Role of the Audit Committee
The Audit Committee is a sub-committee of the board whose responsibilities include:

• Reviewing the half-yearly and full year accounts and results announcements of the company and any other formal announcements relating to the company’s financial performance and recommending them to the board for approval.
• Reviewing the group’s systems for internal financial control and risk management.
• Monitoring and reviewing the effectiveness of the company’s internal audit function and considering regular reports from internal audit on internal financial controls and risk management.
• Considering the appointment of the external auditors, overseeing the process for their selection and making recommendations to the board in relation to their appointment to be put to shareholders for approval at a general meeting.
• Monitoring and reviewing the effectiveness and independence of the external auditors, agreeing the nature and scope of their audit, agreeing their remuneration, and considering their reports on the company’s accounts, reports to shareholders and their evaluation of the systems of internal financial control and risk management.

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Composition of the Audit Committee
The Audit Committee comprises all the independent non-executive directors. Biographical details of the independent directors are set out in the Board of Directors section. Their remuneration is set out in the Remuneration Report. The Chairman of the Audit Committee is Mr A M Thomson, who was formerly Finance Director of Smiths Group plc and is currently Senior Vice President of the Institute of Chartered Accountants of Scotland. The group Chairman, Chief Executive, Group Finance Director, Head of Internal Audit and external auditors (KPMG Audit Plc) attend Audit Committee meetings by invitation. The Committee also meets separately with the Head of Internal Audit and with the external auditors without management being present. The Company Secretary is secretary to the Audit Committee.

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Main Activities of the Audit Committee
The Audit Committee met four times during the financial year ended 31st March 2009. At its meeting on 29th May 2008 the Committee reviewed the company’s preliminary announcement of its results for the financial year ended 31st March 2008, and the draft report and accounts for that year. The Committee received reports from the external auditors on the conduct of their audit, their review of the accounts, including accounting policies and areas of judgment, and their comments on risk management and control matters. The Committee also reviewed shareholder resolutions to be proposed at the forthcoming Annual General Meeting.

The Audit Committee met on 21st July 2008 to receive reports on internal controls from both the internal and external auditors. The external auditors also presented their proposed fees and scope for the forthcoming year’s audit. The Committee also reviewed the performance of both the internal and external auditors. The review of the external auditors was used to confirm the appropriateness of their reappointment and included assessment of their independence, qualification, expertise and resources, and effectiveness of their audit process. The group’s Sustainability Report 2007/08 was also reviewed, which is available on the company’s website at www.matthey.com.

At its meeting on 24th November 2008 the Audit Committee reviewed the company’s half-yearly results, the half-yearly report and the external auditors’ review.

At its meeting on 3rd February 2009 the Audit Committee reviewed management’s and internal audit’s reports on the effectiveness of the company’s systems for internal financial control and risk management. The Committee reviewed the group’s credit control procedures and risks, controls over precious metals and IT controls. The group’s corporate social responsibility reporting arrangements and whistleblowing procedures were also reviewed. Changes to the Group Control Manual were ratified. The Committee also reviewed the governance procedures of the external auditors and considered the risk of their failure to operate as a going concern.

Since the year end the Committee has met to review the company’s preliminary announcement of its results and draft report for the financial year ended 31st March 2009, and also the company’s assessment of going concern for the period to 30th June 2010.

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Independence of External Auditors
Both the board and the external auditors have for many years had safeguards in place to avoid the possibility that the auditors’ objectivity and independence could be compromised. Our policy in respect of services provided by the external auditors is as follows:

• Audit related services – the external auditors are invited to provide services which, in their position as auditors, they must or are best placed to undertake. This includes formalities relating to borrowings, shareholders’ and other circulars, various other regulatory reports and work in respect of acquisitions and disposals.
• Tax consulting – in cases where they are best suited, we use the external auditors. All other significant tax consulting work is put out to tender.
• General consulting – in recognition of public concern over the effect of consulting services on auditors’ independence, our policy is that the external auditors are not invited to tender for general consulting work.

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Internal Audit
During the year the Audit Committee reviewed the performance of the internal audit function, the findings of the audits completed during the year and the department’s resource requirements and also approved the internal audit plan for the year ending 31st March 2010.

Internal audit independently reviews the risks and control processes operated by management. It carries out independent audits in accordance with an internal audit plan which is agreed with the Audit Committee before the start of the financial year.

The plan provides a high degree of financial and geographical coverage and devotes significant effort to the review of the risk management framework surrounding the major business risks.

Internal audit reports include recommendations to improve internal controls together with agreed management action plans to resolve the issues raised. Internal audit follows up the implementation of recommendations and reports progress to senior management and the Audit Committee.

The Audit Committee receives reports from the Head of Internal Audit on the department’s work and findings.

The effectiveness of the internal audit function is reviewed and discussed on an annual basis with the Head of Internal Audit.

On behalf of the Committee:

Alan Thomson
Chairman of the Audit Committee

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