2003 Committee Charter : SGRAudit Committee Charter
(adopted as of December 16, 2003)
The primary purpose of the Audit Committee (the "Committee") of The Shaw Group Inc. (the "Company") is to (a) assist the Board of Directors (the "Board") in the Board's 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 systems of internal accounting and financial controls; (iv) the performance of the annual independent audit of the Company's financial statements; (v) the independent auditor's qualifications and independence; and (vi) the performance of the Company's internal audit function, and (b) prepare an Audit Committee Report in conformity with rules of the Securities and Exchange Commission (the "SEC") to be included in the Company's annual proxy statement.
In discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company and the power to retain outside counsel, auditors or consultants, or incur other expenses for this purpose, which expenses the Company shall pay. The Committee may also meet with the Company's investment bankers or financial analysts who follow the Company. The Committee may require any officer or employee of the Company or any of its subsidiaries, the Company's outside legal counsel, and the Company's external auditors to meet with the Committee or any member of the Committee. The Board and the Committee are in place to represent the Company's shareholders; accordingly, the outside auditor is ultimately accountable to the Board and the Committee. The Committee will report to the Board on a regular basis, and the Board shall provide an annual performance evaluation of the Committee.
The Committee shall be comprised of not less than three members of the Board, all of whom shall meet the independence and experience requirements of the New York Stock Exchange (the "NYSE"), Section 10A(m)(3) of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations of the Securities and Exchange Commission (the "SEC"). At least one member of the Committee shall be an audit committee financial expert as defined by the SEC. The Board shall determine annually whether each member of the Committee is independent in accordance with the requirements described above. No member shall serve on an audit committee of more than two other public companies. Each member shall serve at the pleasure of the Board of Directors for such term or terms as the Board shall determine.
Notwithstanding the foregoing membership requirements, no action of the Committee shall be invalid by reason of any such requirement not being met at the time such action is taken.
The Committee shall meet at least four (4) times a year. The agenda of each meeting will be prepared by the Secretary of the Committee and whenever reasonably possible, circulated to each member prior to the meeting date.
The Committee's job is one of oversight and the Committee recognizes that 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 procedures ("GAAP") and applicable rules and regulations. These are the responsibilities of the Company's management and the Company's independent auditors. The Company's management is responsible for compliance with laws and regulations and compliance with the Company's policies and procedures. Additionally, the Committee recognizes that financial management, including the internal audit staff, as well as the outside auditors, have more time, knowledge and more detailed information on the Company than do Committee members, consequently, in carrying out its oversight responsibilities, the Committee is not providing any expert or special assurance as to the Company's financial statements or any professional certification as to the outside auditor's work.
The following functions shall be the common recurring activities of the Committee in carrying out its oversight function. These functions are set forth as a guide with the understanding that the Company may diverge from this guide as appropriate given the circumstances.
1. Review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval.
2. Retain and terminate the Company's independent auditors, which firm is ultimately accountable to the Committee and the Board.
3. Approve the fees to be paid the independent auditors. The Company shall provide for appropriate funding, as determined by the Committee, for payment of compensation to the independent auditors.
4. Review the experience and qualifications of the senior members of the independent auditors team and the quality control procedures of the independent auditors. Any independent auditors selected by the Committee shall be a "registered public accounting firm" within the definition contained in Section 3 of the Sarbanes-Oxley Act of 2002, as required by law.
5. Require that the independent auditors comply with partner rotation rules of the SEC and the NYSE, however, the lead audit partner and the reviewing audit partner engaged on the Company's account shall rotate at least every five years.
6. Pre-approve all services (including audit services, audit-related services, tax services and other services in accordance with the SEC and NYSE rules) to be performed for the Company by the independent auditors. The Committee may delegate pre-approval authority for such services to one or more members, whose decisions shall be presented to the full Committee at its scheduled meetings. Each of these services must receive specific pre-approval by the Committee unless the Committee has provided general pre-approval for such category of services in accordance with policies and procedures that comply with applicable laws and regulations.
7. Review and discuss the Company's annual audited financial statements, the Form 10-K and proxy statement, and the Company's quarterly financial statements with management and the independent auditors, including major issues regarding accounting and auditing principles and practices as well as the adequacy of internal controls that could significantly affect the Company's financial statements. Such review and discussion must include disclosures to be made in the Company's SEC reports under "Management's Discussion and Analysis and Financial Condition and Results of Operations."
8. Review with management and the independent auditor the effect of regulatory and accounting initiatives as well as material off-balance sheet structures on to Company's financial statements.
9. Review any analysis prepared by management and the independent auditor of significant financial reporting issues and judgments made in connection with the preparation of the Company's financial statements, including a disruption of any transaction as to which management obtained Statement on Auditing Standards No. 50 letters.
10. Meet periodically with management and internal auditing department to review the Company's risk assessment as well as major financial risk exposures and the steps management has taken to monitor and control such risks.
11. Review major changes to the Company's accounting principles and auditing practices as suggested by the independent auditors, internal auditors or management.
12. Review and discuss with financial management 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 provided by the Company to analysts and rating agencies.
13. Obtain advice and assistance from outside legal, accounting and other advisors the Committee determines necessary to carry out its duties, without the necessity of Board approval.
14. At least annually, obtain and review reports from the independent auditor describing:
(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 independent auditor, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits conducted by the independent auditor and any steps taken to deal with any such issues; and
(c) All relationships between the independent auditor and the Company, including those relationships that may impact the independent auditors' objectivity and independence.
After reviewing the foregoing report and the independent auditor's work, including the nature of all services and fees provided, throughout the year, the Committee shall evaluate the independent auditor's qualifications, performance and independence and report to the Board its findings. The Committee shall also recommend any appropriate action to the Board in response to the report of the independent auditors necessary to satisfy itself of the independence and objectivity of the independent auditors.
15. Together with the Board, discuss the performance of the independent auditor and whether it is appropriate to rotate independent auditors on a regular basis. If so determined by the Committee, recommend that the Board replace the independent auditor.
16. Review and approve the appointment and replacement of the senior internal auditing executive.
17. Review the annual internal audit plan prepared by the senior internal auditing executive and any significant deviations from the plan.
18. Review the Internal Audit Department's responsibilities, budget and staffing.
19. Review the regular internal audit reports prepared by the Internal Audit Department (including management's responses) and any other significant findings stemming from internal audit activities.
20. Meet with the independent auditor to review the planning and staffing of the audit.
21. Review with the independent auditors, prior to the initiation of the annual audit, the independent auditors' process for identifying and responding to key audit and internal control risks, and the scope and approach of the audit to assure completeness of coverage of key business controls and risk areas.
22. Periodically discuss separately with management, the independent auditors and the internal auditors the adequacy and integrity of the Company's accounting policies and procedures and internal accounting controls, the completeness and accuracy of the Company's financial disclosure and the extent to which major recommendations made by the independent auditors or the internal auditors have been implemented or resolved.
23. Approve the formation of all offshore subsidiaries or affiliates of the Company.
24. Serve as a channel of communication between the independent auditor and the Board and/or management of the Company. The independent auditors are ultimately accountable to the Committee.
25. Instruct the independent auditor to report directly to the Committee any problems or difficulties (as defined in Statement on Auditing Standards No. 61) incurred in connection with the audit, including any restrictions on the scope of activities or access to required information, or any disagreements with management and resolve any disagreements between management and (as defined in Statement or Auditing Standards No. 61) the independent auditors regarding financial reporting.
26. Discuss with the independent auditor whether any communications are required under Section 10A of the Securities Exchange Act of 1934.
27. Obtain reports from management, the Company's senior internal auditing executive and the independent auditor that the Company's subsidiary/foreign affiliated entities are in conformity with applicable legal requirements and the Company's Code of Corporate Conduct.
28. Review with the independent auditor any management letter provided by the auditor and the Company's response to such problems or difficulties or any such management letter.
29. Prepare the report required by the rules of the SEC to be included in the Company's annual proxy statement.
30. Advise the Board with respect to the Company's policies and procedures regarding compliance with applicable laws and regulations and with the Company's Code of Corporate Conduct.
31. Review with the Company's General Counsel legal matters that may have a material impact on the financial statements, the Company's compliance policies and any material reports or inquiries received from regulators or governmental agencies.
32. Meet at least quarterly with management, the internal auditors and the independent auditor in separate executive sessions.
33. In accordance with SEC and NYSE rules, establish, and monitor compliance with, clear hiring guidelines and policies for employees or former employees of the independent auditor who were engaged on the Company's account.
34. Establish procedures for:
(a) The receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; and
(b) The confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
35. Obtain and review reports from the independent auditor concerning:
(a) All critical accounting policies and practices to be used; and
(b) All alternative treatments of financial information within generally accepted accounting principles that have been discussed with management of the Company, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditors.
System of Internal Controls
1. Review and evaluate the effectiveness of the Company's process for assessing significant risks or exposures and the steps management has taken to minimize such risks to the Company. Consider and review with management, the internal auditor and the independent auditors the following:
(a) The effectiveness of or weaknesses in the Company's internal controls including the status and adequacy of management information systems and other information and security, the overall control environment and accounting and financial controls;
(b) Any disclosures provided by the Chief Executive Officer or the Chief Financial Officer to the Committee regarding (i) 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 (ii) any fraud, including that which involves management or other employees who have a significant role in the Company's internal controls; and
(c) Any related significant findings and recommendations of the independent auditors, together with management's response thereto, including the timetable for implementation of recommendations to correct weaknesses in internal controls.
2. Assess internal processes for determining and managing key financial statement risk areas.
3. Ascertain whether the Company has an effective process for determining risks and exposures from asserted and unasserted litigation and claims and from noncompliance with laws and regulations.
4. Review with management and the independent auditors any significant transactions that are not a normal part of the Company's operations.
A majority of the members of the Committee will constitute a quorum. A majority of the members present at any meeting at which a quorum is present may act on behalf of the Committee. The Committee will meet at such times as shall be determined by its Chairperson, or upon the request of any two of its members. The Chairperson will provide, when present, at all meetings of the Committee. The Committee will keep a record of its meetings and report on them to the Board. The Committee may meet by telephone or video conference and may take action by unanimous written consent.
The Board of Directors will establish performance criteria for the Committee and, on a regular basis, will evaluate each Committee member. Committee evaluation will include an assessment of whether the Committee has the necessary diversity of skills, backgrounds, experiences, etc. to meet the Company's needs. Individual evaluations will include high standards for in-person-attendance at Committee meetings and consideration of absences.