Audit Committee Charter (English translation reviewed by ERNST & YOUNG) I.Objectives The objective of Audit Committee is to assist the Board of Directors (the Board) of National Water Company (the Company) to fulfill its responsibilities, particularly in ensuring: Integrity of the Company’s financial statements, The Company’s compliance to the legal and regulatory requirements, The competency and independency of the external auditor, The Internal Audit Department is performing its roles and responsibilities independently; and The adequacy of internal control and the effectiveness of its implementation. II. Scope of work Audit Committee is entitled, without any restrictions, to review entire Company’s records, information, properties, correspondence and other materials which the Audit Committee considers important. The Board is responsible to take all necessary actions for supporting the Audit Committee in carrying out its tasks. III. Responsibilities The Audit Committee’s role includes all the activities which enable it to achieve its objectives, including: - Overseeing the Internal Audit Function, ensuring the independency of the Department and its members, reviewing and approving the Internal Audit Plan, reviewing the scope of the Internal Audit and Internal Audit Reports and recommendations issued by the Internal Audit Function in the Internal Audit Reports. - Review the internal control system and prepare a written report for its performance and recommendations. - Pre-approve and recommend to the Board all audit and non-audit services to be provided by the nominated external auditor; determine their fees, review their scope of work, ensure their independency and oversee their work and plan. - Review and assess all reports and comments provided by the external auditor to the Company and other regulatory authorities such as the General Auditing Bureau, Department of Zakat & Income Tax (DZIT) and Ministry of Water & Electricity, to ensure that the Company is taking appropriate actions to address the contents of these reports and observations. - Review the annual and interim financial statements prior to its approval by the Board and shareholders in order to notify the Board that the financial statements does not contain any material misstatement, incorrect data or information; and, there is no material data or information omitted which may result in having misleading financial statements. - Review accounting policies adopted by the Company and any changes on them as presented by the Company’s management. The review should take into consideration the suitability to the Company’s operations and the impact on its financial position and operating results. The Audit Committee should send its opinion and recommendation to the Board for approval. - Evaluate the effectiveness of the Company’s key risks assessment which may be performed and the steps taken by the management to monitor and mitigate these risks. IV. The formation of the Audit Committee The Board is responsible for the formation of the Audit Committee which shall include at least three (3) members, whom may be the members of the Board. The Audit Committee has the right to request for Board of Director’s for the addition of new members. The Audit Committee’s members shall select and nominate one of the members as Chairman among them for the Audit Committee’s term. The Board of Directors shall approve the nomination of the Chairman of the Audit Committee. V. Audit Committee membership term The membership term of the Audit Committee members is valid for three (3) years starting from the date of its formation/nomination. This period can be renewed for a second term, provided that a member is not renewed for more than two consecutive terms. VI. The prerequisites of a member of the Audit Committee - At least one of the members will be financial literate and have adequate academic qualification, familiarity of the financial and accounting aspects, and the nature of the Company’s businesses. - He should not be the member of the Company’s Executive Committee or its subsidiaries, nor holding any technical or administrative position within the Company or its subsidiaries, even through providing consultancy work. - He must be independent, and shall not service simultaneously serve on the Audit Committee of any other Company operating in the same business/industry. VII. The appointment or the termination of the Audit Committee’s members The Board is responsible for the appointment of the Audit Committee’s members. Any member of the Audit Committee is terminated by a resolution issued by the Board in any of the following cases: The member requests his resignation from the membership of the Audit Committee. The termination of the member is in the best interest of the Company. A member is incapable to meet any of the Audit Committee membership’s requirements as referred in (VI).Upon the expiration of the membership term, because of death, resignation, disability, or termination; the Board shall appoint another member to fill the vacant position for the term of the Audit Committee. VIII. Audit Committee Chairman’s responsibilities Calling the Audit Committee's members for meetings, determining time, date and venue for each meeting. Report the Audit Committee’s activities outcomes and recommendations to the Board. Appoint a Secretary to the Audit Committee, after consulting with the members of the Audit Committee. Preparation of the Audit Committee’s budget, work schedule and its projects in coordination with the Audit Committee’s Secretary and share it with the other members before submitting to the Board for approval.\ Preparation of periodic reports on the Audit Committee’s activities in coordination with the Audit Committee’s Secretary. Representing the Audit Committee in the Board’s meetings and any other party if needed. IX. Audit Committee’s Secretary Responsibilities Preparation and maintenance of the Audit Committee’s minutes of meetings. Communicating to the Audit Committee’s members the agenda, dates and venue of the meetings. Carry out all the administrative tasks of the Audit Committee. Maintain the confidentiality of the Audit Committee’s activities. X. Audit Committee’s meetings During the first Audit Committee meeting in the financial year, the members shall approve the planned schedule of its periodical meetings. Date for the next meeting will also be agreed during the meeting being held. There should be not be fewer than four (4) meetings during the year. A majority of the members of the Audit Committee shall constitute a quorum. The Audit Committee may hold a non periodical meeting if requested by the Audit Committee’s Chairman or two (2) members of the Audit Committee. XI.Compensation The Board shall determine the compensation of the Audit Committee’s members and its Secretary. Internal Audit Charter (English translation reviewed by ERNST & YOUNG) I. Objectives Internal Audit provides independent and objective assurance and advisory services aiming to provide assistance to National Water Company (the Company’s) Board of Directors (the Board), the Audit Committee, and Executive Management in carrying out their responsibilities with the highest degree of efficiency and effectiveness. II. Independency and Authority Internal Audit Function works under the supervision of the Audit Committee which is a Committee appointed by the Board of Directors, and is independent of Executive Management. Internal Audit has full authority and unrestricted access to the entire company’s records, information, properties, data, correspondents, other materials and employees as required to perform its role. Internal Audit has neither direct responsibility nor any authority over any of the Departments of the Company subject to Internal Audit or other review. Internal Audit Function’s personnel must not develop or design any policies and procedures, nor engage in activities and functions audited/reviewed by Internal Audit Department. This has no contradiction in providing recommendations to the other auditee by Internal Audit which is considered to be important to address any weaknesses relevant to the activities of the Department being audited III. Responsibilities Internal Audit key responsibilities include all the activities which enable it to achieve its objectives including: Preparation of the Risk based Internal Audit Strategy & Plan of Internal Audit Function and submitting it to the Audit Committee which shall submit its recommendations to the Company’s Board for their review and approval. A copy shall be provided to the company’s Chief Executive Officer (CEO). Execute Internal Audit Work in accordance with the approval annual Internal Audit Plan. Submitted Internal Audit Reports to the Audit Committee which shall provide its recommendation to the Board for their review and approval. A copy shall be provided to the company’s CEO. Identifying strategical, compliance, financial, operational, and Information Technology risks; as well as cooperating with management to suggest effective control and monitoring control/measures with a reasonable cost to mitigate the effect of those risks and detect them as soon as they occur. Recruit, manage, motivate, and develop Internal Audit Team to maintain an adequate level of competency. Development of Internal Audit Function’s policies and procedures (Internal Audit Manual) in accordance with leading professional practices. Planning and managing the budget of Internal Audit Function in order to ensure most efficient use of resources. Build strong working relationships between the Company’s various departments and Internal Audit Function. Continuous improvement of Internal Audit Methodology to increase efficiency and effectiveness of Internal Audit activities. Participation in professional awareness leverage of Internal Audit, on both internal and external corporate domains. Coordination between the various departments of the company and external regulatory parties, including the External Auditor, General Auditing Bureau, Ministry of Water & Electricity and other regulatory bodies. IV. Scope of Work - To achieve its objectives, Internal Audit Function shall adopt systematic and disciplined approach to evaluate and improve the effectiveness of internal controls, risk management, and the Company’s governance structure which enables the Company to achieve its objectives, safeguard its assets and add value.- In general, the scope of work of Internal Audit includes the review of the sufficiency and effectiveness of internal controls and quality of performance of the corporate individuals and organizational units after assuming their designated responsibilities in order to ascertain whether systems provide reasonable assurance to achieve the Company’s objectives effectively and efficiently. Reasonable assurance is achieved when cost-effective actions are taken in order to restrict violations and errors, detect them promptly, and having the employees detects and rectifies misconduct when performing their duties in a timely manner.- Internal Audit function scope in particular includes the following:Periodic inspection of the Company’s various Departments including the internal control and risk management systems of the Company after regular intervals to determine whether the administrative, accounting, and monitoring tasks and processes are implemented effectively in accordance with the approved policies & procedures, instructions adopted by the Company, in line with its objectives, and the leading management practices including the following:Means and methods used to safeguard the company’s assets, including information assets, from risk of theft, damage, destruction, misuse, neglect, inefficiency, improper business practices, inadequate disclosure, or corruption.The extent of reliability on, integrity and security of financial and operational information/data generated within the Company, as well as all means used to identify, measure, classify, and report such information.The existing systems to ensure compliance with policies, plans, and procedures which have an effect on the company.The effectiveness and efficiency in the utilization of resources on a cost-effective basis. - Report results of Internal Audit review conducted and suggest and agree recommendations to authorized management personnel to ensure that appropriate actions are taken with respect to any deficiency noted.- Evaluate plans and procedures developed and implemented by relevant Departments to address the observations and recommendations contained in the Internal Audit Report. If the actions taken are deemed insufficient, the matter is discussed with the authorized management to ensure the sufficiency of actions taken. - Assist in the planning, designing, and developing the information systems to ensure the availability of adequate control systems, and all systems examination procedures are performed in a timely manner. - Provide consultancy services at the request of the Company’s Board of Directors, Audit Committee, or Executive Management to help improving the effectiveness and efficiency of the corporate businesses. - Carry out investigation for cases of fraud, corruption, or any special check-ups at the request of the Company’s Board of Directors, Audit Committee, or Executive Management, or if Internal Audit Function find sufficient evidences for the potential existence of similar cases. - Develop a Risk Based Internal Audit Plan for the Departments to be audited which will be prepared on the basis of the Company’s wide key business risk assessment. V. Internal Audit Reports - Internal Audit Function shall prepare and issue written Internal Audit Report after the completion of each audit engagement. The Internal Audit report includes the objectives, scope of the audit process, and the identified findings and relevant recommendation. The report shall be distributed to the concerned parties; a copy is also forwarded to the company’s CEO and to the Audit Committee. - Departments’ and functions’ manager who receives the Internal Audit Report must reply in writing indicating the corrective actions which have been or will be taken to address the observations and recommendations contained in the Internal Audit Report as well as the estimated time for completion. - The Internal Audit Function shall present to the Audit Committee an Annual Internal Audit Performance Report which will include the activities performed by the Internal Audit Function and their results.