ENCORE ACQUISITION COMPANY
AUDIT COMMITTEE CHARTER
The Audit Committee is appointed by the Board of
Directors to assist the Board of Directors of Encore Acquisition Company (the
"Company") in overseeing (1) the integrity of the financial
statements of the Company, (2) the compliance by the Company with legal and
regulatory requirements, (3) the independence, qualifications and performance
of the Company's independent auditors and (4) the performance of the
Company's internal audit function. Pursuant to the Sarbanes-Oxley Act of 2002
and the rules and regulations of the Securities and Exchange Commission, the
Audit Committee shall be directly responsible for the appointment,
compensation, retention and oversight of the work of any registered public
accounting firm engaged for the purpose of preparing or issuing an audit
report or performing other audit, review or attest services for the Company
(any such firm is referred to in this Charter as the Company's independent
auditors). The Audit Committee shall have and may exercise all the powers of
the Board of Directors, except as may be prohibited by law, with respect to
all matters encompassed by this Charter, and shall have all the power and authority
required under the Sarbanes-Oxley Act of 2002.
The Audit Committee shall be appointed by the Board of
Directors and shall consist of not less than three members of the Board of
Directors. The Board of Directors shall also elect a chairman of the Audit
Committee. The Board of Directors intends that the members of the Audit
Committee meet the independence, expertise, experience and financial literacy
requirements of the New York Stock Exchange, Section 10A(m)(3) of the
Securities Exchange Act of 1934 and the rules and regulations of the SEC. The
Company will seek to have at least one member of the Audit Committee who is
an "audit committee financial expert" as defined by Item 401(h)(2) of Regulation S-K promulgated by the SEC. Unless
otherwise determined by the Board of Directors, no member of the Audit
Committee shall simultaneously serve on the audit committees of more than two
other public companies.
The independent auditors of the Company are ultimately
accountable to the Audit Committee and the Board of Directors, as opposed to
management of the Company. The Audit Committee shall have the sole authority
to appoint and, where appropriate, replace the Company's independent auditors
and to approve all audit engagement fees and terms. The Audit Committee shall
be directly responsible for the compensation and oversight of the work of the
independent auditors (including resolution of disagreements between
management and the independent auditors regarding financial reporting) for
the purpose of preparing or issuing an audit report or related work or
performing other audit, review or attest services for the Company. The
independent auditors shall report directly to the Audit Committee.
The Audit Committee shall preapprove
all audit, review or attest engagements, internal control-related services
and permissible non-audit services, including the fees and terms thereof, to
be performed by the independent auditors, subject to, and in compliance with,
the de minimis exception for non-audit services
described in Section 10A(i)(1)(B)
of the Securities Exchange Act of 1934 and the applicable rules and
regulations of the SEC.
The Audit Committee may form and delegate authority to
subcommittees consisting of one or more members when appropriate, including
the authority to grant preapprovals of audit and
permissible non-audit services. The Audit Committee also may delegate such preapproval authority to any of its members. Any
decisions of such subcommittees or members to grant preapprovals
shall be reported to the full Audit Committee at its next scheduled meeting.
The Audit Committee, to the extent it deems necessary or
Financial Statement and Disclosure Matters
- Review and discuss with
management and the independent auditors the annual audited financial
statements, as well as the specific disclosures made in management's
discussion and analysis of financial condition and results of operations
in the Company's Annual Report on Form 10-K.
- Recommend to the Board of
Directors whether the Company's annual audited financial statements and
accompanying notes should be included in the Company's Annual Report on
- Review and discuss with
management, the internal auditors and the independent auditors the
Company's annual report on internal control over financial reporting and
the independent auditors' attestation of the report prior to the filing
of the Company's Annual Report on Form 10-K.
- Prepare and approve the audit
committee report as required by the SEC to be included in the Company's
proxy statement for the annual meeting (or in the Company's Annual
Report on Form 10-K if required to be included therein).
- Review and discuss with
management and the independent auditors the Company's quarterly
financial statements, as well as the specific disclosures made in
management's discussion and analysis of financial condition and results
of operations, prior to the filing of the Company's Quarterly Reports on
Form 10-Q, including the results of the independent auditors' reviews of
the Company's quarterly financial statements.
- Review and discuss with
management and the independent auditors:
- Major issues regarding
accounting principles and financial statement presentations, including
any significant changes in the selection or application of accounting principles,
any major issues concerning the adequacy of the Company's internal
controls, any special audit steps adopted in light of material control
deficiencies and the adequacy of disclosures about changes in internal
control over financial reporting.
- Analyses prepared by
management and/or the independent auditors setting forth significant
financial reporting issues and judgments made in connection with the
preparation of the Company's financial statements, including analyses
of the effects of alternative methods of generally accepted accounting
principles on the financial statements.
- Review and discuss reports
from the independent auditors on:
- All critical accounting
policies and practices to be used.
- All alternative treatments
of financial information within generally accepted accounting
principles that have been discussed with management, including (1)
ramifications of the use of such alternative disclosures and treatments
and (2) the treatment preferred by the independent auditors.
- Other material written
communications between the independent auditors and management, such as
any management letters or schedules of unadjusted differences.
- Discuss with management the
Company's earnings press releases, with particular emphasis on the use
of any "non-GAAP financial measures," as well as financial
information and earnings guidance provided to analysts and rating
agencies. Such discussion may be done generally (covering, for example,
the types of information to be disclosed and the type of presentation to
- Discuss with management and
the independent auditors the effect of regulatory and accounting
initiatives as well as off-balance sheet structures on the Company's
- Discuss with management the
Company's major financial risk exposures and the steps management has
taken to monitor and control those exposures, including the Company's
risk assessment and risk management policies.
- Discuss with the independent
auditors the matters required to be communicated by the independent
auditors pursuant to Statement on Auditing Standards No. 61 relating to
the conduct of the audit, including any problems or difficulties
encountered in the course of the audit work and management's response, any
restrictions on the scope of activities or access to requested
information and any significant disagreements with management.
- Review the disclosures that
the Company's chief executive officer and chief financial officer make
to the Audit Committee and the independent auditors in connection with
the certification process for the Company's Reports on Form 10-K and
Form 10-Q concerning any significant deficiencies or weaknesses in the
design or operation of internal control over financial reporting and any
fraud that involves management or other employees who have a significant
role in the Company's internal control over financial reporting.
Oversight of the Company's Relationship with the
- Review the capabilities and
performance of the lead partner of the independent auditors.
- Obtain and review a report by
the independent auditors describing (i) the
independent auditors' internal quality-control procedures; (ii) 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 firm, and any steps taken to deal with any such issues; and
(iii) all relationships between the independent auditors and the
Company. Evaluate the independent auditors' qualifications, performance
and independence, including considering whether the independent
auditors' quality controls are adequate and the provision of permitted
non-audit services is compatible with maintaining the independent
auditors' independence, taking into account the opinions of management
and internal auditors. The Audit Committee shall present its conclusions
with respect to the independent auditors to the full Board of Directors.
- Confirm the regular rotation
of the audit partners as required by law. Consider whether there should
be regular rotation of the independent auditing firm.
- Establish hiring policies for
the Company's employment of the independent auditors' personnel or
former personnel, which may take into account whether a proposed
employee participated in any capacity in the audit of the Company.
- Discuss with the independent
auditors any communication or consultation between the Company's audit
team and the independent auditors' national office respecting auditing
or accounting issues presented by the engagement.
- Meet with the independent
auditors prior to the audit to discuss the planning and staffing of the
Oversight of the Company's Internal Audit Function
- Oversee the internal audit
function, including the appointment and replacement of the senior
internal auditing executive or other personnel responsible for the
internal audit function.
- Review the significant
reports to management prepared by the internal auditors and management's
- Review with management and
the independent auditors the responsibilities, budget and staffing of
the internal auditors and any recommended changes in the planned scope
of the internal audit. The internal audit function (which may be
outsourced to a third-party service provider other than the independent
auditor) is intended to provide management and the Audit Committee with
ongoing assessments of the Company's risk management processes and
system of internal control.
Compliance Oversight Responsibilities
- Obtain from the independent
auditors assurance that no illegal acts required to be reported under
Section 10A(b) of the Securities Exchange Act of 1934 have been detected
or otherwise come to the attention of the independent auditors in the
course of the audit.
- Obtain reports from
management, the internal auditors and the independent auditors that the
Company and its subsidiary entities are in conformity with applicable
legal requirements and the Company's Code of Business Conduct and
Ethics. Review reports and disclosures of insider and affiliated party
- Advise the Board of Directors
with respect to the Company's policies and procedures regarding
compliance with applicable laws and regulations and with the Company's
Code of Business Conduct and Ethics.
- Establish 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 employees of the Company
of concerns regarding questionable accounting or auditing matters.
- Review with the Company's
legal counsel any legal matters that may have a material impact on the
Company's financial statements, the Company's compliance policies and
the Company's internal controls and any material reports or inquiries
received from regulators or governmental agencies.
- Meet with management
(including the chief financial officer and chief accounting officer),
the internal auditors and the independent auditors in separate executive
- Review and reassess the
adequacy of this charter from time to time and recommend any proposed
changes to the Board of Directors for approval.
- Review annually the Audit
Committee's own performance.
- Make regular reports to the
Board of Directors.
While the Audit Committee has the responsibilities and
powers set forth in this Charter, it is not the duty of the Audit Committee
to plan or conduct audits or to determine that the Company's financial
statements are complete and accurate and are in accordance with generally
accepted accounting principles. It is also not the duty of the Audit
Committee to conduct investigations or to assure compliance with laws and
regulations and the Company's Code of Business Conduct and Ethics.
The Audit Committee shall have the authority to engage
and obtain advice and assistance from current or independent legal,
accounting or other advisors without seeking approval of the Board of
Directors. The Audit Committee may request 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 advisors
to, the Audit Committee. The Company shall provide for appropriate funding,
as determined by the Audit Committee, for payment of compensation to the
independent auditors for the purpose of preparing or issuing an audit report
or performing other audit, review or attest services for the Company,
compensation to any advisors employed by the Audit Committee, and
administrative expenses of the Audit Committee that are necessary or
appropriate in carrying out its duties.
The Audit Committee will meet as often as the members
shall determine to be necessary or appropriate, but at least four times
during each year. In addition, the Audit Committee will make itself available
to the independent auditors and the internal auditors of the Company as
requested. Reports of meetings of the Audit Committee shall be made to the
Board of Directors at its next regularly scheduled meeting following the
Audit Committee meeting, accompanied by any recommendations to the Board of
Directors approved by the Audit Committee.
As revised by the Board of Directors on February 15,