CHARTER OF THE AUDIT COMMITTEE
2003 Committee Charter : UTX
The Audit Committee ("Committee") is appointed by the Board of Directors
("Board") to assist the Board in fulfilling its oversight responsibilities relating to:
the integrity of the Corporation's financial statements; the independence,
qualifications and performance of the Corporation's internal and external
auditors; the adequacy of processes to assure compliance with the Corporation's
policies and procedures, financial controls, Code of Ethics and applicable laws
and regulations; and such other responsibilities as set forth herein. The
Committee provides the opportunity for an open and candid dialog on these
issues among the independent auditor, management, and the internal auditor.
The Committee shall prepare the report required by the rules of the Securities
and Exchange Commission (the "Commission") to be included in the
Corporation's annual proxy statement.
The Committee shall be composed of not less than three directors appointed by
the Board. The members of the Committee shall meet the independence and
financial literacy requirements of the New York Stock Exchange and Section
10A(m)(3) of the Securities Exchange Act of 1934 (the "Exchange Act"). At least
one member of the Committee shall have substantial financial expertise as
determined by the Board. Committee members shall not simultaneously serve on
the audit committees of more than two other public companies.
The Committee shall meet as frequently as it determines necessary. The
Committee normally meets at least four times annually and additional meetings
are scheduled as necessary to review quarterly financial results. The Committee
shall meet periodically with management, the internal auditors and the
independent auditor in separate executive sessions.
IV. Responsibilities and Duties
The Committee shall have the sole authority and responsibility annually to
recommend to the Board the nomination of the independent auditor for approval
by the shareowners. The Committee shall be directly responsible for the
compensation and oversight of the work of the independent auditor for the
purpose of preparing or issuing an audit report or related work. The independent
auditor shall report directly to the Committee.
Except as otherwise permitted, the Committee shall pre-approve all auditing
services and terms, and permitted non-audit services to be performed for the
Corporation by its independent auditor. The Committee may form and delegate
authority to a subcommittee to grant pre-approvals of audit and permitted nonaudit
services, and decisions of this subcommittee shall be presented to the full
Committee at its next scheduled meeting.
The Committee shall have the authority to retain and compensate independent
legal, accounting or other advisors, and shall obtain advice and assistance to the
extent it deems necessary or appropriate.
The Committee shall make regular reports to the Board. The Committee shall
review and reassess the adequacy of this Charter annually and recommend any
proposed changes to the Board for approval. The Committee shall annually
review the Committee's own performance.
The Committee shall:
A. Financial Statements and Disclosure Matters
1. Review and discuss with management and the independent auditor the
annual audited financial statements, including disclosures made in
management's discussion and analysis, and recommend to the Board whether
the audited financial statements should be included in the Corporation's Report
on Form 10-K.
2. Review and discuss with management and the independent auditor the
Corporation's quarterly financial statements prior to the filing of its Report on
Form 10-Q, including the results of the independent auditor's review of the
quarterly financial statements.
3. Discuss with management and the independent auditor significant financial
reporting issues and judgments made in connection with the preparation of the
Corporation's financial statements.
4. Review and discuss on a timely basis with the independent auditors:
(a) Critical accounting policies and practices used.
(b) Alternative treatments of financial information within generally accepted
accounting principles that have been discussed with management.
(c) Other material communications between the independent auditor and
management, such as any management letter or schedule of unadjusted
5. Discuss generally with management the Corporation's earnings press
releases, including the use of "pro forma" or "adjusted" non-GAAP information, as
well as financial information and earnings guidance provided to analysts and
6. Discuss with management and the independent auditor the effect of
regulatory and accounting initiatives as well as off-balance sheet structures on
the Corporation's financial statements.
7. Discuss with management the Corporation's major financial risk exposures
and the steps management has taken to monitor and control such exposures,
including the Corporation's risk assessment and risk management policies.
8. Discuss with the independent auditor the matters required to be discussed
by Statement on Auditing Standards No. 61 relating to the conduct of the audit.
9. Review during the Corporation's CEO and CFO certification process for the
Reports on Form 10-K and Form 10-Q any significant deficiencies in the design
or operation of internal controls and any material weaknesses in internal controls.
B. Oversight of the Corporation's Relationship with the Independent Auditor
1. Review and evaluate the lead partner of the independent auditor team.
2. Obtain and review a report from the independent auditor at least annually
regarding (a) the independent auditor's internal quality-control procedures, (b)
any material issues raised by the most recent internal quality-control review, or
peer review, of the firm, 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, (c) any steps taken to deal with any
such issues, and (d) all relationships between the independent auditor and the
Corporation. The Committee shall present the results of its review to the Board.
3. Ensure the rotation of the lead audit partner having primary responsibility for
the audit and the audit partner responsible for reviewing the audit as required by
law. Consider whether, in order to assure continuing auditor independence, it is
appropriate to adopt a policy of rotating the independent auditing firm on a
4. Establish policies for the Corporation's hiring of employees or former
employees of the independent auditor who participated in the audit of the
5. Discuss with the independent auditor issues reviewed with the auditor's
national office regarding auditing or accounting issues identified during the
6. Meet with the independent auditor annually to discuss the planning and
staffing of the audit.
C. Oversight of the Corporation's Internal Audit Function
1. Review the appointment, performance and replacement of the senior internal
2. Review the internal audit plan and significant findings from the internal
3. Discuss with the independent auditor and management the internal audit
department responsibilities, audit plan, budget and staffing.
D. Compliance Oversight Responsibilities
1. Discuss any illegal acts discovered by the independent auditor during the
course of its work and its conclusions with respect to such illegal acts.
2. Obtain reports from management and the Corporation's senior internal
auditing executive regarding compliance with applicable laws and regulations
and with the Corporation's Code of Business Conduct and Ethics.
3. Establish procedures for the receipt, retention and treatment of complaints
received by the Corporation regarding accounting, internal accounting controls or
auditing matters, and the confidential, anonymous submission by employees of
concerns regarding questionable accounting or auditing matters.
4. Discuss with management and the independent auditor any correspondence
with regulators or governmental agencies and any published reports which raise
material issues regarding the Corporation's financial statements or accounting
5. Discuss with the Corporation's General Counsel legal matters that may have
a material impact on the financial statements or the Corporation's compliance
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, to determine that the
Corporation's financial statements are complete and accurate or to determine
that such statements are in accordance with generally accepted accounting
principles. It is also not the duty of the Committee to conduct investigations or to
assure compliance with laws and regulations and the Corporation's policies and
procedures. These are the responsibility of management, the independent
auditor or others retained by the Committee.