Audit Committee Charter
There shall be a committee of the board that shall be called the Audit Committee.
B.1 The Audit Committee shall be directly responsible for the appointment, compensation and oversight over the work of the Company’s independent auditors (including resolution of disagreements between management and the auditor regarding financial reporting).
B.2 The Audit Committee shall assist Board oversight of:
a. the integrity of the Company’s financial statements,
b. the Company’s compliance with legal and regulatory requirements,
c. the independent auditors’ qualifications and independence,
d. the performance of the Company’s internal audit function and independent auditors, and
e. the Company’s system of disclosure controls and system of internal controls regarding finance, accounting, legal compliance, and ethics that management and the Board have established.
B.3 The Audit Committee shall oversee the preparation of the report required by the rules of the Securities and Exchange Commission (the “SEC”) to be included in the Company’s annual proxy statement.
C. Committee Membership and Meetings
C.1 The Audit Committee shall consist of no fewer than three directors as determined by the Board. Each member of the Audit Committee shall satisfy the independence, experience, financial expertise, and other requirements as required by all applicable laws, rules, and regulations including the requirements of the New York Stock Exchange (the “NYSE”), the Sarbanes-Oxley Act of 2002 (the “Act”), and the rules and regulations promulgated by the SEC pursuant to the Act.
C.2. Criteria for Director
a. No Director qualifies as “independent” unless the Board affirmatively determines that the Director has no direct or indirect material relationship with the Company. The Company must disclose the basis for such determination by the Board in its proxy statement.
b. No Director qualifies as “independent” if he or she receives more than $100,000 per year in direct compensation from the Company, other than Director and Committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), until five years after he or she ceases to receive more than $100,000 per year in such compensation.
c. No Director who is, or in the past five years has been, affiliated with or employed by a present or former auditor of the Company can be “independent” until five years after the end of either such affiliation or such auditing relationship.
d. No director qualifies as “independent” if he or she is employed as an executive officer of another company where any of the Company’s present executives serve on that company’s compensation committee until five years after the end of such service or the employment relationship.
e. No Director qualifies as “independent” if he or she is an executive officer or an employee of another company (A) that accounts for at least 2% or $1 million, whichever is greater, or the Company’s consolidated gross revenues, or (B) for which the Company accounts for at least 2% or $1 million, whichever is greater, of such other company’s consolidated gross revenues, in each case until five years after falling below such threshold.
C.3. Heightened Criteria for Audit Committee Members:
a. Directors’ fees (including Committee members fees) are the only compensation an Audit Committee member may receive from the Company (other than pension or other forms of deferred compensation for prior service provided such compensation is not contingent on continued service).
b. Audit Committee members may not serve on the audit committees of more than three public companies, unless the Board determines and discloses in the proxy statement that such multiple service would not impair the ability of the director to effectively serve on the Audit Committee.
c. All members of the Audit Committee must be “independent.” A member of an audit committee is considered “independent” if such member, other than in such member’s capacity as a member of the Board or of a committee thereof, (i) does not accept any consulting, advisory or other compensatory fee from the issuer, and (ii) is not an affiliated person of the issuer or any of its subsidiaries.
C.4. Experience and Financial Expertise:
a. All members of the committee shall be “financially literate,” as such qualification is interpreted by the Board in its business judgment, or must become financially literate within a reasonable period of time after appointment to the Audit Committee. In addition, at least one member of the Committee shall be an “audit committee financial expert” in compliance with the criteria established by the SEC and must have “accounting or related financial management expertise,” as the Board interprets such qualification in its business judgment. The existence of such member(s) who qualify as “audit committee financial experts” shall be disclosed in periodic filings as required by the SEC.
b. the Board shall appoint the members of the Audit Committee annually to serve until their successors are appointed and qualify. Unless a Chair is elected by the full board, the members of the Committee may designate a Chair by majority vote of the full Committee membership. The Board has the power at any time to change the membership of the Audit Committee and to fill vacancies in it, subject to such new member(s) satisfying the independence, experience, financial expertise, and other requirements referred to above. Except as expressly provided in this Charter or the by-laws of the Company or the Corporate Governance Guidelines of the Company, or as otherwise provided by law or the rules of the NYSE, the Audit Committee shall fix its own rules of procedure.
c. The Committee will meet at least four times annually, or more frequently as circumstances dictate. As part of its job to foster open communication, the Committee will meet periodically with management, the director of the internal auditing department and the independent auditors in separate executive sessions to discuss any matters that the Committee or each of these groups believes should be discussed privately. In addition, the Committee will meet quarterly with the independent auditors and management to discuss the annual audited financial statements and quarterly financial statements, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
D. Committee Authority and Responsibilities
a. The Audit Committee has the authority to, and shall, retain and determine funding for, to the extent it deems appropriate, and without Board approval, outside legal, accounting, or other advisors to advise and assist the Committee in carrying out its duties, and has the authority to conduct or authorize investigations into any matters within its scope of responsibilities.
b. The Audit Committee may require any officer or employee of the Company or the Company’s outside counsel or independent auditors to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit Committee.
c. The Audit Committee shall report regularly to the Board and review with the Board, among other things, 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, or the performance of the internal audit function. The Audit Committee will review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval. The Audit Committee will annually review the Audit Committee’s own performance.
d. The Audit Committee has the sole authority to appoint or replace the independent auditors (subject, if applicable, to shareholder ratification). In connection with the sole authority to appoint and replace independent auditors, the Audit Committee shall approve all audit engagement fees and terms and all significant non-audit engagements with the independent auditors; the Audit Committee may consult with management but shall not delegate these responsibilities to management. The Audit Committee is directly responsible for the oversight of the work of the independent auditors for the purpose of preparing or issuing an audit report or related work, and the independent auditors shall report directly to the Audit Committee.
e. In performing its functions, the Audit Committee shall undertake those tasks and responsibilities that, in its judgment, would most effectively contribute and implement the purposes of the Audit Committee.
The following functions are some of the common recurring activities of the Audit Committee in carrying out its oversight responsibility:
D.2 Documents/Reports/Accounting Information Review
a. Review with financial management and the independent auditors the Company’s annual and quarterly financial statements (10-K and 10-Q reports), including the matters required to be discussed pursuant to Statement on Auditing Standards No. 61, prior to filing (or prior to the release of earnings).
b. Review and discuss with management earnings press releases (paying particular attention to any use of “pro-forma,” or “adjusted” non-GAAP, information), as well as financial information and earnings guidance provided to analysts and rating agencies. Such discussion may be on general terms (i.e., discussion of the types of information to be disclosed and the type of presentation to be made), and the Audit Committee need not discuss in advance each earnings release or each instance in which the Company may provide earnings guidance.
c. Review disclosures made by the Company’s principal executive officer or officers and principal financial officer or officers regarding compliance with their certification obligations as required under the Act and the rules promulgated thereunder, including the Company’s disclosure controls and procedures and internal controls for financial reporting and evaluations thereof.
D.3 Independent Auditors
a. Hold timely discussions with, and receive a report at least annually from, the independent auditors regarding the following:
i. all critical accounting policies and practices;
ii. 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
iii. other material written communications between the independent auditor and management including, but not limited to, the schedule of unadjusted differences.
b. Review and discuss with the independent auditors and management, as applicable:
i. any material audit problems or difficulties encountered in the course of the audit work, including any significant disagreements with management or restrictions on the scope of the independent auditors’ activities or on access to requested information and management’s response thereto, and
ii. any formal communications between the audit team and the audit firm’s national office respecting auditing or accounting issues presented by the engagement; and
iii. any “management” or “internal control” letter issued by the audit firm to the Company (and management’s response thereto).
c. At least annually, obtain and review a report by the independent auditor describing:
i. the firm’s internal quality control procedures;
ii. any material issues raised by the most recent internal quality-control review, or peer review, of the Company, 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 any such issues; and
iii. (to assess the auditor’s independence) all relationships between the independent auditor and the Company.
d. After reviewing the foregoing report and the independent auditor’s work throughout the year, the Audit Committee shall evaluate the auditor’s qualifications, performance and independence, including a review and evaluation of the lead partner of the independent auditor. In making its evaluation, the Audit Committee shall take into account the opinions of management and the Company’s internal auditors (or other personnel responsible for the internal audit function), and the conclusions of such evaluation shall be presented to the full Board.
e. Review and pre-approve both audit and permissible non-audit services to be provided by the independent auditor. This duty may be delegated to one or more designated members of the Audit Committee with any such pre-approval reported to the Audit Committee at its next regularly scheduled meeting. Approval of non-audit services shall be disclosed to investors in periodic reports required by Section 13 (a) of the Securities Exchange Act of 1934.
f. Oversee the setting of policies for the Company’s hiring of employees or former employees of the independent auditors who were engaged on the Company’s account (recognizing that SEC rules promulgated under the Act deem an accounting firm not independent of the Company if a former partner, principal, shareholder, or professional employee of the firm is (i) in an accounting role or “financial reporting oversight role” at the Company and has certain ties with or influence over the accounting firm; or (ii) employed by the Company in a “financial reporting oversight role” and was a member of the audit engagement team of the Company during the one-year period preceding the date that audit procedures commenced for the fiscal year period that included the date of initial employment of the audit engagement team member by the Company).
D.4 Financial Reporting Processes and Accounting Policies
a. In consultation with the independent auditors and the internal auditors, review the integrity of the organization’s financial reporting processes and the internal control structure, including disclosure controls.
b. Review with management 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.
c. Review analyses prepared by management and/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.
d. Review the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company.
e. Discuss with management and the independent auditors any accounting adjustments that were noted or proposed by the registered public accounts but were passed (as immaterial or otherwise).
f. Review 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.
D.5. Internal Audit
a. Review the internal audit function of the Company, including:
i. the independence, competence, staffing adequacy and authority of the internal auditor,
ii. the reporting relationships among the internal auditor, financial management and the Audit Committee,
iii. the internal audit reporting obligations, and
iv. the proposed internal audit plans for the coming year and the coordination of such plans with the independent auditors.
b. Review progress reports on the proposed internal audit plan, together with explanations for any deviations from the original plan.
c. Review the regular internal reports (or summaries thereof) to management prepared by the internal auditing department and management’s response to such reports.
d. The Audit Committee has the authority to appoint or replace the internal audit director.
e. Annually review and recommend changes (if any) to the internal audit charter.
f. Periodically review with the internal audit director any significant difficulties, disagreements with management, or scope restrictions encountered in the curse of the department’s work.
g. Discuss with the independent auditors the internal audit department and its audit plan, responsibilities, budget and staffing.
D.6. Ethical Compliance, Legal Compliance, and Risk Management
a. Review periodically the code of Ethics and review whether management has established a system to enforce this Code. Inquire whether the Code is in compliance with all applicable rules and regulations.
b. Review with the organization’s counsel legal compliance matters including corporate securities trading policies.
c. Review reports and disclosures of insider and affiliated party transactions. Advise the Board with respect to the Company’s policies and procedures regarding compliance with applicable laws and regulations and with the Company’s Business Conduct Code “The Power of Integrity – A Guide to Business Conduct.”
d. Discuss with the Company’s general counsel legal or regulatory matters that may have a material impact on the Company’s financial statements or its compliance and reporting policies.
e. Discuss with management the Company’s major financial and accounting risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies and guidelines, and review in a general manner the process by which the Company manages and assesses its risk.
D.7 Other Responsibilities
a. Review with the independent auditors, the internal auditing department and management the extent to which changes or improvements in financial or accounting practices, as approved by the Audit Committee, have been implemented.
b. Oversee the preparation of the report that the SEC requires be included in the Company’s annual proxy statement.
c. Perform an annual self-assessment relative to the Audit Committee’s purpose, duties and responsibilities outlined in this Charter.
d. Review whether any audit partner or the Company’s auditors earns or receives compensation based on the audit partner’s procuring engagements with the Company to provide products or services other than audit, review, or attest services.
e. Review whether the lead audit partner of the independent auditors and the audit partner responsible for reviewing the audit are rotated at least every five years as required by the Act.
f. Consider whether, in order to assure continuing auditor independence, there should be a regular rotation of the audit firm itself, and present the conclusions to the full Board.
g. Review the Company’s policies and procedures for regular review of the expense accounts of the senior management of the Company.
h. Discuss with management and the independent auditors any employee complaints or published reports that raise material issues regarding the Company’s financial statements or accounting polities.
i. At its discretion, request that management, the independent auditors or the internal auditors undertake special projects or investigations which the Audit Committee deems necessary to fulfill its responsibilities.
j. 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.
E. Limitations of Audit Committee’s Roles
While the Audit Committee has the responsibilities and powers set forth in its Charter, it is not the duty of the Audit Committee to prepare financial statements, 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 auditors.
Amended and Restated:
The NYSE defines “immediate family” as including a person’s spouse, parents, children, siblings, mothers-in-law and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than employees) who shares such person’s home.
For purposes of this Charter, the word “periodically” shall mean annually, unless the committee decides otherwise.