AUDIT & RISK COMMITTEE TERMS OF REFERENCE AUDIT & RISK COMMITTEE TERMS OF REFERENCE (Apprved by the Bard n 3 February 2005 Last updated n 12 December 2017) Rle The Cmmittee reviews the financial reprting prcess, the integrity f the Cmpany s financial statements, the external and internal audit prcess, the system f internal cntrl and the identificatin and management f risks, and the Cmpany s prcess fr mnitring cmpliance with laws, regulatins and ethical cdes f practice. Membership Chairman Members In attendance Secretary Judy Lewent Lynn Elsenhans Vindi Banga Dr Laurie Glimcher Chairman Chief Executive Officer Chief Financial Officer All ther Directrs General Cunsel President, R&D Head f Audit & Assurance Crprate Financial Cntrller Head f Glbal Ethics and Cmpliance Chief Medical Officer Representatives frm the Cmpany's External Auditrs Cmpany Secretary Cnstitutin 1. The Bard has established a Cmmittee f the Bard knwn as the Audit & Risk Cmmittee (the "Cmmittee"). Membership 2. The Cmmittee shall cmprise a minimum f three independent Nn-Executive Directrs appinted by the Bard, n the recmmendatin f the Nminatins Cmmittee in cnsultatin with the Cmmittee Chairman. 3. Each f the members f the Cmmittee shall be independent Nn-Executive Directrs, as determined by the Bard f the Cmpany, in accrdance with the prvisins f the UK Crprate Gvernance Cde (the UK Cde") and US federal securities laws and regulatins. In particular n member f the Cmmittee may receive any cnsulting, advisry r cmpensatry fee frm the Cmpany ther than 1
as a member f the Cmmittee, the Bard r any ther Bard Cmmittee, nr may they be an affiliate f the Cmpany r its subsidiaries. 4. Each f the members f the Cmmittee shuld have experience wrking with financial and accunting matters. 5. The Cmpany s Annual Reprt n Frm 20-F shall state each year the number and names f the persns that the Bard f Directrs has determined t be an Audit Cmmittee Financial Expert, as required by the US Sarbanes-Oxley Act f 2002, and have "Recent and Relevant Financial Experience", as set ut in the UK Cde, r explain why nne have been s determined. The Cmmittee as a whle shall have cmpetence relevant t the sectr in which the cmpany perates. 6. The Chairman f the Bard shall nt be a member f the Cmmittee, but may be invited t attend its meetings. 7. Cmmittee members shall serve fr an initial perid f up t three years, which may be extended by n mre than tw additinal three year perids prvided each member cntinues t be independent. 8. The Cmmittee Chairman shall be appinted by the Bard, fllwing receipt f a prpsal frm the Nminatins Cmmittee. 9. The Cmmittee Chairman shall, in cnjunctin with the Nminatins Cmmittee, review membership f the Cmmittee as part f the annual perfrmance evaluatin f the Cmmittee, taking int accunt the tenure served by Cmmittee members. 10. The Cmmittee Chairman and members f the Cmmittee shall be identified in the Cmmittee s Reprt t sharehlders in the Annual Reprt. Qurum 11. The qurum shall be tw members. 12. In the absence f the Cmmittee Chairman r an appinted deputy, the remaining members present shall elect ne f the members t chair the meeting. Attendance at meetings 13. The Chairman f the Bard, Chief Executive Officer, CEO Designate, Chief Financial Officer, Chairman, Glbal Vaccines, General Cunsel, Crprate Financial Cntrller, Head f Audit & Assurance, Head f Glbal Ethics and Cmpliance, Chief Medical Officer and a representative f the external auditrs shall nrmally attend meetings, althugh the Cmmittee may meet withut any executives f the Cmpany being present. All Bard members are invited t attend the meetings. 14. The Cmmittee shall as required meet privately with the external auditrs at the end f each face t face meeting. 15. At least nce a year the Cmmittee shall meet separately with: the external auditrs; the Head f Audit & Assurance; and the Head f Glbal Ethics and Cmpliance; withut the Executive Directrs and ther management being present. Cmmittee Secretary 2
16. The Cmpany Secretary shall be the Secretary f the Cmmittee. Structure and Frequency f meetings 17. The Cmmittee meetings shall nrmally be split int tw parts. The first part f the meeting shall cnsider fundamental auditing aspects f the Cmmittee s rle, such as receiving reprts frm the external auditrs. The secnd part shall cnsider new business unit and crprate functin reprts tgether with enterprise-wide risk reprts that nrmally cver each f the six principal enterprise risks in turn, and reprts n the utcme f Strategic Review Evaluatins and ther issues f relevance r tpical interest. Meetings shall be held nt less than fur times a year and therwise as required. The external auditrs r a Cmmittee member may request a meeting if they cnsider that ne is necessary. Annual General Meeting 18. The Cmmittee Chairman shall attend the Cmpany's Annual General Meeting and be prepared t respnd t sharehlder questins n the Cmmittee's activities. Authrity 19. The Cmmittee is authrised by the Bard t investigate any activity within its terms f reference. It is authrised t seek any infrmatin it requires frm any emplyee r c-wrker. All emplyees and cwrkers are directed t c-perate with any request made by the Cmmittee. 20. The Cmmittee is authrised by the Bard t btain, at the Cmpany s expense, utside legal, accunting r ther independent prfessinal advice n matters falling within its terms f reference and t secure the attendance f utsiders with relevant experience and expertise if it cnsiders this necessary. 21. The Cmmittee is authrised by the Bard t have the right t publish in the Cmpany s Annual Reprt details f any issues that cannt be reslved between the Cmmittee and the Bard. Duties 22. The Cmmittee shall carry ut the duties set ut belw fr the Cmpany, majr subsidiary undertakings and the Grup as a whle, as apprpriate. The Cmmittee shall, in a way that cmplies with the respnsibilities f audit cmmittees as laid ut in the Financial Cnduct Authrity s Disclsure Guidance and Transparency Rules: Financial Reprting (a) review the published annual financial statements and the management discussin and analysis disclsures, interim reprts, preliminary results annuncements and any ther frmal annuncements relating t financial perfrmance prir t their apprval by the Bard r Bard Cmmittee, fcusing particularly n: (i) the integrity f the Cmpany s financial statements, including the strategic reprt and crprate gvernance statements relating t audit and t risk management; (ii) any changes in accunting plicies and practices and t peridically review the apprpriateness f the critical accunting plicies and evaluate alternatives; (iii) the methds used t accunt fr significant r unusual transactins where different appraches are pssible; 3
(iv) majr judgmental areas; (v) whether the Cmpany has made apprpriate estimates and judgments, taking int accunt the external auditr s views n the financial statements; (vi) significant adjustments resulting frm the external audit and any unadjusted items identified during the external audit; (vii) the apprpriateness f adpting the ging cncern assumptin in annual and half yearly financial statements f the Cmpany and identify any material uncertainties t the Cmpany s ability t cntinue t d s ver a perid f at least twelve mnths frm the date f apprval f the annual and half yearly financial statements (viii) cmpliance with accepted accunting standards; and (ix) cmpliance with relevant US and UK regulatry and legal requirements; (b) where requested by the Bard, t prvide advice n whether the Annual Reprt (and by extensin similar price-sensitive reprts t regulatrs), taken as a whle, is fair, balanced and understandable and prvides the infrmatin necessary fr sharehlders t assess the Cmpany s perfrmance, business mdel and strategy; External Auditrs (c) versee the selectin and prpse the appintment, re-appintment and remval f the external auditrs t the Cmpany s sharehlders and btain their cnsent t the Cmmittee apprving the remuneratin f the external auditrs. The Cmmittee shall have regard t the relevant regulatins f the Cmpetitin and Markets Authrity Order, in particular the requirement fr the Cmpany t put its statutry audit ut t tender at least nce every 10 years, and the Eurpean Unin Regulatin and Directive n mandatry audit cntract tendering and audit firm rtatin respectively as implemented in the UK in the Cmpanies Act; (d) be directly respnsible fr the remuneratin and versight f the wrk f the external auditrs perfrmed fr the purpse f the external audit. Such versight shall include the: selectin prcedure fr the appintment f audit firms; engagement letter; scpe f the external audit and external audit plan; external audit fee; audit representatin letters frm management t the external auditrs; and reslutin f any disagreements between management and the external auditr regarding financial reprting; (e) pre-apprve r therwise apprve in advance all audit and nn-audit services (ther than thse expressly prhibited) undertaken by the Cmpany s external auditrs; (f) develp and recmmend t the Bard the Cmpany s plicy in relatin t the prvisin f nnaudit services by the auditr, taking int accunt legal requirements, and keep the plicy under review; (g) ensure that prcedures are in place t recrd all nn-audit services undertaken by the Cmpany s external auditrs in the Cmpany s Annual Reprt; (h) require the external auditr t include the fllwing matters in their reprts t the Cmmittee: 4
all critical accunting plicies and practices used by the Cmpany; all alternative accunting treatments which have been discussed with management and the resultant cnclusin by the external auditrs; all material written cmmunicatins between the external auditrs and the Cmpany s management; any material internal cntrl failures; and any scpe restrictins r any restrictins n access t infrmatin; (i) (j) (k) (l) receive and discuss peridic reprts frm the external auditrs regarding their independence, including being satisfied that there are apprpriate safeguards in place t ensure that any nnaudit services prvided by the external auditrs are cmpatible with the maintenance f that independence; assess annually the qualificatins, expertise, resurces, independence and bjectivity f the external auditrs and the effectiveness f the external audit prcess. This review shall include all aspects f the audit services prvided by the external auditr and take int cnsideratin relevant prfessinal and regulatry requirements; in the event that the Cmpany s external auditr resigns, cnduct an investigatin t understand the reasns fr their resignatin and cnsider whether any actin is required; recmmend t the Bard, and keep under review, guidelines fr the hiring f emplyees f the external auditr wh were frmerly engaged n the external audit; (m) discuss with the external auditrs befre the external audit cmmences the nature and scpe f the external audit; (n) discuss prblems and reservatins arising frm the external audit and any matters the external auditrs may wish t discuss (in the absence f management where necessary); () review the external auditrs' audit reprts and presentatins and management's respnse with particular fcus n majr issues arising frm the external audit, significant judgements taken and level f errrs identified in the external audit; Glbal internal cntrl & cmpliance (p) apprve the appintment, remval r replacement f the Head f Audit & Assurance and peridically t review their bjectivity; (q) review and apprve the rle and mandate f internal audit, mnitr and review the effectiveness f its wrk, and mnitr the internal audit functin t ensure it is apprpriate fr the current needs f the Grup; (r) (s) (t) mnitr and review the effectiveness f Audit & Assurance and the Risk Oversight & Cmpliance Cuncil especially in the cntext f the Cmpany's risk management system; ensure internal audit has unrestricted scpe, the necessary resurces and access t infrmatin t enable it t fulfil its mandate, ensure there is pen cmmunicatin between different functins, and ensure that the internal audit functin is equipped t perfrm in accrdance with apprpriate prfessinal standards fr internal auditrs; ensure the internal auditr has direct access t the Bard Chairman and t the Cmmittee Chairman; (u) t mnitr c-rdinatin between the internal and external auditrs and t request internal audit t undertake specific audit prjects, having infrmed management f their intentins, and t be 5
satisfied that the internal audit functin is adequately resurced, perating effectively and has apprpriate standing within the Cmpany; (v) review annually the key risks inherent and emerging in the business and the system f internal cntrl necessary t mnitr such risks and where requested by the Bard prvide them with assurance f the rbustness f their assessment and management f principal risks prir t the Directrs making their statement theren; (w) have versight f the Grup s cmpliance with sectin 404 f the US Sarbanes-Oxley Act f 2002; (x) (y) (z) review thrughut the year integrated Assurance reprts cmprising business unit, crprate functin and assciated cnslidated Internal Audit reprts in line with the schedule in the annual Assurance Plan; review at each meeting significant issues (e.g., internal audit, cmpliance, utcmes f gvernment investigatins) within business units and ther crprate functins, in additin t details f significant changes t the Grup s internal cntrl framewrk; review a frmal annual Assurance Plan at the beginning f the year t ensure adequate assurance cverage fr all f the Grup s significant risks; (aa) mnitr the system f internal cntrl and risk management cvering all material cntrls and review their effectiveness at least annually and advise n any significant failings r weaknesses identified during the review, prir t the Bard making its statement in the Annual Reprt theren; (bb) where requested by the Bard prvide advice n hw, taking int accunt the Cmpany s psitin and principal risks, the prspects f the Cmpany have been assessed, ver what perid and why the perid is regarded as apprpriate. The Cmmittee shuld als prvide advice n whether there is a reasnable expectatin that the Cmpany will be able t cntinue in peratin and meet its liabilities when falling due ver the said perid drawing attentin t any qualificatins r assumptins as necessary prir t the Directrs making their statement in the Annual Reprt; (cc) cnsider the findings f majr internal investigatins and management s respnse; (dd) review thrughut the year Grup prcedures fr cmpliance with any applicable sanctins regimes; (ee) review thrughut the year Grup prcedures fr detecting fraud; (ff) review thrughut the year Grup prcedures and cntrls fr preventin f bribery and receive reprts n nn-cmpliance; (gg) cnsider any material breaches r expsure t breaches f regulatry requirements r f ethical cdes f practice t which the Grup subscribes, r f any related Grup cdes, plicies and prcedures which culd have a material effect n the financial psitin r cntingent liabilities f the Grup, including the Grup s Anti-Bribery and Crruptin Prgramme; (hh) review plicies and prcedures with respect t directrs and fficers expense accunts, including their use f crprate assets, and cnsider the results f any review f these areas by the internal auditrs r the external auditrs; (ii) review any prpsed transactins between the Grup and members f senir management ther than thse that derive frm their emplyment and t review any such transactins that have been entered int since the cmpletin f the merger n 27 December 2000; 6
(jj) receive an annual reprt frm the Chief Executive Officer and the Chief Financial Officer that they have disclsed t the Cmmittee and t the external auditrs all significant deficiencies in internal cntrl which culd adversely affect the Cmpany s ability t recrd and reprt financial data; (kk) in cnjunctin with the Crprate Respnsibility Cmmittee, t have versight f and recmmend t the Bard n an annual basis apprval f the Cmpany s Mdern Slavery and Trafficking Statement t be published n GSK s website under the prvisins f the Mdern Slavery Act 2015. Whistleblwing (ll) ensure that prcedures are established and mnitred fr the receipt, retentin and treatment f cmplaints received by the Cmpany regarding accunting, internal cntrl and auditing matters; (mm) establish and mnitr prcedures fr the cnfidential and annymus submissin f cncerns frm emplyees f the Cmpany regarding accunting r auditing matters and t ensure apprpriate fllw up actin is taken. The Cmmittee shall ensure that these prcedures allw prprtinate and independent investigatin f such matters and apprpriate fllw-up actin; and Other Matters (nn) cnsider ther relevant matters, as requested by the Bard. Authrised Investment Instruments and Cunterparty Limits 23. The Cmmittee shall, n behalf f the Bard, apprve changes between Bard meetings t the Authrised Investment Instruments and Cunterparty Limits as set ut in the Treasury Plicies. Crprate Gvernance / Regulatry Develpments 24. The Cmmittee shall mnitr the prgress f any relevant crprate gvernance r regulatry develpments that may impact the Cmmittee and recmmend any actin r changes it cnsiders necessary t the Bard fr apprval. Perfrmance Appraisal & Review 25. The Cmmittee shall review at least annually its wn perfrmance, cnstitutin and terms f reference t ensure it is perating at maximum effectiveness and recmmend any changes it cnsiders necessary t the Bard fr apprval. Resurces and Training 26. The Cmmittee shall have access t sufficient resurces in rder t carry ut its duties, including access t the Cmpany s Secretariat fr assistance as required. 27. The Cmmittee shall be prvided with apprpriate and timely training, bth in the frm f an inductin prgramme fr new members and n an nging basis fr all members. Risk Oversight & Cmpliance Cuncil (ROCC) 28. The Cmmittee will be assisted in undertaking its duties by the ROCC. Disclsure Cmmittee 7
29. T assist in the perfrmance f its duties, the Cmmittee will review reprts and minutes f, and discuss any issues raised by, the Disclsure Cmmittee. Reprting Prcedures & Respnsibilities 30. The Secretary shall circulate the minutes f meetings f the Cmmittee t all members f the Bard. 31. The Cmmittee shall make regular reprts, including in relatin t any significant issues it cnsidered in relatin t the financial statements and its assessment f the effectiveness f the external audit prcess, t the Bard and will prmptly draw t the Bard's attentin matters requiring actin r imprvement. The Cmmittee shall make whatever recmmendatins t the Bard it deems apprpriate n any area within its remit where actin r imprvement is needed. 32. Any unreslved disagreements between the Cmmittee and the Bard shall be reprted by the Cmmittee t sharehlders as part f the Cmmittee's reprt n activities. 33. The Cmmittee s Reprt fr inclusin in the Cmpany s Annual Reprt shall describe the wrk f the Cmmittee in discharging its respnsibilities and als shuld specifically include: (a) the significant issues that the Cmmittee cnsidered in relatin t the financial statements, and hw these issues were addressed, having regard t matters cmmunicated t it by the external auditr; (b) an explanatin f hw it has assessed the effectiveness f the external audit prcess and the apprach taken t the appintment r reappintment f the external auditr, and infrmatin n the length f tenure f the current audit firm and when a tender was last cnducted and advance ntice f any retendering plans; and (c) where the external auditr prvides nn-audit services, an explanatin f hw auditr bjectivity and independence is safeguarded. Publicatin f Terms f Reference 34. These Terms f Reference shall be made available n the Cmpany s website. Ntes Updated t reflect: the retirement f Sir Peter Jb frm the Cmmittee with effect frm 31 December 2004; the appintment f Sir Deryck Maughan as a member f the Cmmittee with effect frm 21 January 2005; the appintment f Mr de Swaan as a member f the Cmmittee with effect frm 1 January 2006; the appintment f Mr de Swaan as Chairman f the Cmmittee with effect frm September 2006. Dr Schmitz, frmerly Chairman, remained a member f the Cmmittee; amendments t the Cmbined Cde 2006; the appintment f Dr Daniel Pdlsky as a member f the Cmmittee with effect frm 1 January 2007; the extensin f the duties f the Cmmittee t include versight f the Grup s cmpliance with sectin 404 f the US Sarbanes-Oxley Act f 2002; the retirement f Sir Ian Prsser and Dr Rnald Schmitz with effect frm 20 May 2009; the appintment f Prfessr Sir Ry Andersn with effect frm 20 May 2009; the Cmmittee s rle in verseeing the identificatin and management f risk with effect frm 10 December 2009; the adptin f the UK Crprate Gvernance Cde which replaced the Cmbined Cde with effect frm 1 July 2010; 8
the appintment f Stacey Cartwright and Judy Lewent with effect frm 1 April 2011; amendments t the UK Crprate Gvernance Cde; the appintment f Ms Judy Lewent as Chairman f the Cmmittee with effect frm 1 January 2013. Mr de Swann, frmerly Chairman, remained a member f the Cmmittee; the retirement f Sir Rbert Wilsn and Prfessr Sir Ry Andersn with effect frm 1 May 2013; the appintment f Jing Ulrich with effect frm 1 May 2013; amendments t the UK Crprate Gvernance Cde; the appintment f Lynn Elsenhans frm 1 January 2014; amendments t the UK Crprate Gvernance Cde and ther relevant best practice develpments; the retirements f Tm de Swaan and Jing Ulrich frm the Cmmittee n 7 May 2015; best practice and legislative develpments; the appintment f Vindi Banga with effect frm 1 January 2016; the retirements f Sir Deryck Maughan and Dr Daniel Pdlsky n 5 May 2016; the assignment t the Cmmittee by the Bard n 21 July 2016 f the specific respnsibility fr apprving changes t GSK s Authrised Investment Instruments and Cunterparty Limits between Bard meetings; the retirement f Stacey Cartwright n 31 December 2016; best practice and legislative develpments; the appintment f Dr Laurie Glimcher with effect frm 1 September 2017; and t reflect the annual review f the terms f reference by the Cmpany and its advisers t keep in line with best practice. 9