West China Cement : Audit Committee – Terms of Reference

The audit committee should be established by the board of the Company ("Board"), and it should comprise a minimum of three members.

The audit committee should comprise non-executive directors only. The majority of the audit committee members must be independent non-executive directors of the Company, and at least one of whom is an independent non-executive director with appropriate professional qualifications or accounting or related financial management expertise.

The audit committee must be chaired by an independent non-executive director and appointed by the Board.

If the audit committee comprise a non-executive director, a former partner of the issuer's existing auditing firm should be prohibited from acting as a member of its audit committee for a period of 1 year from the date of his ceasing (a) to be a partner of the firm; or (b) to have any financial interest in the firm, whichever is later.

The terms of appointment of audit committee members are determined by the Board at the appointment date.

The company secretary of the Company shall act as the secretary of the audit committee.

The audit committee may from time to time, appoint any other person with appropriate qualification and experience to act as the secretary of the audit committee.

The audit committee should meet at least twice a year. The external auditors of the Company can call for a meeting if necessary.

Notice of at least 14 days should be given for any meeting, unless such notification is waived by all members of the audit committee. Notwithstanding the notification period, the attendance of the member of the committee at the meeting would deemed to be treated as the waiver of the required notification requirement. If the follow up meeting takes place within 14 days after the meeting, then no notification is required for such follow up meeting.

The quorum necessary for the transaction of business of the audit committee shall be two members of the audit committee, one of whom must be an independent non-executive director.

Meeting can be attended in person or via electronic means including telephonic or videoconferencing. The members of the audit committee can attend the meeting via telephonic or any similar communication device (all persons attending such meeting should be able to hear from such member via such communication device).

The resolution of the audit committee should be passed by more than half of the members.

The resolution passed and signed by all members is valid, and the validity is same as any resolution passed in the meeting held.

Full minutes of audit committee meeting should be kept by a duly appointed secretary of the audit committee. Draft and final versions of minutes of the meeting should be sent to all committee members for their comment and records, within a reasonable time after the meeting.

The members of the audit committee should meet, at least twice a year, with the Company's auditors without the attendance from the executive directors (except for the one invited by the audit committee).

Upon the invitation from the audit committee, the following persons can attend the meeting: (i) Head of internal audit department or (if absent) the representative from internal audit department; (ii) Group financial controller (or equivalent); and (iii) the other Board members.

Only the member of audit committee can vote in the meeting.

The chairman of an audit committee or (if absent) the other member of an audit committee (must be an independent non-executive director) should attend the annual general meeting of the Company, handled the shareholders' enquiry on the activities and responsibilities related to the audit committee.

The audit committee is responsible for reviewing and monitoring the financial reporting, risk management and internal control principles of the Company, and assist the Board to fulfill its responsibility over the audit. The audit committee's duties and powers should include:

Relationship with the Company's external auditors

to be primarily responsible for making recommendations to the Board on the appointment, reappointment and removal of the external auditor, and to approve the remuneration and terms of engagement of the external auditor, and any question of its resignation or dismissal;

to review and monitor the external auditor's independence and objectivity and the effectiveness of the audit process in accordance with applicable standards. The audit committee should discuss with the auditor the nature and scope of the audit and reporting obligations before the audit commences;

to develop and implement policy on engaging an external auditor to supply non-audit services. For this purpose, "external auditor" includes any entity that is under common control, ownership or management with the audit firm or any entity that a reasonable and informed third party knowing all relevant information would reasonably conclude to be part of the audit firm nationally or internationally; and

the audit committee should report to the Board, identifying and making recommendations on any matters where action or improvement is needed.

Review of the Company's financial information

to monitor integrity of the Company's financial statements and 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 reviewing these reports before submission to the Board, the committee should focus particularly on:

any changes in accounting policies and practices;

major judgmental areas;

significant adjustments resulting from audit;

the going concern assumptions and any qualifications;

compliance with accounting standards; and

compliance with the Listing Rules and legal requirements in relation to financial reporting; and

Regarding 6.2.1 above:

members of the committee should liaise with the Board and senior management and the committee must meet, at least twice a year, with the Company's auditors; and

the audit committee should consider any significant or unusual items that are, or may need to be, reflected in the report and accounts, it should give due consideration to any matters that have been raised by the Company's staff responsible for the accounting and financial reporting function, compliance officer or auditors.

Oversight of the Company's financial reporting system, risk management and internal control systems

to review the Company's financial controls, and unless expressly addressed by a separate board risk committee, or by the Board itself, to review the Company's risk management and internal control systems;

to discuss the risk management and internal control system with management to ensure that management has performed its duty to have effective systems. The discussion should include the adequacy of resources, staff qualifications and experience, training programmes and budget of the Company's accounting and financial reporting functions;

to consider major investigation findings on risk management and internal control matters as delegated by the Board or on its own initiative and management's response to these findings;

to ensure 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 issuer, and to review and monitor its effectiveness;

to review the group's financial and accounting policies and practices;

to review the external auditors' management letter, any material queries raised by the auditor to management about accounting records, financial accounts or systems of control and management's response;

to ensure that the Board will provide a timely response to the issues raised in the external auditor's management letter;

to act as key representative body for overseeing the Company's relations with the external auditors;

to review arrangements that employees of the Company can use, in confidence, to raise concerns about possible improprieties in financial reporting, internal control or other matters. The audit committee should ensure that proper arrangements are in place for fair and independent investigation of these matters and for appropriate follow-up action;