ANNUAL REPORT
OF THE AUDIT COMMITTE
1)
Functions, competencies and functioning of the Audit Committee
The Audit and Control Committee’s primary function is to provide the Board of Directors with support in its oversight and control functions, the most important of
which consist of ensuring that generally accepted accounting standards are correctly applied and the integrity of the internal control systems used to draw up the
individual and consolidated Annual Accounts is maintained.
On 31 March 2004, the Board of Directors approved the Board of Directors Regulations which developed the Audit and Control Committee’s framework, the way
it is run and its composition. One of the most significant changes has been caused by the entry into force of the following legislation: Law 12/2010 of 30 June,
amending Law 19/1988 of 12 July, on the Auditing of Accounts, Law 24/1988 of 28 July on the Securities Market and the consolidated text of the Law on Limited
Companies, approved by Royal Legislative Decree 1564/1989 of 22 December, for its adaptation to EU regulations, by virtue of which the Audit Committee has been
given a specific legal framework regarding its functioning and powers, with the bylaw provisions and content of the Board Regulations on this matter having been
appropriately modified for the purposes of adaptation to the aforementioned legal text.
Consequently, both the text of theArticles of Association, as well as the regulations contained in theBoardRegulations govern all matters concerning the composition,
competencies and functioning of the Audit Committee, which can essentially be summarised as follows:
a) Composition
The Audit and Control Committee shall comprise at least three and at most five Directors appointed by the Board of Directors. All themembers of said Committee
must be external or non-executive Directors.
The Audit and Control Committee’s members, and particularly its Chairman, shall be appointed on the basis of their knowledge and experience in accounting,
auditing or risk management.
The Chairman of the Audit and Control Committee shall be an independent director and shall be appointed from among the directors who hold neither
management nor executive responsibilities in the organisation nor maintain a contractual relationship other than the office to which they have been appointed.
The Chairman shall be appointed from among the Committee’s members who are non-executive directors. The chairman shall be replaced every four years and
may be re-elected one year after standing down from office.
b) Competencies
Notwithstanding any other tasks it may be entrusted with by the Board of Directors, the Audit and Control Committee’s primary function consists of providing
support to the Board of Directors in its oversight functions and, more specifically, it holds at least the following competencies:
1.
By means of its Chairman, to report, within the sphere of its competence, on any issues raised by shareholders at the General Shareholders’ Meeting.
2.
Supervising the effectiveness of the company’s internal control, internal auditing, where applicable, and risk-management systems, as well as discussing any
significant weaknesses in the internal control system, identified during audits, with auditors or audit companies.
3.
To supervise the process of preparing and the integrity of financial reporting relating to the Company and, should it be the case, to the Group, reviewing
compliance with regulations, correct scope of consolidation and the proper application of accounting standards.
4.
To propose to the Board of Directors the appointment of the Auditor of Accounts for submission to the General Shareholders’ Meeting, as well as, where
appropriate, the conditions under which the Auditor’s services are engaged, the scope of their professional mandate and the revocation or renewal of their
appointment.
5.
Establishing suitable relationships with auditors or audit firms in order to receive information regarding any issues that may endanger their independence,
so that these can be examined by the committee, as well as any other matters related with the process of conducting accounts auditing, as well as any other
communications stipulated in the accounts auditing legislation and audit regulations. In any event, it shall receive written confirmation on an annual basis
from the auditors of accounts or auditing firms of their independence from the Company or from any entities related to it either directly or indirectly, as well
as information on any additional service of any kind whatsoever provided to such entities by the aforementioned auditors of accounts or by persons related to
them in accordance with the provisions set forth in Act 19/1988 of 12 July on the Auditing of Accounts.
6.
Issuing, once a year and prior to the release of the accounts auditing report, a report expressing an opinion regarding the independence of the auditors or audit
firms. This report must, in all cases, make a statement regarding the provision of any services additional to those mentioned in the previous section.
7.
To safeguard the independence and efficiency of the internal auditing area; to propose the recruitment, appointment, reappointment and removal of the
person in charge of internal auditing; to propose said service’s budget; to receive periodic information about its activities; and to verify that senior management
is aware of the conclusions and recommendations made in internal audit reports.
8.
To set and oversee a mechanism that allows employees to report in confidence and, if appropriate, anonymously, any irregularities that could be potentially
important, especially any financial and accounting irregularities they may notice within the company, and specifically those related to the Code of Conduct.
9.
To supervise compliance and internal codes of conduct, as well as the rules of corporate governance.
10.
To inform the Board about all matters connected with related-party transactions, which shall be construed as they are defined by the prevailing Capital
Companies Act.
11.
To inform the Board about the creation or acquisition of any equity investments in special purpose vehicles and companies registered in tax havens, as well as
about any other transactions or operations of a similar nature which, due to their complexity, might negatively affect the group’s transparency.
12.
To exercise any other competencies said Committee has been assigned by virtue of these Regulations or by the Board of Directors.
c) Functioning
The Audit and Control Committee shall meet at least once a quarter and as many times as may be necessary after being called by its Chairman at his/her own
initiative or upon the request of two of its members or of the Board of Directors.
The Audit and Control Committee may require any of the Company’s employees or executives to attend its meetings, in addition to the Company’s Auditor of
Accounts.
2)
Composition of the Audit Committee
The composition of the Audit and Control Committee fulfils the regulations laid down by the Board Regulations of NH Hoteles, S.A.,.which faithfully reflects the
Recommendations of the Unified Code of Good Governance.
ANNUAL REPORT
OF THE AUDIT COMMITTE
121
