Rising Above

CORPORATE GOVERNANCE REPORTFOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2007Audit Committee (“AC”)Principal 11: Establishment of an Audit Committee (AC) with written terms of reference.The AC was established in March 2007 and comprises 4 non-executive directors, out of whom three are independent directors. Mr.Sum Soon Lim is the chairman and the other three members are Mr. Ang Kong Hua, Mr. Francis James Reidy and Mr. Liu Chee Ming.The Board is of the view that the members of AC have sufficient financial management expertise and experiences to discharge theAC’s function.The AC has written Terms of Reference endorsed by the Board, setting out its duties and responsibilities as follows:• Reviewing the scope and results of the audit and its cost effectiveness, including the external auditors’ audit plan, audit report andevaluation of the system of internal accounting control, as well as assistance given by management to the external auditors;• Reviewing the nature and extent of the external auditors’ non-audit services to the Group, seeking to balance the maintenanceof objectivity and value for money;• Reviewing any significant financial reporting issues and judgment so as to ensure the integrity of the financial statements of theGroup and the formal announcement relating to the Group’s financial performance;• Reviewing the quarterly and full year financial statements of the Group, prior to submission to the Board for approval, and forrelease to FINFO;• Reviewing the adequacy of the Group’s internal control, operational and compliance controls, and risk management policies andsystems;• Reviewing the adequacy and effectiveness of the Group’s internal audit function at least annually, including the adequacy of theinternal audit resources as well as the scope and results of the internal audit procedures;• Making recommendation to the Board on the appointment, re-appointment and removal of the external auditors, and approvingthe remuneration and terms of engagement of the external auditors; and• To review interested person transactions.The AC is authorized by the Board to investigate any matters within its Terms of Reference and has full access to the Group’smanagement.Internal Control and Internal AuditPrincipal 10: Board to present balanced and understandable assessment of the Group’s performancePrincipal 12: Sound system of internal controlPrincipal 13: Establishment of an internal audit function that is independent of the functions it auditsThe Board recognizes the importance of sound internal controls and risk management practices to good corporate governance. TheBoard affirms its overall responsibilities for the Group’s systems of internal controls and risk management, and for reviewing theadequacy and integrity of those systems on an annual basis. The Board also recognizes that no internal control systems will precludeall errors and irregularities. The system is designed to manage rather than to eliminate the risk of failure to achieve business objectives.The controls are to provide reasonable, but not absolute, assurance to safeguard shareholders’ investments and the Group’s assets.With effect from January 2007, the Internal Audit (“IA”) function is principally outsourced to Deloitte & Touche Enterprise RiskServices Pte Ltd. With the assistance of IA, the AC and Board review the effectiveness of the key internal controls, including financial,operational and compliance controls, and risk management on an on-going basis. There are formal procedures in place for bothinternal and external auditors to report independently their findings and recommendations to the AC. The AC also reviews andapproves the annual IA plans and resources to ensure that IA has the necessary resources to adequately perform its functions. Thescope of the IA covers all business and support functions within the Group and IA reports to AC on a quarterly basis.32 YANTAI RAFFLES SHIPYARD LIMITED