CHARTER FOR THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF TECHNICAL OLYMPIC USA, INC.

PURPOSE:

This charter governs the operations of the Audit Committee of Technical Olympic USA, Inc. and its subsidiaries (the “Company”). The Audit Committee (the “Committee”) shall provide assistance to the Board of Directors (the “Board”) in fulfilling their oversight responsibility to the shareholders, potential shareholders, the investment community, and others relating to: the integrity of the Company’s financial statements; the accounting and financial reporting processes of the Company; the audits of the financial statements of the Company; the systems of internal accounting and financial controls; the performance of the Company’s internal audit function and independent auditors; the independent auditor’s qualifications and independence; and the Company’s compliance with ethics policies and legal and regulatory requirements. In so doing, it is the responsibility of the Committee to maintain free and open communication between the Committee, independent auditors, the internal auditors, and management of the Company.

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 has the authority to engage independent counsel and other advisers as it determines necessary to carry out its duties.

MEMBERSHIP:

The Committee will consist of at least three (3) members of the Board, all of whom shall be “independent” as defined by applicable law, regulations of the Securities and Exchange Commission (the “SEC”) and the rules or listing standards of any exchange or automated quotation system on which shares of the Company are traded. All members of the Committee must be able to read and understand financial statements, including the Company’s statement of financial condition, statement of income, and statement of cash flows. At least one of the directors will be designated the “audit committee financial expert” and shall meet the requirements set forth in applicable law, regulations of the SEC and the rules or listing standards of any exchange or automated quotation system on which shares of the Company are traded.

The members of the Committee shall be appointed by the full Board and elected by the vote of a majority of the independent directors of the Board. The members of the Committee shall serve until their resignation, retirement or removal by the Board, or until their successors are appointed. No member of the Committee shall be removed except by majority vote of the independent directors of the Board then in office.

DUTIES AND RESPONSIBILITIES:

The primary responsibility of the Committee is to oversee the Company’s financial reporting process on behalf of the Board and report the results of its activities to the Board. Management is responsible for the preparation, presentation, and integrity of the Company’s financial statements and for the appropriateness of the accounting principles and reporting policies that are used by the Company. The independent auditors are responsible for auditing the Company’s financial statements and for reviewing the Company’s unaudited interim financial statements.

The Committee, in carrying out its responsibilities, believes its policies and procedures should remain flexible, in order to best react to changing conditions and circumstances. The Committee should take appropriate actions to set the overall corporate “tone” for quality financial reporting, sound business risk practices, and ethical behavior.

The following shall be the principal duties and responsibilities of the Committee:

A. Independent Auditors – appointment, compensation, funding and oversight

1.       Appointing and retaining independent auditors engaged by the Company for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. Such independent auditors shall report directly to the Committee. The Committee has sole authority to terminate the independent auditors.

2.       Providing appropriate funding, as determined by the Committee, for payment of (i) compensation to any independent auditors employed by the Company for the purpose of rendering an audit report or performing other audit, review or attest services for the Company, (ii) compensation to any advisors employed by the Committee, and (iii) administrative expenses of the Committee that are necessary and appropriate in carrying out its duties.

3.       Reviewing and approving compensation arrangements with the independent auditors.

4.       Reviewing the independent auditor’s proposed audit scope and approach, including the adequacy of staffing.

5.       Reviewing and overseeing the quality, performance and independence of the independent auditors, including an evaluation of the lead partner on the audit team, taking into account the opinions of management and the Company’s Internal Audit Director. Assuring the regular rotation of the lead audit partner and further considering whether, in order to assure continuing auditor independence, there should be regular rotation of the audit firm itself.

At least annually, the Committee shall obtain and review a report by the independent auditors describing:

o        The independent auditor’s internal quality control procedures.

o        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 carried out by the independent auditor, and any steps taken to deal with any such issues.

o        All relationships between the independent auditor and the Company that are relevant to an assessment of the auditor’s independence. The Committee shall engage in a dialogue with the independent auditor regarding any disclosed relationships or services that may impact the objectivity and independence of the auditor.

The audit committee will present its conclusions with respect to the independent auditor to the full Board.

6.       Reviewing with the independent auditors any audit problems or difficulties and management’s response, including, without limitation, any restrictions on audit scope or access to information, any significant disagreements and any accounting adjustments proposed by the independent auditor but “passed” by management, any communications between the independent auditor and the national office of the independent auditor, and any "management" or "internal control" letter issued, or proposed to be issued, by the independent auditor to the Company.

7.       Overseeing the resolution of disagreements between management and the independent auditor regarding financial reporting.

8.       Pre-approving all audit and non-audit services provided by the independent auditors. The Committee shall not engage the independent auditors to perform any non-audit services that are prohibited by law or regulation. The Committee may delegate pre-approval authority to a member of the Committee. The decisions of any Committee member to whom pre-approval authority is delegated must be presented to the full audit Committee at its next scheduled meeting.

9.       Setting clear hiring policies for employees or former employees of the independent auditors who participated in any capacity in the audit of the Company.

B. Internal Controls

1.       Reviewing on a continuing basis, the adequacy of the Company’s system of internal controls. The Committee shall discuss with management, the internal auditors, and the independent auditors the adequacy and effectiveness of the Company’s accounting and financial controls, including the Company’s policies and procedures to assess, monitor, and manage business risk, and legal and ethical compliance.

2.       Reviewing on a continuing basis, the responsibilities, budget, and staffing of the Company's internal audit function.

3.       Conducting a post-audit review of the financial statements and audit findings, including any significant suggestions for improvements provided to management by the independent auditors or the Internal Audit Director.

The audit committee must review:

o        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;

o        analysis 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 analysis of the effects of alternative GAAP methods on the financial statements; and

o        the effect of regulatory and accounting initiatives, as well as off balance sheet structures, on the financial statements of the Company.

C. Financial Reporting Process and Risk Assessment

1.       Reviewing with management and the independent auditors before release, the audited financial statements and disclosures and Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K, including their judgment about the quality, not just the acceptability, of accounting principles, the reasonableness of significant judgments, and the clarity of the disclosures in the financial statements. Also, the Committee shall discuss the results of the annual audit and any other matters required to be communicated to the Committee by the independent auditors under generally accepted auditing standards.

2.       Reviewing with management and the independent auditors before release, the unaudited quarterly operating results in the Company’s quarterly earnings release, and the unaudited financial statements and disclosures and Management's Discussion and Analysis in the Company’s Quarterly Report on Form 10-Q. The chair of the Committee may represent the entire Committee for the purposes of this review. Also, the Committee shall discuss the results of the quarterly review and any other matters required to be communicated to the Committee by the independent auditors under the standards of the Public Company Accounting Oversight Board (United States).

3.       Discussing the types and presentation of information to be disclosed in earnings press releases as well as financial information and earnings guidance provided to analysts and rating agencies.

4.       Discussing policies with respect to risk assessment and risk management, including the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures.

5.       Overseeing compliance with SEC requirements for disclosure of independent auditor’s services and Committee members and activities.

6.       Preparing and publishing an annual Committee report in the Company’s proxy statement.

7.       Reviewing management’s monitoring of compliance with the Company’s standards of business conduct and with the Foreign Corrupt Practices Act.

8.       Providing oversight and review of the Company’s asset management policies, including an annual review of the Company’s investment policies and performance for cash and short-term investments.

D. Complaints and Special Investigations

1.       Establishing 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.

2.       Reviewing, in conjunction with counsel, any legal matters that could have a significant impact on the Company’s financial statements.

3.       Receiving and reviewing corporate attorneys’ reports of evidence of a material violation of securities laws or breaches of fiduciary duty.

4.       If necessary, instituting special investigations and, if appropriate, hiring special counsel or experts to assist.

In addition to the above responsibilities, the Committee will undertake such other duties as the Board delegates to it, and will report, at least annually, to the Board regarding the Committee’s examinations and recommendations.

MEETINGS:

The Committee will meet at least two times each year. The Committee may establish its own schedule, which it will provide to the Board in advance. A majority of the members of the Committee shall constitute a quorum. Any action that may be taken by the Committee at a meeting of such Committee may be taken without a meeting if a consent in writing setting forth the actions so taken is signed by all of the members of the Committee.

The Committee will meet separately with the Chief Executive Officer and separately with the Chief Financial Officer of the Company at least annually to review the financial affairs of the Company.

The Committee will meet separately with the independent auditors of the Company, at least annually and at such other times as it deems appropriate, to review the independent auditor’s examination and management report and any other matters that the Committee wishes to review.

The Committee will meet separately with the Internal Audit Director, at least semi-annually, to discuss any matters that the Committee or the Internal Audit Director believe should be discussed privately.

REPORTS:

The Committee will record its summaries of recommendations to the Board in written form, which will be incorporated as a part of the minutes of the Board meeting at which those recommendations are presented. The Committee will review with the full Board 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.

MINUTES:

The Committee will maintain written minutes of its meetings, which minutes will be filed with the minutes of the meetings of the Board.

ANNUAL REVIEW OF PERFORMANCE AND CHARTER

The Committee will evaluate its performance at least annually to determine whether it is functioning properly. The Committee shall also review and reassess this charter at least annually.

 

 

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