INSURANCE AUTO AUCTIONS INC.
AUDIT COMMITTEE CHARTER
The Audit Committee (the
“Committee”) shall provide assistance to the members of the Board of Directors
(the “Board of Directors” or the “Board”) of Insurance Auto Auctions, Inc. (the
“Company”) in fulfilling its oversight functions. In doing so, it shall be the
responsibility of the Committee to maintain free and open means of
communication between the members of the Board, the Company’s independent
public accountants who audit the Company’s financial statements (the
“Auditors”), and the Company’s financial management and the internal auditing
staff. The Board shall have the ultimate authority and responsibility, based
upon recommendations from the Committee, to select, and where appropriate,
replace the Auditors, who are ultimately accountable to the Board of Directors
and the Committee. While it is not the Committee’s responsibility to certify
the Company’s financial statements or to guarantee the auditor’s report, the Committee
will facilitate discussions among the Board, the Auditors and the Company’s
While the Committee has the
functions set forth in this Charter, the Company’s management is responsible
for preparing the Company’s financial statements, and the Auditors are
responsible for auditing those financial statements. Management is also
responsible for implementing procedures to help ensure that the Company or any
Company employee complies with all applicable laws and regulations or with the
Company’s applicable ethics standards. The Committee plays a critical role in
serving as a check and balance for the Company’s financial reporting system. In
carrying out its functions, the Committee’s goal is to help ensure that management
properly develops and adheres to a sound system of internal controls and that
the Auditors, through their own review, objectively assess the Company’s
financial reporting practices.
The Committee shall be comprised
of three members who shall satisfy the requirements, including independence and
experience, of the Sarbanes-Oxley Act of 2002, the National Association of
Securities Dealers for companies listed on the NASDAQ National Market
(“NASDAQ”), and any other applicable requirements. Committee members and the
Committee Chairman shall be designated by the full Board of Directors upon the
recommendation of the Chairman of the Board, in consultation with the
Nominating, Governance and Compensation Committee.
In carrying out its functions, the Committee’s
policies and procedures shall remain flexible, so that it may be in a position
to react or respond to changing circumstances or conditions. The Committee
shall review and reassess no less than annually the adequacy of the Committee’s
Charter. While there is no “blueprint” to be followed by the Committee in
carrying out its functions, the following shall be considered within the
The Committee’s functions may be divided into the following general categories:
(1) overseeing financial reporting, (2) evaluating independent and internal
audit processes (3) reviewing internal controls established by management, and
(4) other functions. The Committee shall:
- Financial Reporting
- Meet with the Auditors and the Company’s management
to discuss, review and comment upon the interim financial statements to
be included in each of the Company’s Quarterly Reports on Form 10-Q prior
to the public announcement of financial results and the filing of such
reports with the Securities and Exchange Commission (the “SEC”). All
members of the Committee are encouraged to attend these meetings;
however, a quorum for these meetings or for this portion of regular
meetings of the Committee may be the Chairman of the Committee as
authorized by applicable rules.
- Review with the Auditors, the Company’s
management and the internal auditors the Company’s annual financial
statements to be included in the Company’s Annual Report on Form 10-K
prior to the public announcement of financial results and the filing of
the Form 10-K with the SEC.
- Review the disclosure under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
in each Annual Report on Form 10-K and Quarterly Report on Form 10-Q,
prior to the filing thereof with the SEC.
- Based upon discussions with, and reliance upon,
the Auditors and the Company’s management, cause to be prepared a report
for inclusion in the Company’s proxy statement, which report will satisfy
the requirements of the Securities Exchange Act of 1934 (the “Exchange
Act”). In addition, the Committee will provide any other audit
committee-related disclosure, in the Company’s filings with the SEC or
otherwise, required by applicable securities laws, rules and regulations
or by the rules of the NASDAQ.
- Discuss with the Auditors their judgments about
the quality, not just the acceptability, of the Company’s accounting
principles and financial disclosure practices used or proposed and the
appropriateness of significant management judgments.
- Discuss with management and the Auditors the
effect of regulatory and accounting initiatives, as well as off-balance
sheet structures, on the Company’s financial statements.
- Review a report from the Auditors periodically,
but no less than annually, as to (i) all critical accounting policies to
be used, (ii) all alternative disclosures and treatments of financial
information within generally accepted accounting principles that have
been discussed with the Company’s management, the ramifications of the
use of such alternative disclosures and treatments and the disclosures
and treatments preferred by the Auditors; and (iii) other material
written communications between the Auditors and the Company’s management,
including management letters and schedules of unadjusted differences.
- Recommend to the Board, based upon the review
and discussion described above, whether the annual financial statements
should be included in the Company’s Annual Report on Form 10-K.
- Audit Processes
- Assume direct responsibility for the
appointment, retention, replacement or termination, compensation,
evaluation and oversight of the work of the Auditors (including
resolution of disagreements between the Auditors and the Company’s
management regarding issues relating to accounting standards, financial reporting,
the preparation of the Company’s financial statements and periodic
reports, and such other related issues that the Committee deems to be
within its purview).
- Pre-approve, and adopt such procedures for the
pre-approval of, all audit services and permitted non-audit services to
be provided to the Company by the Auditors, as required by Section 10A(i)
of the Exchange Act and the SEC rules adopted thereunder. The Committee
may delegate, subject to any rules or limitations it deems appropriate,
to one or more designated members of the Committee the authority to grant
such pre-approvals; provided, however, that the decisions of any member
to whom authority is so delegated to pre-approve an activity shall be
presented to the full Committee for ratification at its next meeting.
- On an annual basis, review and discuss with the
Auditors all significant relationships the Auditors have with the Company
in order to determine the Auditors’ independence. As part of such a
review process, the Committee shall receive the written disclosures and
an annual statement from the Auditors relating to their independence, as
required by Independent Standards Board Standard No. l, and make
inquiries to the Auditors as to any matters disclosed therein.
- On an annual basis, obtain and review a report
from the Auditors concerning their internal quality control review of the
firm, any inquiry or investigation by governmental or professional
authorities within the preceding five (5) years respecting one or more
independent audits carried out by the firm and any steps taken to address
- Review the experience and qualifications of the
senior members of the Auditors’ team.
- Review the annual audit plan of the Auditors
and evaluate their performance and adherence to the prior year’s audit
- Require the rotation of the lead audit partner
on a regular basis in accordance with the requirements of the Exchange
- Review and approve or veto the Company’s hiring
of employees or former employees of the Auditors who participated in any
capacity in the audits of the Company.
- Following completion of the annual audit,
review separately with the Company’s management and the Auditors any
significant difficulties encountered during the course of the audit,
including any restrictions on the scope of work or access to required
- Internal Controls
- Establish procedures for (i) the receipt,
retention and treatment of complaints received by the Company regarding
accounting, internal accounting or financial controls or auditing
matters, and (ii) the confidential, anonymous submission by employees of
the Company of concerns regarding questionable accounting, financial or
- Review periodically the Company’s Code of
Conduct and the Company’s program to monitor compliance with that Code of
- Review with the Auditors, the Company’s
management and the internal auditors the Company’s internal accounting
and financial control policies and procedures, including management’s
controls and security procedures with respect to the Company’s
- Review with the Auditors and the Company’s
management the extent to which changes or improvements in financial or
accounting practices, as approved by the Committee, have been
implemented. This review will be conducted at an appropriate time
subsequent to implementation of changes or improvements, as decided by
- Review periodically with counsel to the Company
legal and regulatory matters that could have a significant effect on the
Company’s financial statements.
- Other Functions
- Review and approve related party transactions
and conflicts of interest questions between Board members or senior
management, on the one hand, and the Company, on the other hand.
- Discuss the Company’s policies with respect to
risk assessment and risk management.
- Oversee and review the Company’s asset
management policies, including an annual review of the Company’s
investment policies and performance for cash and short-term investments.
- Review the Company’s compliance with employee
benefit plan requirements.
- Investigate any other matter brought to its
attention within the scope of its duties that it deems appropriate for
- Have the authority to engage and determine
funding for outside legal, accounting or other advisors as it deems
necessary to carry out its functions.
- Perform an annual evaluation of the Committee.
- Perform such other functions as assigned by
law, the Company’s certificate of incorporation and Bylaws, and the Board
of Directors, and as are provided by the SEC and the NASDAQ.
- Regularly report its activities, findings and
conclusions to the full Board of Directors, including providing copies to
the full Board of all approved Committee meeting minutes.
The Committee shall hold four (4) regular meetings
and any special meetings as may be necessary or called by the Chairman of the
Committee or at the request of the Auditors or the internal auditing staff or
management. Members of senior management, the Auditors or others may attend
meetings of the Committee at the invitation of the Committee and shall provide
pertinent information as necessary. The Committee shall meet with the Auditors,
the internal auditing staff and management in separate executive sessions to
discuss any matters that the Committee or these groups believe should be
discussed privately with the Committee. The Committee may meet via telephone
Communications with the
Board of Directors
The Committee shall, after each meeting, report its
activities, findings and conclusions to the full Board of Directors.