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