Audit Committee

CHINA VANGUARD GROUP LIMITED
("Company")

Terms of reference of the Audit Committee

Constitution

1.

The board of directors ("Board") of the Company hereby resolves to establish a committee of the Board to be known as the Audit Committee ("Audit Committee").

Membership

2.

The Audit Committee shall consist of Mr Tian He Nian, Zhao Zhi Ming and Mr To Yan Ming Edmond. A quorum shall be two members.

3.

The Chairman of the Audit Committee shall be Mr To Yan Ming Edmond.

Attendance at meetings

4.

The Finance Director, the Head of Internal Audit, and a representative of the external auditors shall normally attend 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 without executive Board members present.

5.

Mr Tian He Nian shall be the secretary of the Audit Committee.

Frequency of meetings

6.

Meetings shall be held not less than four times a year. The external auditors may request a meeting if they consider that one is necessary.

Authority

7.

The Audit Committee is authorised by the Board to investigate any activity within its terms of reference. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Audit Committee.

8.

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

Duties

9.

The duties of the Audit Committee shall be:

 

a)

to consider the appointment of the external auditor, the audit fee and any questions of resignation or dismissal;

b)

to discuss with the external auditor before the audit commences, the nature and scope of the audit, and ensure co-ordination where more than one audit firm is involved;

c)

to review the quarterly, half-year and annual financial statements before submission to the Board, focusing particularly on:

i)

any changes in accounting policies and practices;

ii)

major judgemental areas;

iii)

significant adjustments resulting from the audit;

iv)

the going concern assumption;

v)

compliance with accounting standards; and

vi)

compliance with stock exchange and legal requirements.

 

d)

to discuss problems and reservations arising from the interim and final audits, and any matters the auditor may wish to discuss (in the absence of management where necessary);

e)

to review the external auditor's management letter and management's response;

f)

to review the Company's statement on internal control systems, where one is included in the annual report, prior to endorsement by the Board;

g)

(where an internal audit function exists) to review the internal audit programme, ensure co-ordination between the internal and external auditors, and ensure that the internal audit function is adequately resourced and has appropriate standing with the Company;

h)

to consider the major findings of internal investigations and management's response; and

i)

to consider other topics, as defined by the Board.

 

Report procedures

10.

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

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