit services;

  • IT systems services;

  • litigation support services;

  • recruitment services; and

  • corporate finance services.


All engagements of the external auditor to provide non-audit services are subject to the approval/endorsement of the Committee.


Management shall obtain confirmation from the external auditor that the independence of the external auditor will not be impaired by the provision of non-audit services.


Rotation of Engagement Partner
The Company recognises that there exists a threat to the auditor’s independence where the same audit partner conducts consecutive audits of the Company. To mitigate this risk, it is important for regular audit partner rotation to occur. The audit partner responsible for the external audit of the Group is subject to rotation at least every five (5) financial years in accordance with the MIA By-Laws which requires that the engagement partner involved in the external audit should not remain in a key audit role beyond five (5) years and cannot be re-engaged to play a significant role in the audit of the Company for at least anothAr two (2) successive years.


Reporting
The external auditor must provide an annual declaration addressed to the Committee confirming:

  1. the nature of any non-audit services provided to the Company; and

  2. that the auditor has maintained its independence in accordance with relevant legislation and professional accounting standards.


Annual Assessment
The Committee shall carry out annual assessment on the performance, suitability and independence of the external auditor based on the following four (4) key areas: -

  1. quality of service;

  2. sufficiency of resources;

  3. communication and interaction; and

  4. independence, objectivity and professional skepticism.


The Committee may also request the Chief Financial Controller to perform the annual assessment of the external auditors.


Meeting and Reporting Procedure

  1. The Committee shall meet as the Chairperson deems necessary but not less than four (4) times a year.

  2. The external auditor may request a meeting if they consider that one is necessary and shall have the rights to appear and be heard at any meeting of the Committee.

  3. The Chairperson shall convene a meeting whenever any member of the Committee requests for a meeting.

  4. Written notice of the meeting together with the agenda shall be given to the members of the Committee and external auditor where applicable.

  5. The Financial Controller, the Head of Internal Audit (where such a function exists) and a representative of the external auditors shall normally attend meetings.

  6. At least twice a year the Committee shall meet with the external auditors without the presence of executive Board members.

  7. The Chairperson shall be entitled, where deemed appropriate, to invite other Board members, employees, professionals and/or any person(s) with the relevant experience and expertise to attend meetings of the Committee.


The Committee meeting minutes are to be extended to the Chairman of the Board of the Company who will report to the Board of  Directors.


Secretary
The Company Secretary shall be the Secretary of the Committee.


The Secretary is responsible for:-

  1. sending out notices of meetings; and

  2. preparing and keeping minutes of meetings.


Quorum
Two members of the Committee present at the meeting shall constitute a quorum and the majority of members present must be independent directors.

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The Terms of Reference of Audit Committee has been updated on 14 February 2023.

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