The primary functions of the Audit Committee are to assist the Board of Directors in fulfilling its oversight responsibilities with respect to: (i) the Company’s auditing, accounting and financial reporting processes generally; (ii) the Company’s financial statements and other financial information provided by the Company to its stockholders, the public and others; (iii) the Company’s systems of internal controls regarding finance, accounting, legal compliance and ethical behavior; (iv) the Company’s compliance with legal and regulatory requirements; and (v) the performance of the Company’s internal auditors and independent auditors.
II. Committee Membership and Meetings
The Audit Committee shall be comprised of three or more directors as determined by the Board of Directors, each of whom shall satisfy the independence, financial literacy and experience requirements of Section lOA of the Securities Exchange Act of 1934, The New York Stock Exchange and any other regulatory requirements pertaining to qualifications of Audit Committee members.
Audit Committee members shall be elected by the Board of Directors on the recommendation of the Nominating Committee and shall serve until their successors shall be duly elected and qualified.
The Audit Committee shall meet as often as it determines necessary but not less than four times per year on a quarterly basis. The Audit Committee may require officers of the Company, the internal auditors, the independent auditors, the Company’s outside counsel, and others to attend meetings and to provide pertinent information, as necessary. The Audit Committee shall meet in separate executive sessions during each of its four regularly scheduled meetings with management, internal auditors (as necessary) and the independent auditors to discuss any matters that the Audit Committee (or any of these groups) believes should be discussed privately. The Audit Committee shall have the authority, to the extent it deems necessary or appropriate, to retain special legal, accounting or other consultants to advise the Committee.
III. Responsibilities and Duties
The Audit Committee shall have the sole authority and responsibility to select, evaluate, and, where appropriate, replace the independent auditors or nominate the independent auditors for shareholder approval. The Audit Committee shall pre-approve all audit engagement fees and terms and all non-audit engagements with the independent auditors. The Audit Committee shall consult with management but shall not delegate these responsibilities.
The Audit Committee, to the extent it deems necessary or appropriate, shall:
1. With respect to financial statements and disclosure matters:
(a) Review and discuss with management and the independent auditors, the Company’s annual audited financial statements and the quarterly financial statements, including disclosures made in management’s discussion and analysis, and press releases relating to its financial condition and results of operations prior to submission to the public.
(b) Discuss with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, relating to the conduct of the audit, including but not limited to, auditing and accounting principles adopted by the Company, the management letter, and any difficulties or restrictions encountered in the course of the audit work.
(c) Recommend to the Board of Directors, if appropriate, that the Company’s annual audited financial statements be included in the Company’s annual report on Form 1O-K.
(d) Prepare the report required by the Securities and Exchange Commission to be included in the Company’s annual proxy statement and any other Committee reports required by applicable securities laws or stock exchange listing requirements or rules.
2. With respect to the independent auditors:
(a) Have the sole authority to review in advance, and grant any appropriate preapprovals of, (i) all auditing services to be provided by the independent auditors and (ii) all non-audit services to be provided by the independent auditors as permitted by Section lOA of the Securities Exchange Act of 1934, after obtaining prior approval of Company counsel, and in connection therewith to approve all fees and other terms of engagement. The Audit Committee shall also review and approve disclosures required to be included in Securities and Exchange Commission periodic reports filed under Section 13(a) of the Securities Exchange Act of 1934 with respect to non-audit services.
(b) Review the performance of the Company’s independent auditors on at least an annual basis.
(c) On an annual basis, review and discuss with the independent auditors all relationships the independent auditors have with the Company in order to evaluate the independent auditors’ continued independence. The Audit Committee shall: (i) ensure that the independent auditors submit to the Committee on an annual basis a written statement (consistent with Independent Standards Board Standards No. 1) delineating all relationships and services that may impact the objectivity and independence of the independent auditors; (ii) discuss with the independent auditors any disclosed relationship or services that may impact the objectivity and independence of the independent auditors; and (iii) satisfy itself as to the independent auditors’ independence.
(d) At least annually, obtain and review an annual report from the independent auditors describing (i) the independent auditors’ internal quality control procedures and (ii) any material issues raised by the most recent internal quality control review, or peer review, of the independent auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the independent auditors, and any steps taken to deal with any such issues.
(e) Confirm that the lead audit partner, or the lead audit partner responsible for reviewing the audit, for the Company’s independent auditors has not performed audit services for the Company for each of the five previous fiscal years.
(f) Review all reports required to be submitted by the independent auditors to the Audit Committee under Section lOA of the Securities Exchange Act of 1934 and any amendments thereto.
(g) Review, based upon the recommendation of the independent auditors and the internal auditors, the scope and the plan of the work to be done by the independent auditors for each fiscal year.
3. With respect to the internal audit function and internal controls:
(a) In consultation with the independent auditors and the internal auditors, (a) review the adequacy of the Company’s internal control structure and system, and the procedures designed to insure compliance with laws and regulations, and (b) discuss the responsibilities, budget and staffing needs of the internal auditors.
(b) Review, based upon the recommendation of the independent auditors and the head of the internal auditors, the scope and plan of the work to be done by the internal auditors and review on an annual basis the performance of the internal auditors.
(c) Establish procedures for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
4. Periodic and Annual Reviews:
(a) Periodically review with each of management, the independent auditors and the internal auditors (i) any significant disagreement between management and the independent auditors or the internal auditors in connection with the preparation of the financial statements, (ii) any difficulties encountered during the course of the audit (including any restrictions on the scope of work or access to required information), and (iii) management’s response to each.
(b) Periodically discuss with the independent auditors, without management being present, (i) their judgments about the quality, appropriateness, and acceptability of the Company’s accounting principles and financial disclosure practices, as applied in its financial reporting, and (ii) the completeness and accuracy of the Company’s financial statements.
(c) Consider and approve, if appropriate, significant changes to the Company’s accounting principles and financial disclosure practices as suggested by the independent auditors, management or the internal auditors.
(d) Review with management, the independent auditors, the internal auditors and the Company’s counsel, as appropriate, any legal, regulatory or compliance matters that could have a significant impact on the Company’s financial statements, including significant changes in accounting standards or rules as promulgated by the Financial Accounting Standards Board, the Securities and Exchange Commission or other regulatory authorities with relevant jurisdiction.
(e) Obtain and review an annual report from management relating to the accounting principles used in preparation of the Company’s financial statements (including those policies for which management is required to exercise discretion or judgments regarding the implementation thereof).
(f) Review and discuss with management and the independent auditors all material off balance sheet transactions, arrangements, obligations (including contingent obligations) and other relationships of the Company with unconsolidated entities or other persons, that may have a material current of future effect on financial condition, changes in financial condition, results of operations, liquidity, capital resources, capital reserves or significant components of revenues or expenses.
(g) Review and discuss with management and the independent auditors (i) the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures (including management’s risk assessment and risk management policies), and (ii) the program that management has established to monitor compliance with its code of business ethics and conduct for directors, officers and employees.
(h) Review and discuss with management and the independent auditors all disclosures made by the Company concerning any material changes in the financial condition or operations of the Company.
(i) Discuss with management and the Company’s independent auditors any significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize, and report financial data and identify for the Company’s auditors any material weaknesses in internal controls and any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls.
(j) Obtain explanations from management for unusual variances in the Company’s annual financial statements from year to year, and review annually the independent auditors’ letter of the recommendations to management and management’s response.
5. General - The Audit Committee shall:
(a) Review and approve (i) any change or waiver in the Company’s code of business conduct and ethics for directors or executive officers, and (ii) any disclosure made on Form 8-K regarding such change or waiver.
(b) Insure that the policy for the Company’s hiring of employees or former employees of the independent auditors who were engaged on the Company’s account is in accordance with SEC and NYSE regulations.
(c) Review any management decision to seek a second opinion from independent auditors other than the Company’s regular independent auditors with respect to any significant accounting issue.
(d) Review with management and the independent auditors the sufficiency and quality of the internal auditors and other financial and accounting personnel of the Company.
(e) Review and reassess the adequacy of this Charter annually and recommend to the Board any changes the Committee deems appropriate.
(f) Be subject to an annual performance evaluation by the Board of Directors.
(g) Perform any other activities consistent with this Charter, the Company’s By-laws and governing law as the Committee or the Board deems necessary or appropriate.
(h) Make available this Charter on the Company’s website at www.griffoncorp.com.
IV. Limitation of Audit Committee’s Role
Although the Audit Committee has the powers and responsibilities set forth in this Charter, the role of the Audit Committee is oversight. It is not the duty of the Audit Committee to conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent auditors.