LAM SOON (HONG KONG) LIMITED
TERMS OF REFERENCE
FOR
BOARD AUDIT COMMITTEE

1. Constitution
   The Board of Directors (the “Board”) of Lam Soon (Hong Kong) Limited (the “Company”) hereby constitutes and establishes a Board Audit Committee (the “Committee”) with authority, responsibility, and specific duties as described below.
   
   
2. Membership
   The Committee members shall be appointed by the Board from amongst the non-executive directors only. The Committee must comprise a minimum of three members. The majority of the Committee members must be independent and at least one of whom is an independent non-executive director with appropriate professional qualifications or accounting or related financial management expertise as required under Rules Governing the Listing of Securities Chapter 3.10(2).A quorum shall be two members.
   
   The Chairman of the Committee shall be appointed by the Board and should be an independent director.
   
   
3. Attendance of meetings
   The Group Managing Director, Group Financial Controller, Corporate Finance Manager and Internal Audit Manager shall normally attend the Committee's meetings.
   
   The Committee may invite any executive directors and a representative of the external auditors and/or such members of the executive management of the Group as they shall deem appropriate to attend the Committee's meetings.Other Board members shall also have the right of attendance. At least once a year the Committee shall meet with the external and internal auditors without executive directors present.
   
   The Company Secretary of the Company shall be the secretary of the Committee.
   
   
4. Frequency of meetings
   Meetings shall be held not less than twice a year.
   
   
5. Authority
   The Committee is authorised by the Board to investigate any activities 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 Committee.
   
   The 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.
   
   
6. Duties
   The duties of the Committee shall be:
   
   Relationship with the auditors

   a)	to be primarily responsible for making recommendation 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 questions of resignation or dismissal of that auditor;
   b)	to review and monitor the external auditor's independence and objectivity and the effectiveness of the audit process in accordance with applicable standard. The 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 an external auditor to supply non-audit services. For this purpose, external 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 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, annual report and accounts, half-year report and, if prepared for publication, quarterly reports of the Company, and to review significant financial reporting judgements contained therein and to review the 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 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)	to liaise with the Board, senior management and qualified accountant and meet, at least once a year, with the Company's auditors; and
	(ii)	to 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 qualified accountant, compliance officer or auditors;

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

f)	to review 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;
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)	to 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 the effectiveness of the internal audit function;
j)	to review the Group's financial and accounting policies and practices;
k)	to review the external 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 external auditor's management letter;
m)	to report to the Board on the matters set out in this terms of reference; and
n)	to consider other topics, as defined by the Board.