I. Purpose and Objectives
The Audit Committee ("Committee") shall assist Board oversight of (i) the integrity of the Company's financial statements, including the Company's accounting, auditing and financial reporting and disclosure processes and internal control systems; (ii) the independent auditor's qualifications and independence; (iii) the performance of the Company's internal audit function and independent auditors; (iv) the Company's compliance with legal and regulatory requirements; and (v) otherwise discharge the functions of the Audit Committee imposed by all regulatory requirements.
The Committee shall consist of at least three and not more than five directors, each of who shall satisfy the applicable independence and experience requirements of the Securities and Exchange Commission, the New York Stock Exchange and any other pertinent regulatory requirement.
All members of the Committee shall be financially literate, as determined by the Board of Directors in its business judgment, and there shall be at least one member who qualifies as an audit committee financial expert as defined by the Securities and Exchange Commission and at least one member shall have accounting or related financial management expertise. Committee members who require assistance in enhancing their familiarity with such subject matters shall participate in educational programs conducted by the Company or an outside consultant. Committee members shall not simultaneously serve on the audit committees of more than two other public companies, unless the Board determines that such simultaneous service could not impair the ability of such member to serve on the Committee and such determination is disclosed in the Company's annual proxy statement.
Committee members shall be annually appointed by the Board taking into consideration recommendations on composition made by the Director Affairs Committee. Committee members shall serve until their successors are duly appointed and qualified. The Committee's Chairman shall be designated by the full Board or, if it does not do so, the Committee members shall elect a chairman by vote of the majority of the full Committee. The Company's Secretary shall act as secretary of the Committee, and will take and distribute minutes of the Committee's proceedings.
The Committee may form and delegate authority to subcommittees when appropriate. Such subcommittee shall be composed solely of independent directors and have a published subcommittee charter.
III. Structure and Meetings
The Committee will meet in regular meetings at least quarterly and will hold as many additional meetings as it deems necessary to discharge its duties and functions, including meetings to review the Company's press releases containing financial statements and the Company's periodic SEC filings. The Committee shall also meet separately and periodically with management, the Director of Internal Audit, and the independent auditors. The Committee may request, in its discretion, any officer or employee of the Company (including Internal Audit personnel) or the Company's outside counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.
The Chairman of the Committee will preside at each meeting of the Committee and, in consultation with the other members of the Committee, shall set the frequency of meetings and the length of and agenda for each meeting. The Chairman will ensure that the agenda for each meeting is circulated in advance of the meeting.
The Committee shall make regular reports to the Board.
The Committee shall have the power and authority of the Board to perform the following duties and to fulfill the following responsibilities:
At least annually, review and assess the adequacy of this Charter and recommend any proposed changes to the Board for approval.
Appoint, retain, evaluate and, when appropriate, replace the Company's independent auditors engaged to prepare and/or issue an audit report or perform other audit, review or attest services for the Company. Selection of the independent auditor shall be subject to stockholder ratification. The Committee shall be responsible for the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting). The independent auditor shall report directly to the Committee.
Review and pre-approve the audit services and permitted non-audit services to be rendered by the independent auditors before such auditors are engaged to render such services. The Committee may delegate its authority to pre-approve services to the Chairman, who shall, in turn, present any such delegated approvals to the full Committee at the next Committee meeting.
Review and pre-approve all fees and compensation paid the independent auditors and all other terms of the engagement.
Review with the independent auditor on at least an annual basis the matters required by Independence Standards Board Standard No. 1 and other regulatory requirements relating to auditor independence. Review and discuss with the independent auditor any relationship (including relationships between the Company and the independent auditor) or services that may impact the objectivity and independence of the auditor and take appropriate action to ensure the independence of the auditor.
Review and discuss with the independent auditor the report the independent auditor is required to make to the Committee regarding (i) all critical accounting policies and practices; (ii) all alternative treatments within GAAP for policies and practices related to material items that have been discussed with management, including ramifications of the use of alternative disclosures and treatments and the treatment preferred by the independent auditor; (iii) other material written communications between the independent auditor and management, including the management letter and any schedule of unadjusted audit differences; (iv) material weaknesses in the Company's systems of internal control; and (v) all material correcting adjustments identified by the independent auditor.
Review and discuss with management and the independent auditor (i) major issues regarding accounting principles and financial statement presentation, including any significant changes in the Company's selection or application of accounting principles, and major issues relating to the adequacy of the Company's internal controls and any special audit steps adopted in light of material control deficiencies; (ii) any analysis prepared by management or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the Company's financial statements, including analysis of the effects of alternative GAAP methods on the Company's financial statements; (iii) any accounting adjustments that were noted or proposed by the independent auditor but were "passed" as immaterial or otherwise; and (iv) any communications between the audit team and the independent auditor's national office with respect to auditing or accounting issues presented by the engagement.
Review the scope and extent of the independent auditor's annual audit, including factors identified by the independent auditor in determining the scope of the annual audit and major risk factors. Meet with the independent auditor prior to the audit to discuss the planning and staffing of the audit.
Review and discuss with the independent auditor on a continuing basis the matters required by Statement of Auditing Standards No. 61 as then in effect and other regulatory requirements relating to the conduct of the audit, including results of the annual audit, any restrictions on the scope of auditor activities, disputes between management and the independent auditor, and the methods used to account for significant unusual transactions.
Obtain and review at least annually a report from the independent auditor describing the independent auditor's internal quality-control procedures; any material issues raised by the most recent internal quality-control review, or peer review, of the independent auditor 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 firm, and any steps taken to deal with such issues. Evaluate the qualifications, performance and independence of the independent auditor, including considering whether the auditor's quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditor's independence, taking into account the opinions of management and internal auditors.
Review and evaluate the lead partner of the independent auditor, taking into account opinions of management and the Company's internal audit personnel.
Confirm with the independent auditor that the independent auditor is in compliance with the SEC's requirements concerning the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit.
Set clear hiring policies for employees or former employees of the independent auditors.
Present the Committee's conclusions with respect to the independent auditor to the Board.
Review and discuss with management and the independent auditor the Company's audited annual and unaudited quarterly financial statements and other related financial information, including the Company's disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations", and analysis of significant, and/or unusual accounting and reporting judgments made in connection with the preparation of the Company's financial statements. Determine whether the audited annual financial statements should be included in the annual report on Form 10-K and whether the unaudited quarterly financial statements should be included in the quarterly report on Form 10-Q.
Review and discuss with management and the independent auditor the Company's earnings press releases, including the use of "pro forma" or "adjusted" non-GAAP information, as well as financial information and earnings guidance contained in press releases and provided to analysts and rating agencies. Such discussion may be done generally consisting of discussing the types of information to be disclosed and the types of presentations to be made and need not take place in advance of each instance in which the Company may provide earnings guidance.
Review and approve major changes in the Company's accounting and reporting principles and practices as may be recommended by management, the independent auditor, or internal auditors.
Periodically review the Company's financial reporting process.
Discuss with management and the independent auditor the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Company's financial statements.
Prepare an Audit Committee report as required by the SEC to be included in the Company's annual proxy statement.
Risk Assessment and Risk Management
Review and discuss with management risk assessment and risk management policies, including review of the Company's major financial risk exposures and steps management has taken to monitor and control such exposures.
Review at least annually with the senior internal auditing executive the Internal Audit department's organizational structure and qualifications, activities and project plans, and significant results of completed audits and projects.
Review and ratify management's selection, replacement, reassignment or dismissal of the senior internal auditing executive and ensure that such executive maintains appropriate independence. (These responsibilities may be delegated to the Audit Committee Chairman.) The senior internal auditing executive shall report functionally to the Committee and administratively to the Chief Financial Officer.
Ensure that the senior internal auditing executive has full, free and direct access at any time to the Committee.
Corporate Governance/Compliance Oversight Responsibilities
Maintain responsibility for the Code of Business Conduct and Ethics ("Code") and ensure the Company properly communicates, monitors and enforces the Code.
Review and respond to any requests for waivers to the Code relating to or requested by Designated Executives and non-employee directors.
Establish procedures for receipt, retention, investigation and treatment of complaints received regarding accounting, internal accounting controls or auditing matters, including procedures for confidential, anonymous submission by employees of concerns regarding questionable accounting, auditing or internal control matters. Conduct investigations of such complaints and concerns submitted to the Committee.
Obtain from the independent auditor assurance that Section 10A(b) of the Exchange Act has not been implicated.
Obtain assurances from management, the Company's senior internal auditing executive and the independent auditor that the Company and its subsidiary/foreign affiliated entities are in conformity with applicable legal requirements. Review reports and disclosures of affiliated party transactions which could have a material impact on the Company's financial statements. Advise the Board with respect to the Company's policies and procedures regarding compliance with applicable laws and regulations.
Discuss with management and the independent auditor any correspondence from or with regulators or governmental agencies and any published reports that raise material issues regarding the Company's financial statements or accounting policies.
Meet periodically with the Company's legal counsel to review regulatory and legal matters that could have a significant impact on the Company's financial statements, compliance policies and programs.
Review annually a summary of officers' expenses and officers' use of corporate assets
Annually review and evaluate the Committee's own performance.
Report regularly to Board of Directors and specifically 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 and independence of the Company's independent auditors, and the performance of the internal audit function.
Conduct or authorize investigations into matters deemed necessary and appropriate to execute the Committee's responsibilities under this Charter.
V. Committee Resources
The Committee shall have unrestricted access to Company personnel, records, and information needed to execute its responsibilities. The Committee shall also have the authority to obtain advice and seek assistance from internal and external legal, accounting and other advisors. The Committee shall have the sole authority to retain and terminate any third party or consultant used to assist in the performance of its duties. The Committee shall have the sole authority to: (i) determine the extent of funding necessary for the payment of compensation to any consultant retained to advise the Committee; and (ii) set other consultant retention terms. The Company shall provide all funding deemed necessary by the Committee for such consultants and resources, including the funding for the compensation of the independent auditors and payment of the Committee's ordinary administrative expenses that are necessary or appropriate in carrying out the Committee's duties.
VI. Limitation of Committee's Role
While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or 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 auditor.
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