Audit Committee Charter
The primary purpose of the Audit Committee (the "Committee") is to (a) assist the Board of Directors in fulfilling its oversight of (i) the integrity of the Company's financial statements, (ii) the Company's compliance with legal and regulatory requirements, (iii) the Company's independent auditors' qualifications and independence, and (iv) the performance of the Company's internal audit function and independent auditors; and (b) prepare any reports required by law to be prepared by the Committee, including any reports required to be included in the Company's annual proxy statement and as otherwise required.
In fulfilling its purpose, the Committee shall review: (a) the financial reports and other financial information of the Company; (b) the Company's systems of internal controls and procedures and disclosure controls and procedures; and (c) the Company's auditing, accounting and financial reporting processes generally. Consistent with this purpose, the Committee should encourage continuous improvement of, and should foster adherence to, the Company's policies, procedures and practices at all levels.
In fulfilling their responsibilities hereunder, it is recognized that members of the Committee are not employees of the Company and do not bear any of the responsibilities of management and the Company's independent auditors. As such, it is not the duty or responsibility of the Committee or its members (a) to plan or conduct audits, (b) to determine that the Company's financial statements are complete and accurate and are in accordance with generally accepted accounting principles, (c) to design and implement internal controls and procedures and disclosure controls and procedures, or (d) to conduct other types of auditing or accounting reviews or procedures. Each member of the Committee shall be entitled to rely on (a) the integrity of those persons and organizations within and outside the Company that provide information to the Committee and (b) the accuracy and completeness of the financial and other information provided to the Committee by such persons or organizations absent actual knowledge to the contrary (which shall be promptly reported to the Board of Directors).
The Committee shall be comprised of three or more directors, as determined by the Board, all of whom shall be independent as determined by the Board pursuant to the standards set forth in Exhibit A of the Company's Corporate Governance Guidelines. In addition to being independent, members of the Committee may not receive any compensation other than directors' fees from the Company. All members of the Committee shall have a working familiarity with basic finance and accounting practices, and at least one member of the Committee shall be an "audit committee financial expert," as such term is defined by the rules and regulations of the Securities and Exchange Commission (the "SEC"). Committee members shall not simultaneously serve on the audit committees of more than two other public companies.
The members of the Committee shall be elected by the Board annually on the recommendation of the Nominating and Corporate Governance Committee and shall serve until the earlier to occur of her or his resignation or removal or the election and qualification of such member's successor. Unless a Chair of the Committee is elected by the full Board, the members of the Committee may designate a Chair by majority vote of the full Committee membership. Any member of the Committee may be removed with or without cause by a majority of the Board. All vacancies in the Committee shall be filled by the Board.
The Committee shall meet at least four times during each fiscal year or more frequently as circumstances dictate. As part of its job to foster open communication, the Committee should meet at least quarterly with management, the Vice President of Internal Audit and the independent auditors, in separate executive sessions. The Committee may request that any officer or employee of the Company, the Company's outside counsel or the Company's independent auditors attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee. Meetings of the Committee may be called by the Chief Executive Officer of the Company, the Chair of the Committee or any other two or more members of the Committee. A majority of the Committee shall constitute a quorum for the transaction of business. The action of a majority of those present at a meeting, at which a quorum is present, shall be the act of the Committee. The Committee may also act by unanimous written consent. The Committee may delegate authority to act upon specific matters within determined parameters to a subcommittee consisting of one or more members, consistent with applicable law. Any such subcommittee shall report any action to the full Committee at its next meeting. The Committee shall keep a record of its actions and proceedings and make a report thereof from time to time to the Board. In addition, the Committee, or its Chair, should communicate with the independent auditors and management quarterly to review the Company's financial statements consistent with Section IV of this charter.
IV. Powers, Duties and Responsibilities
The Committee shall have the power, duty and responsibility to:
1. Review, at least annually, and, if necessary, revise this Charter periodically as conditions dictate. Upon any revision, submit the revised Charter to the Nominating and Corporate Governance Committee and the Board of Directors for approval.
2. Review and discuss with management and the independent auditors the Company's annual audited financial statements and other financial information, including the Company's disclosures under the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," prior to filing the Company's Form 10-K. Each such discussion and review shall include, among other things, a discussion of significant issues regarding accounting principles, practices and judgments, and a recommendation to the Board of Directors as to whether the annual audited financial statements should be included in the Form 10-K.
3. Review and discuss with management and the independent auditors the Company's quarterly financial statements and other financial information, including the Company's disclosures under the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the results of the independent auditor's review of the quarterly financial statements, prior to filing the Company's Form 10-Q. Each such discussion and review shall include, among other things, a discussion of whether there were any significant changes to the Company's accounting principles and any items required to be communicated by the independent auditors in accordance with AICPA Statement of Auditing Standards ("SAS") 61 therein. The Chair of the Committee may represent the entire Committee for purposes of this review.
4. Review the significant internal reports to management prepared by the Internal Audit Department and management's responses, which review should consider the integrity of the Company's financial reporting processes and controls.
5. Review and discuss reports from the independent auditors on (a) all critical accounting policies and practices to be used, (b) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor, and (c) other material written communications between the independent auditor and management, including, but not limited to, any: (i) management letter; (ii) schedule of unadjusted differences; (iii) listings of adjustments and reclassifications not recorded, if any; (iv) reports on observations and recommendations on internal controls; (v) engagement letter; or (vi) independence letter. In connection therewith, the Committee shall consider the independent auditors' written judgments about the quality and appropriateness of the Company's accounting principles as applied in its financial reporting.
6. Discuss with management the Company's earnings press releases, including the use of "non-GAAP financial measures" as defined by the rules and regulations of the SEC, as well as financial information and earnings guidance provided to analysts and rating agencies. Such discussion may generally address the types of information to be disclosed and the types of presentations to be made in any such communications.
7. Discuss the guidelines and policies related to risk assessment and risk management, including the Company's major financial exposures and the steps management has taken to monitor and control such exposures.
8. Review disclosures made to the Committee by the Company's Chief Executive Officer and Chief Financial Officer in accordance with the periodic report certification requirements imposed by the rules and regulations of the SEC, regarding any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company's internal controls.
9. Review and discuss with management and the independent auditors, as appropriate: (a) major issues regarding accounting principles and financial statement presentations, including any significant changes in the Company's selection or application of accounting principles, and major issues as to the adequacy of the Company's internal controls and any special audit steps adopted in light of material control deficiencies; (b) analyses prepared by management or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements; and (c) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company.
10. Consider and approve, if appropriate, major changes to the Company's accounting principles and practices as suggested in writing by the independent auditors, management or the Internal Audit Department.
11. Report regularly, and at least quarterly, to the Board. The Committee shall promptly review with the Board any issues that arise with respect to the quality or integrity of the Company's financial statements, the Company's compliance with legal or regulatory requirements, the performance, qualifications and independence of the Company's independent auditors, or the performance of the Company's internal audit function and the Internal Audit Department.
1. The Committee has sole authority to appoint, retain, terminate, evaluate and oversee the Company's independent auditors, including determining the terms of engagement and the resolution of any disagreements between management and the independent auditors regarding financial reporting. Such authority may not be delegated to the Board or management. In exercising such authority, the Committee shall consider, among other things, the independent auditors' independence and effectiveness. The independent auditors shall report directly to the Committee.
2. The Committee shall pre-approve all audit services and permitted non-audit services to be performed by any independent auditors in accordance with the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules promulgated thereunder, and has the sole authority to approve the fees and compensation to be paid to the Company's independent auditors for such services. The Chair of the Committee may grant pre-approval of audit and permitted non-audit services, provided that the Chair's pre-approval decisions shall be presented to the full Committee at its next scheduled meeting.
3. Obtain and review the independent auditors' annual report to the Committee. This annual report shall describe: (a) the independent auditors' internal quality control procedures; (b) 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; and (c) in order to assess the independent auditors' independence, all relationships between the independent auditors and the Company. The Committee shall review this annual report on at least an annual basis when evaluating the independent auditors, and require updates to such annual report where the Committee believes that it is reasonable to request such updates.
4. Review and discuss annually with the independent auditors all significant relationships the auditors have with the Company to determine their independence and receive a letter from the independent auditors regarding their independence.
5. Review the qualifications, performance and independence of the independent auditors, including the "audit partners" of the independent auditors (as such term is defined by the rules and regulations of the SEC), and approve any proposed discharge of the independent auditors when circumstances warrant. When evaluating the independent auditors and its audit partners, the Committee should consider: (a) the opinions of the Company's management and Internal Audit Department (or other personnel responsible for the internal audit function); (b) considerations as to independence of the independent auditor, including whether permitted non-audit services are compatible with maintaining the independent auditors' independence; (c) whether the independent auditors' quality controls are adequate; (d) whether, to assure continuing auditor independence, rotation of the audit partners has occurred in accordance with the rules and regulations of the SEC; and (e) whether, to assure continuing auditor independence, there should be a regular rotation of the independent auditors. The Committee shall present the conclusions of its evaluations of the independent auditors and its audit partners to the independent auditors and the Board.
6. Consult periodically with the independent auditors, out of the presence of management and the Internal Audit Department, about internal controls and the completeness and accuracy of the Company's financial statements.
7. Review the independent auditors' audit plan, which review should include the scope of work, staffing, locations, reliance upon management and internal audit and general audit approach.
8. Prior to filing of the Company's year-end earnings and the audit report, discuss the results of the audit with the independent auditors, including matters required to be communicated to audit committees in accordance with SAS 61 and Rule 2-07 of Regulation S-X. Obtain from the independent auditors assurance that the audit was conducted in a manner consistent with Section 10A of the Exchange Act, which sets forth certain procedures to be followed in any audit of financial statements required under the Exchange Act.
1. Establish regular and separate systems of reporting to the Committee by each of: (a) management; (b) the independent auditors; and (c) the Internal Audit Department regarding any significant judgments made in management's preparation of the financial statements and the view of each as to appropriateness of such judgments.
2. Review regularly and separately with each of management, the independent auditors and the Internal Audit Department any problems or difficulties encountered during the course of the audit work, including any restrictions on the scope of work or on access to requested information.
3. Review regularly any significant disagreement among management and the independent auditors or the Internal Audit Department in connection with the preparation of the financial statements.
4. Review regularly with the independent auditors: (a) any accounting adjustments that were noted or proposed by the independent auditors but were "passed" by management as immaterial or otherwise; (b) any communications between the persons comprising the audit team of the independent auditors and the national office of the independent auditors respecting auditing or accounting issues presented by the engagement; and (c) any "management" or "internal control" letter issued, or proposed to be issued, by the independent auditors to the Company.
5. Review, with the independent auditors, the Internal Audit Department and management, the extent to which changes or improvements in financial or accounting practices, as approved by the Committee, have been implemented. This review should include a discussion of the responsibilities, budget and staffing of the Company's internal audit function.
6. Establish and maintain procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by the Company's employees of concerns regarding questionable accounting or auditing matters.
1. Prepare annually the report to stockholders and publish the report in the Company's annual proxy statement as required by the SEC.
2. Perform any other activities consistent with this Charter, the Company's By-laws and applicable law as the Committee or the Board deems necessary or appropriate.
3. Periodically review with the Company's General Counsel, significant legal matters that may have a material impact on the financial statements and any material reports, notices or inquiries received from regulators or governmental agencies.
4. Authorize or conduct special investigations and studies that arise out of the Committee's areas of responsibility.
5. Retain, in the Committee's sole authority and discretion, independent or outside counsel, accountants or others to advise and assist the Committee in connection with any of its activities, as the Committee determines necessary to carry out its duties.
6. Determine, and submit to the Company, the Committee's funding needs for payment of: (a) compensation to the independent auditors; (b) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out the Committee's duties; and (c) if applicable, compensation to independent counsel, accountants or any others retained to assist the Committee.
7. Establish, in the Committee's sole authority and discretion, and in accordance with the rules and regulations of the SEC, hiring policies for employees or former employees of the Company's independent auditors.
8. Work with the Nominating and Corporate Governance Committee and the Board of Directors to establish and maintain a process for the annual evaluation of the performance of the Committee and, pursuant to such process, conduct an annual evaluation of the performance of the Committee.