Colour Life Services : Audit Committee - Terms of Reference

3.MEETINGS

3.1The Audit Committee should meet at least twice a year. The external auditors of the Company can call for a meeting if necessary.

3.2Notice of at least 14 days should be given for any meeting, unless such notification is waived by all members of the Audit Committee. Notwithstanding the notification period, the attendance of the members of the committee at the meeting would be deemed to be treated as the waiver of the required notification requirement. If the follow-up meeting takes place within 14 days after the meeting, then no notification is required for such follow-up meeting.

3.3The quorum necessary for the transaction of business of the Audit Committee shall be two members of the Audit Committee, one of whom must be an independent non-executive director.

3.4Meeting can be attended in person or via electronic means including telephone or videoconferencing. The members of the Audit Committee can attend the meeting via telephone or any similar communication device (all persons attending such meeting should be able to hear from such member via such communication device).

3.5The chief financial officer of the Company, the head of internal audit department and a representative of the external auditors may attend these meetings. Other Board members shall also have the right of attendance. However, at least once a year, the Audit Committee shall meet with the external auditors and the head of internal audit department without executive Board members present.

3.6For regular meetings and as far as practicable in all other cases, an agenda and accompanying committee papers should be sent, in full, to all committee members of the Audit Committee. These should be sent in a timely manner and at least three (3) days before the intended date of meeting (or such other agreed period as agreed).

3.7Resolution of the Audit Committee should be passed by more than half of the members.

3.8A resolution passed and signed by all members is valid, and the validity is the same as any resolution passed in the meeting held.

3.9Full minutes of Audit Committee meeting should be kept by a duly appointed secretary of the Audit Committee. Draft and final versions of minutes of the meeting should be sent to all committee members for their comments and records, within a reasonable time after the meeting.

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4.MEETING ATTENDANCE

4.1The members of the Audit Committee should meet, at least twice a year, with the Company's auditors without the attendance from the executive directors (except for the one invited by the Audit Committee).

4.2Upon the invitation from the Audit Committee, the following persons can attend the meeting: (i) head of internal audit department or (if absent) the representative from internal audit department; (ii) senior financial manager (or equivalent); and

(iii)the other Board members.

4.3Only the members of the Audit Committee can vote in the meeting.

5.ANNUAL GENERAL MEETINGS

5.1The chairman or chairlady of the Audit Committee or (if absent) the other member of the Audit Committee (must be an independent non-executive director) should attend the annual general meeting of the Company, handle the shareholders' enquiry on the activities and responsibilities related to the Audit Committee.

6.DUTIES AND POWERS

The Audit Committee is responsible for reviewing and monitoring the financial reporting, risk management and internal control systems of the Company, and assist the Board to fulfill its responsibility over the audit. The Audit Committee's duties and powers should include:

6.1Relationship with the Company's external auditors

6.1.1to be primarily responsible for making recommendations to the Board on the appointment, reappointment and removal of the external auditor, and to approve the remuneration and terms of engagement of the external auditor, and any issues related to its resignation or dismissal;

6.1.2to review and monitor the external auditor's independence and objectivity and the effectiveness of the audit process in accordance with applicable standards; and to discuss with the external auditor the nature and scope of the audit and reporting obligations before the audit commences;

6.1.3to develop and implement policy on engaging an external auditor to supply non-audit services. For this purpose, "external auditor" includes any entity that is under common control, ownership or management with the audit firm or any entity that a reasonable and informed third party knowing all relevant information would reasonably conclude to be part of the audit firm nationally or internationally; and

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6.1.4to report to the Board, identifying and making recommendations on any matters where action or improvement is needed.

6.2Review of the Company's financial information

6.2.1to monitor the integrity of the Company's financial statements and annual report and accounts, half-year report and, if prepared for publication, quarterly reports, and to review significant financial reporting judgments contained in them. In reviewing these reports before submission to the Board, the committee should focus particularly on:

(a)any changes in accounting policies and practices;

(b)major judgmental areas;

(c)significant adjustments resulting from audit;

(d)the going concern assumptions and any qualifications;

(e)compliance with accounting standards; and

(f)compliance with the Listing Rules and legal requirements in relation to financial reporting; and

6.2.2Regarding paragraph 6.2.1 above:

(a)members of the audit committee should liaise with the Board and senior management and the audit committee must meet, at least twice a year, with the Company's external auditors; and

(b)the audit committee should consider any significant or unusual items that are, or may need to be, reflected in the report and accounts, it should 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 and auditors.

6.3Oversight of the Company's financial reporting system, risk management and internal control systems

6.3.1to review the Company's financial controls, and unless expressly addressed by a separate risk committee of the Board, or by the Board itself, to review the Company's risk management and internal control systems;

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6.3.2to discuss the risk management and internal control systems with management to ensure that management has performed its duty to have effective systems. The discussion should include the adequacy of resources, staff qualifications and experience, training programmes and budget of the Company's accounting and financial reporting functions;

6.3.3to consider major investigation findings on risk management and internal control matters as delegated by the Board or on its own initiative and management's response to such findings;

6.3.4to ensure co-ordination between the internal and external auditors, and to ensure that the internal audit function is adequately resourced and has appropriate standing within the Company, and to review and monitor its effectiveness;

6.3.5to review the group's financial and accounting policies and practices;

6.3.6to review the external auditors' management letter, any material queries raised by the auditor to management about accounting records, financial accounts or systems of risk management and control and management's response;

6.3.7to ensure that the Board will provide a timely response to the issues raised in the external auditor's management letter;

6.3.8to act as the key representative body for overseeing the Company's relationship with the external auditor;

6.3.9to review arrangements that employees of the Company can use, in confidence, to raise concerns about possible improprieties in financial reporting, risk management, internal control or other matters. The audit committee should ensure that proper arrangements are in place for fair and independent investigation of these matters and for appropriate follow-up action;

6.3.10to report to the Board on the matters in the code provision under Appendix 14 of the Listing Rules;

6.3.11to consider other topics, as defined by the Board;

6.3.12where the Board disagrees with the audit committee's view on the selection, appointment, resignation or dismissal of the external auditors, the Company should include in the Corporate Governance Report a statement from the audit committee explaining its recommendation and also the reason(s) why the Board has taken a different view; and

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