The board of directors (the “Board”) of TIANNENG POWER INTERNATIONAL LIMITED (the “Company”) established a committee of the Board known as the Audit Committee (the “Audit Committee”), a summary of its constitution and particular duties is set out below:-

(1) Membership

The members of the Audit Committee shall be appointed by the Board from amongst the non-executive directors of the Company and the Committee shall consist of not less than three members, at least one of whom shall be an independent non-executive director with appropriate professional qualifications or accounting or related financial management expertise as required under rule 3.10(2) of the Rules Governing the Listing of Securities on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). A quorum of a meeting of the Committee shall be two members.

The majority of the Audit Committee must be independent non-executive director of the Company.

The Committee must be chaired by an independent non-executive director of the Company.

(2) Attendance at meetings

The chief financial officer and the head of internal audit (if any) of the Company and a representative of the external auditors of the Company (the “Auditors”) shall attend meetings of the Audit Committee. Other members of the Board shall also have the right of attendance. The other members said right of attendance, however, is subject to the requirement that the Committee shall meet at least once a year with the Auditors without any executive Board members present at the meeting.

The Company Secretary of the Company shall be the secretary of the Audit Committee and shall be responsible to record the minutes of meetings of the Audit Committee.

(3) Frequency of meetings

Meetings of the Audit Committee shall be held not less than twice a year. The Auditors may also request a meeting with the Audit Committee if they consider that one is necessary.

(4) Authority

The Audit Committee is authorised by the Board to investigate any activity within terms of reference. It is authorised to seek any information it required from any employee of the Company and its subsidiaries (together, the “Group”) and all employees of the Group are directed to co-operate with any request made by the Committee.

The Audit Committee is authorised by the Board to obtain outside legal or other independent professional advice and to secure the attendance of such advisers with relevant experience and expertise at any meetings of the Audit Committee if it considers this necessary.

(5) Duties

The duties of the Audit Committee shall include, but shall not be limited to the following:-

Relationship with the Auditors

(a) to be primarily responsible for making recommendation to the Board on the appointment, reappointment and removal of the Auditor, and to approve the remuneration and terms of engagement of the Auditor, and any questions of resignation or dismissal of that Auditor;

(b) to review and monitor the Auditor’s independence and objectivity and the effectiveness of the audit process in accordance with applicable standard. The Audit Committee should discuss with the Auditor the nature and scope of the audit and reporting obligations before the audit commences;

(c) to develop and implement policy on the engagement of the Auditor to supply non-audit services. For this purpose, the Auditor shall include any entity that is under common control, ownership or management with the audit firm or any entity that a reasonable and informed third party having knowledge of all relevant information would reasonably conclude as part of the audit firm nationally or internationally. The Audit Committee should report to the Board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken;

Review of financial information of the Company

(d) to monitor integrity of financial statements of the Company and the Company’s annual report and accounts, half-year report and, if prepared for publication, quarterly reports, and to review significant financial reporting judgements contained in them. In this regard, in reviewing the Company’s annual report and accounts, half-year report and, if prepared for publication, quarterly reports before submission to the Board, the Audit Committee should focus particularly on: -

(i) any changes in accounting policies and practices of the Group;
(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 the Exchange Listing Rules and other legal requirements in relation to financial reporting;

(e) In regard to (d) above:-

(i) members of the Audit Committee must liaise with the Board and senior management and the Audit Committee must meet, at least once a year, with the Auditors; and
(ii) the Audit Committee should consider any significant or unusual items that are, or may need to be, reflected in such reports and accounts and must give 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 auditors;

Oversight of the Company’s financial reporting system and internal control procedures

(f) to review the Company’s financial controls, internal control and risk management systems;

(g) to discuss with the management the system of internal control and ensure that management has discharged its duty to have an effective internal control system including the adequacy of resources, qualifications and experience of staff of the Company’s accounting and financial reporting function, and their training programmes and budget;

(h) to consider any findings of major investigations of internal control matters as delegated by the Board or on its own initiative and management’s response;

(i) where an internal audit function exists, to ensure co-ordination between the internal auditors and the Auditors, and to ensure that the internal audit function is adequately resourced and has appropriate standing within the Company, and to review and monitor the effectiveness of the internal audit function;

(j) to review the Group’s financial and accounting policies and practices;

(k) to review the Auditor’s management letter, any material queries raised by the Auditor to management in respect of the accounting records, financial accounts or systems of control and management’s response;

(l) to ensure that the Board will provide a timely response to the issues raised in the Auditor’s management letter;

(m) to report to the Board on the matters set out in this code provision; and

(n) to consider other topics, as defined by the Board.

(6) Reporting procedures

The secretary of the Audit Committee shall circulate the minutes of the meetings of the Audit Committee to all members of the Board.

Note: For details of the terms of reference of the audit committee, please refer to “A Guide for Effective Audit Committees” published by the Hong Kong Society of Accountants in February 2002.