Hung Fook Tong : Announcements and Notices - Terms of Reference of the Audit Committee

Hung Fook Tong Group Holdings Limited 鴻福堂集團控股有限公司

(Incorporated in the Cayman Islands with limited liability)

Stock Code: 1446

Audit Committee

Terms of Reference

Effective on 31 December 2018

(Adopted at Board Meeting on 11 June 2014, amended and adopted at the Board Meeting on 21 August 2015 and amended and adopted pursuant to the Board resolution passed on 31 December 2018)

Preamble

1.

Hung Fook Tong Group Holdings Limited (the "Company") was listed on the Main Board of The Stock Exchange of Hong Kong Limited (the ''HKEx'') on 4 July 2014.

2. In compliance with the code provisions of the Corporate Governance Codes under the Rules

Governing the Listing of Securities on the HKEx (the "Listing Rules") as amended from time to time (the "Corporate Governance Code"), an audit committee (the "Audit Committee") needs to be established with the terms of reference as set out and adopted herein.

Constitution

3. The Audit Committee was established by resolutions of the board of directors of the

Company (the "Board" and each director of the Board, a "Director") on 11 June 2014.

Membership

• 4. The members of the Audit Committee shall be appointed by the Board from amongst the non ‐executive Directors and shall consist of not less than three members, a majority of whom should be independent non‐executive Directors and at least one of whom should be an independent non ‐ executive Director with appropriate professional qualifications or accounting or related financial management expertise as required by the Listing Rules. The quorum of an Audit Committee meeting shall be any two members of the Audit Committee, one of whom must be an independent non‐executive Director.

• 5. A former partner of the Company's existing auditing firm shall be prohibited from acting as a member of the Audit Committee for a period of two years from the date of the person ceasing:

  • (a) to be a partner of the firm; or

  • (b) to have any financial interest in the firm, whichever is the later.

• 6. The chairman of the Audit Committee shall be appointed by the Board and should be an independent non‐executive Director.

• 7. The term of office of a member of the Audit Committee shall be determined by the Board.

Attendance at meetings

8. The financial controller, the head of internal audit of the Company and representatives of the external auditor shall normally attend meetings. However, at least once a year the Audit Committee shall meet with the external and internal auditors without the executive Directors present.

Frequency and procedure of meetings

• 9. Unless otherwise stated herein, the meetings of the Audit Committee are governed by the provisions regulating the meetings and proceedings of Directors in the Company's memorandum and articles of association.

• 10. Meetings shall be held not less than twice a year or more frequently if the Audit Committee determines it to be necessary. The external auditor may request a meeting if they consider that one is necessary. Meetings may be conducted by way of telephone or other electronic means.

• 11. The secretary of the Audit Committee shall be the company secretary of the Company or his/her appointed delegate.

• 12. An agenda and any accompanying Committee papers should be sent in full to all members of the Audit Committee in a timely manner and at least three days before the proposed date of a meeting of the Audit Committee (or other agreed period).

• 13. The Company is obliged to supply the members of the Audit Committee with adequate information, in a timely manner, in order to enable them to make informed decisions. Where more detailed and complete information is requested from the senior management, the respective Director shall make further inquiries if needed. The Board or individual director(s) could contact the senior management individually and independently.

Annual General Meeting

• 14. The chairman of the Audit Committee shall attend the Company's annual general meeting and be prepared to respond to any shareholder's questions on the Audit Committee's activities.

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

Authority

• 16. The Audit Committee is authorised by the Board to seek any information it requires from any employee and all employees are directed to co‐operate with any request made by the Audit

  Committee. It is also authorised by the Board to investigate any activity mentioned in these Terms or otherwise affecting the integrity of the Company.

• 17. The Audit Committee is authorised by the Board to obtain outside independent professional advice, at the Company's expense, and to secure the attendance of outsiders with relevant experience and expertise if it considers this necessary. The Audit Committee shall be exclusively responsible for establishing the selection criteria selecting, appointing and setting the terms of reference for any external auditor who advise the Audit Committee.

• 18. The Audit Committee is authorised by the Board to review the effectiveness of the Company's and its subsidiaries' risk management and internal control systems, covering all material controls, including financial, operational and compliance controls and risk management functions including financial, business, operational and other risks of the Company and its subsidiaries to undertake any related investigations.

Duties

19. The duties of the Audit Committee shall include:

Relationship with the Company's auditor

• (a) making recommendations to the Board on the appointment, reappointment and/or removal of the external auditor, and to approve the remuneration and terms of engagement of the external auditor, and to consider any questions of resignation or dismissal of that auditor;

• (b) reviewing and monitoring the external auditor's independence and objectivity and the effectiveness of the audit process in accordance with applicable standards;

• (c) developing and implementing policy on the engagement of an external auditor to supply non‐audit services, and to report to the Board, identifying and making recommendations on any matters requiring action or improvement;

• (d) discussing with the external auditor before the audit commences, the nature and scope of the audit, and ensuring co‐ordination where more than one audit firm is involved;

• (e) discussing problems and reservations arising from the interim and final audits, and any matters the external auditor may wish to discuss;

Review of financial information of the Company

• (f) monitoring the integrity of financial statements, annual reports and accounts, interim reports and, if prepared for publication, quarterly reports, and to review significant financial reporting judgments contained in them. In reviewing these reports and before submission to the Board, the Audit Committee should focus particularly on:

  • (i) any changes in accounting policies and practices;

  • (ii) major judgmental areas;

  • (iii) significant adjustments resulting from audit;

  • (iv) the going concern assumptions and any qualifications;

  • (v) compliance with accounting standards; and

  • (vi) compliance with any requirements from the HKEx and other legal requirements in relation to financial reporting;

• (g) in regard to (f) above:

  • (i) liaising with the Board, financial controller and the person appointed as the Company's external auditor;

  • (ii) meeting at least twice a year, with the Company's auditor; and

  • (iii) considering any significant or unusual items that are, or may need to be, reflected in such financial statements, reports and accounts and giving 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 external auditor;

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

• (h) reviewing the Company's financial controls, and unless expressly addressed by a separate risk committee, or the Board itself, to review of the risk management and internal control systems;

• (i) discussing the risk management and internal control systems with the senior management and to ensure that the senior management has performed its duties in establishing and maintaining effective systems, including adequacy of resources, staff qualifications and experience, training programmes and budget of the Company's accounting, internal audit and financial reporting function;