Zhong Fa Zhan : TERMS OF REFERENCE OF THE AUDIT COMMITTEE

Terms of Reference of the Audit Committee Terms of Reference of the Audit Committee

(Approved and adopted on 24 October 2006 Last revised on 27 May 2016)

1. Constitution
1.1	The Board resolved to establish a Committee of the Board known as the Audit Committee on 24 October 2006.
2. Membership
2.1	The Audit Committee shall be appointed by the Board from amongst the non-executive Directors of the Company only and should comprise a minimum of three members, at least one of whom is an independent non-executive Director with such qualifications or expertise as required under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ("Listing Rules"). The majority of committee members should be independent non-executive Directors of the Company.
2.2	The chairman of the Audit Committee shall be appointed by the Board and should be an independent non-executive Director.
2.3	A former partner of the Company's existing auditing firm shall not act as a member of the Audit Committee until one year after the commencement of the later of the date of his ceasing (a) to be a partner of the firm; or (b) to have any financial interest in the firm.
3. Chairman
3.1	The Board shall appoint the chairman of the Audit Committee who must be an independent non-executive Director and has the responsibility of liaising with the Board.
3.2	The chairman shall chair the meetings of the Audit Committee.
3.3	In the absence of the chairman of the Audit Committee, the remaining members present shall elect one of themselves to chair the meetings of the Audit Committee.

4. Quorum and voting of meetings
4.1	The quorum of Audit Committee meetings shall be two members. If only two members are in attendance, then both members shall be independent non-executive Directors. If more than two members are in attendance, then a majority of the members shall be independent non-executive Directors.
4.2	Questions arising in any meetings shall be decided by a simple majority of votes.
5. Attendance at meetings
5.1	The Audit Committee members may attend meetings of the Audit Committee either in person or through other electronic means of communication (if made available by the Company). Should any member of the Audit Committee wish to attend a meeting through electronic communications, prior arrangements shall be made with the secretary of the Audit Committee.
5.2	The chief financial officer, company secretary, and members of the senior management team of the Company invited by any member of the Audit Committee and representative(s) of the external auditors shall normally attend meetings of the Audit Committee.
5.3	The company secretary of the Company shall be the secretary of the Audit Committee.
6. Frequency of meetings
6.1	Meeting shall be held not less than two times a year. Additional meetings of the Audit Committee may be held as and when required.
6.2	The Audit Committee shall meet with the external auditors at least once a year in the absence of executive directors of the Company
7. Notice of meetings
7.1	Meetings of the Audit Committee shall be summoned by the secretary of the Audit Committee at the request of any of its members or at the request of the external or internal auditors.
7.2	Unless otherwise agreed, notice of each meeting confirming the venue, time and date shall be forwarded to each member of the Audit Committee, and to any other person required to attend:

1. in relation to all regular meetings of the Audit Committee, at least 14 days before the date of the meeting; and

2. in relation to all other meetings of the Audit Committee, within a reasonable time prior to the date of the meeting.

1. An agenda of items to be discussed, together with supporting papers shall be sent to Audit Committee members and to other attendees as appropriate within a reasonable time prior to the date of the meeting.

2. Any member of the Audit Committee shall be entitled, by notice to the secretary of the Audit Committee, to include other matters relevant to the functions of the Audit Committee in the agenda of an Audit Committee meeting.

1. Minutes of meetings

2. The secretary of the Audit Committee (or his/her delegate) in attendance at the meetings of the Audit Committee shall minute in sufficient detail the proceedings and resolutions of all such meetings, including the names of those present and in attendance. The minutes should also include any concerns raised by any member of the Audit Committee and/or dissenting views expressed.

3. The secretary of the Audit Committee shall ascertain, at the beginning of each meeting, the existence of any conflicts of interest and minute them accordingly. The relevant member of the Audit Committee shall not be counted towards the quorum and he/she must abstain from voting on any resolution of the Audit Committee in which he/she and/or his/her associates have a material interest.

4. Draft and final versions of minutes of Audit Committee meetings shall be sent to all Audit Committee members for their comments and records respectively, in both cases within a reasonable time after the meeting. Once they are agreed, the secretary of the Audit Committee shall circulate the minutes, and reports of the Audit Committee, to all members of the Board.

5. Minutes of the Audit Committee meetings shall be kept by the secretary of the Audit Committee and shall be available for inspection by any member of the Audit Committee and/or any Director of the Company at any reasonable time on reasonable notice.

6. Annual general meetings

7. The chairman of the Audit Committee shall endeavour to attend the annual general meetings of the Company and be prepared to respond to any Shareholder questions on the Audit Committee's activities.

8. If the chairman of the Audit Committee is unable to attend an annual general meeting of the Company, he shall arrange for another member of the Audit Committee or, failing this, his duly appointed delegate, to attend in his place. Such person shall be prepared to respond to any Shareholder questions on the Audit Committee's activities.

9. Reporting responsibilities

10. The chairman of the Audit Committee shall report formally to the Board on proceedings after each meeting on all matters within its duties and responsibilities.

11. The Audit Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.

12. Where the Board disagrees with the Audit Committee's views on the selection, appointment and resignation or dismissal of the external auditor, the Audit Committee shall prepare a statement, for inclusion in the Company's Corporate Governance Report, explaining its recommendations. The Board shall include in the same report the reason(s) why the Board takes a different view.

13. The Audit Committee shall, with the assistance of the secretary of the Audit Committee, compile a report to Shareholders on its role and activities to be included in the Company's Corporate Governance Report.

14. Line of communication

15. The Chairman of the Audit Committee shall give instructions (via the Chairman or the Financial Controller) to conduct reviews on areas of possible concern to be performed by the Internal Audit Services of the Auditors or, if established, the Company internal auditor.

16. Authority

17. The Audit Committee is authorized by the Board:

12.1.1 to investigate any activity within its terms of reference;