Audit Committee Charter

 

Purpose

The board of directors appoints the Audit Committee to:

 

 

(a)

assist the board in overseeing:

 

 

(1)

the integrity of Morningstar’s financial statements,

 

(2)

Morningstar’s compliance with legal and regulatory requirements,

 

(3)

the qualifications and independence of Morningstar’s independent registered public accounting firm,

 

(4)

Morningstar’s accounting and financial reporting processes and the audit of Morningstar’s financial statements, and

 

(5)

the performance of Morningstar’s independent registered public accounting firm and Morningstar’s internal audit function, and

 

(b)

prepare an Audit Committee report, in accordance with federal securities laws, to include in Morningstar’s annual proxy statement (the "Audit Committee Report").


Accountability
The independent registered public accounting firm for Morningstar is ultimately accountable to the board of directors and the Audit Committee of Morningstar. The Audit Committee has the ultimate authority and responsibility to select, evaluate and, where appropriate, replace the independent registered public accounting firm subject to shareholder ratification, if applicable.

Membership and Qualifications
The Audit Committee is appointed by the board of directors and includes at least three directors. Each member of the Audit Committee is “independent,” as defined under Rule 4200(a)(15) of The Nasdaq Stock Market, Inc. Marketplace Rules, and meets the criteria for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934. The board of directors will interpret these rules using its business judgment.

Each member is required to be able to read and understand fundamental financial statements. Each member must not have participated in the preparation of Morningstar’s financial statements or the financial statements of any current subsidiary of Morningstar at any time during the past three years. At least one member must have past employment experience in finance or accounting, professional certification in accounting or other comparable experience or background that results in the member’s financial sophistication, as interpreted by the board of directors in its business judgment.

If an Audit Committee member simultaneously serves on the audit committee of more than three public companies, the board must determine whether this member can effectively serve on the Audit Committee and disclose this determination in the Company’s board meeting minutes and annual proxy statement.

Any Audit Committee member who holds 20% or more of Morningstar’s voting stock (or who is a general partner, controlling shareholder or officer of any such holder) cannot serve as the chairperson or a voting member of the Audit Committee. The board shall appoint the chairperson of the Audit Committee.

General Responsibilities and Procedures
The Audit Committee will meet quarterly in person or by telephone. It may meet more frequently, if the Audit Committee deems it necessary to comply with the responsibilities defined in this Charter.

The chairperson of the Audit Committee is responsible for, with input from the other members of the Audit Committee, Morningstar’s independent registered public accounting firm and the appropriate officers of Morningstar, calling, establishing agendas for, and supervising the Audit Committee meetings.

In case of a tie vote during a meeting of the Audit Committee, the vote of the chairperson will decide the issue. The Audit Committee may also take any action permitted in this Charter by unanimous written consent.

The Audit Committee may request any officer or employee of Morningstar or Morningstar’s outside legal counsel or independent registered public accounting firm to attend an Audit Committee meeting or to meet with any members of, or consultants to, the Audit Committee.

The Audit Committee will meet with management, the internal auditors or similar individuals and the independent registered public accounting firm at least twice each year in separate private sessions to discuss any matter that the Audit Committee, management, the independent registered public accounting firm, or any other person believes should be discussed privately.

The Audit Committee shall have the funding, resources and authority appropriate to fulfill its responsibilities, including the authority to engage outside auditors for special audits, reviews and other procedures, and to retain independent counsel and other advisers, as the Audit Committee determines necessary to carry out its duties.

The Audit Committee is NOT responsible for planning or conducting audits or determining that Morningstar’s financial statements are complete and accurate or are in accordance with generally accepted accounting principles. This is the responsibility of management and Morningstar’s independent registered public accounting firm. Nor is it the duty of the Audit Committee to conduct investigations or to assure compliance with laws and regulations, Morningstar’s Code of Ethics, or Morningstar’s Code of Ethics for Financial Managers and Executive Officers. This is the responsibility of management.

Specific Responsibilities

The Audit Committee will:

 

 

 

1. Review Audit Committee Charter

 

Review and reassess the adequacy of the charter annually and recommend any changes to the board of directors.

 

 

 

 

 

 

2. Retain Independent Registered Public Accounting Firm

 

Have the direct responsibility for:

 

(a) appointing, compensating, retaining or replacing Morningstar’s independent registered public accounting firm (who shall report directly to the Audit Committee), subject, if applicable, to shareholder ratification,

 

(b) pre-approving, or adopting a policy to pre-approve, all audit engagement fees and terms, as well as non-audit or tax related engagements with Morningstar’s independent registered public accounting firm, and

 

(c) evaluating the qualifications, performance and independence of the independent registered public accounting firm, based on the information in Paragraphs 3 and 4 below.

 

3. Quality Control of Independent Registered Public Accounting Firm

 

At least annually, obtain and review a report of Morningstar’s independent registered public accounting firm describing:

 

(a) the independent registered public accounting firm’s internal quality control procedures, and

 

(b) any material issues raised by the most recent internal quality control review, or Public Company Accounting Oversight Board inspection, of the firm, or by any inquiry or investigation by governmental or professional authorities within the five preceding years with respect to one or more independent audits carried out by the firm, and any steps taken to deal with any such issues.

 

 

 

 

 

 

 

4. Review Independence of Registered Public Accounting Firm

 

Review, at least annually, the information provided by management and the independent registered public accounting firm relating to the independence of the registered public accounting firm, including, among other things, information related to the non-audit services provided and expected to be provided by the independent registered public accounting firm. In addition, the Audit Committee will:

 

(a) ensure that the independent registered public accounting firm submit at least annually a formal written report delineating all relationships between the independent registered public accounting firm and the Company consistent with Independence Standards Board Standard No. 1, a copy of which is attached to this Charter,

 

(b) actively engage in a dialogue with the independent registered public accounting firm regarding any disclosed relationships or services that may impact the independent registered public accounting firm's objectivity and independence, and

 

(c) take appropriate action in response to the independent registered public accounting firm’s report to satisfy itself of the registered public accounting firm’s independence.

 

The Audit Committee will also:

 

(a) review and evaluate the lead audit partner of the independent registered public accounting firm,

 

(b) consider whether there should be regular rotation of the lead audit partner or the independent registered public accounting firm itself, and

 

(c) set hiring policies for employees or former employees of the independent registered public accounting firm.

 

 

 

 

 

 

 

5. Review Audit Plan

 

Review the plan, scope, and fees for the annual audit and other examinations with the independent registered public accounting firm.

 

 

 

 

 

 

 

6. Conduct of Audit

 

Discuss with the independent registered public accounting firm matters required by Statement on Auditing Standards No. 61 (as amended from time to time) relating to the conduct of the audit, including:

 

(a) any restriction on audit scope, and

 

(b) significant issues discussed with the independent registered public accounting firm’s national office.

 

Review with the independent registered public accounting firm any audit problems or difficulties the independent registered public accounting firm encountered in the course of the audit work and management’s response, including any restrictions on the scope of the independent registered public accounting firm’s activities or on access to requested information, and any significant disagreements with management.

 

 

 

 

 

 

 

 

7. Review of Audit Results

 

Review with the independent registered public accounting firm the report of their annual audit or proposed report of their annual audit, the accompanying management letter, if any, the reports of their review of the Company’s interim financial statements conducted in accordance with Public Company Accounting Oversight Board Standards AU Section 722, if conducted, and the reports of the results of any other examinations outside of the course of the normal audit procedures that the independent registered public accounting firm may from time to time undertake, which will include a review of:

 

(a) major issues regarding:

 

   1) accounting principles and financial statement presentations, including any significant changes in Morningstar’s selection or application of accounting principles, and

 

   2) the adequacy of Morningstar’s internal controls and any special audit steps adopted in light of material control deficiencies,

 

(b) analyses prepared by management and/or the independent registered public accounting firm 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, and

 

(c) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on Morningstar's financial statements.

 

 

 

 

 

 

 

8. Discuss Financial Statements

 

Discuss with appropriate officers of Morningstar and the independent registered public accounting firm the annual audited and quarterly unaudited financial statements of Morningstar, including Morningstar’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and resolve any disagreements between such officers and the independent registered public accounting firm regarding financial reporting.

 

 

 

 

 

 

 

9. Discuss Earnings Press Releases

 

Discuss earnings press releases (including any use of "pro forma" or "adjusted" non-GAAP information), as well as financial information and earnings guidance provided to analysts and rating agencies.

 

 

 

 

 

 

 

10. Review Internal Audit Activities

 

Review any significant ongoing internal audit activities with the appropriate Morningstar personnel.

 

 

 

 

 

 

 

11. Review System of Internal Accounting Control

 

Review with the independent registered public accounting firm, the appropriate senior financial executive, the General Counsel and, as deemed appropriate by the chairperson of the Audit Committee, members of their respective staffs, the adequacy of Morningstar’s internal accounting controls, Morningstar’s financial, auditing, and accounting organizations and personnel and Morningstar’s policies and compliance procedures with respect to business practices.

 

 

 

 

 

 

 

12. Review Recommendations of Independent Registered Public Accounting Firm

 

Review with the appropriate senior financial executive and the appropriate members of his or her staff recommendations made by the independent registered public accounting firm as well as any other matters, if any, as these people or other officers of Morningstar may wish to bring to the attention of the Audit Committee.

 

 

 

 

 

 

 

13. Securities Exchange Act

 

Obtain assurance from the independent registered public accounting firm that Section 10A of the Securities Exchange Act has not been implicated.

 

 

 

 

 

 

 

14. Subsidiary/Affiliate Compliance

 

Obtain reports from management and Morningstar’s appropriate senior financial executive that Morningstar’s subsidiary/foreign affiliate entities conform to applicable legal requirements and Morningstar’s Code of Ethics. Review reports and disclosures of insider and affiliated party transactions. Advise the board with respect to Morningstar’s policies and procedures regarding compliance with applicable laws and regulations and with Morningstar’s Code of Ethics.

 

 

 

 

 

 

 

15. Discuss Risk Management Policies

 

Discuss policies with respect to risk assessment and risk management. The Audit Committee should discuss Morningstar’s major financial risk exposures and the steps management has taken to monitor and control these exposures.

 

 

 

 

 

 

 

16. Discuss Proceedings/Complaints

 

Discuss with management and the independent registered public accounting firm any correspondence with regulators or governmental agencies and any employee complaints or published reports that raise material issues regarding Morningstar’s financial statements or accounting policies.

Establish procedures for the receipt, retention and treatment of complaints received by Morningstar regarding accounting, internal accounting controls or auditing matters, and for the confidential, anonymous submission by Morningstar employees of concerns regarding questionable accounting or auditing matters.

 

 

 

 

 

 

 

17. Discuss Legal Matters

 

Discuss legal matters that may have a material impact on the financial statements or Morningstar’s compliance policies with Morningstar’s General Counsel.

 

 

 

 

 

 

 

18. Review Other Matters

 

Review other matters relating to the accounting, auditing, and financial reporting practices and procedures of Morningstar as the Audit Committee may, in its own discretion, deem desirable in connection with the review functions described above.

 

 

 

 

 

 

 

19. Board Reports

 

Report its activities to the board in a manner and frequency the Audit Committee deems appropriate, but no less than once a year. The report will include the Audit Committee’s conclusions of its evaluation of the independent registered public accounting firm.

 

 

 

 

 

 

 

20. Audit Committee Report

 

Prepare and approve, with the assistance of management, the independent registered public accounting firm, and outside legal counsel:

(a) the Audit Committee Report, and

(b) the annual Audit Committee certification
required by the Nasdaq Stock Market, Inc. Marketplace Rules, and recommend its approval by the board of directors.

 

 

 

 

 

 

 

21. Review Audit Committee Performance

 

Prepare and review with the board of directors an annual performance evaluation of the Audit Committee, which compares the performance of the Audit Committee with the requirements of this Charter. Set forth the goals and objectives of the Audit Committee for the upcoming year.

The performance evaluation may be conducted as the Audit Committee deems appropriate. The report to the board may take the form of an oral report by the chairperson of the Audit Committee or any other member of the Audit Committee.