AUDIT COMMITTEE CHARTER1
The primary purpose of the Audit Committee (the “Committee”) is to act on behalf of the Board of Directors (the “Board”) in fulfilling its responsibility to oversee management’s conduct of the Company’s financial reporting process and ensuring the integrity of the Company’s financial statements. Committee members shall be independent and financially literate. Generally, the responsibility of the Committee includes:
(a) overseeing the financial reports and other financial information provided by the Company to any governmental or regulatory body, the public or other users thereof;
(b) reviewing with Company management and the outside auditors the Company’s financial reporting process and systems of internal accounting and financial controls;
(c) ensuring the independence of the outside auditors and the performance of an annual independent audit of the Company’s financial statements; and
(d) overseeing the Company’s risk assessment and risk management processes with respect to financial reporting, trading in the Company’s securities, fraud, information technology and cyber-security.
In discharging its oversight role, duties and responsibilities, 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. The powers of the Committee include the authority to engage outside counsel, auditors or other experts for this purpose. The Committee is in place to represent the Company’s stockholders and the Board; accordingly, the outside auditor is ultimately accountable to the Committee. The Committee shall also be designated as the Company’s Qualified Legal Compliance Committee (the “QLCC”) within the meaning of Rule 205.2(k) of Title 17, Chapter II of the Code of Federal Regulations (the “Rules of Professional Conduct”).
While the Committee has the responsibilities and powers provided in this Charter, it is not the duty of the 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 (“GAAP”). Management remains 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 shall comprise not less than three members of the Board. Each member of the Committee shall meet the requirements of the listing standards of the Nasdaq Stock Market and Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to Committee members as in effect from time to time. Accordingly, all of the members will be directors who:
(a) have no relationship to the Company that may interfere with the exercise of their independence from management and the Company and satisfy the independence requirements of Rule 5605(a)(2) of the listing standards of the Nasdaq Stock Market and Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Nasdaq Stock Market and SEC applicable to Committee members as in effect from time to time; and
(b) are financially literate at the time of their appointment to the Committee. In addition, at least one member of the Committee will have past employment experience in finance or accounting, requisite professional certification in accounting or any other comparable experience or background that results in the individual’s financial sophistication (for purposes of complying with Rule 5605(c)(2) of the listing standards of the Nasdaq Stock Market).
The Committee shall have the authority to appoint, determine compensation for, at the expense of the Company, retain and oversee the auditors as set forth in Section 10A(m)(2) of the Securities and Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder. The Committee shall have the authority to retain and determine compensation for, at the expense of the Company, special legal, accounting or other advisors or consultants as the Committee deems necessary or appropriate in the performance of its duties. The Committee shall also have authority to pay, at the expense of the Company, ordinary administrative expenses that, as determined by the Committee, are necessary or appropriate in carrying out its duties. The Committee shall have the authority to initiate investigations, to provide notices, including notices to the SEC, to retain experts, to recommend that the Company implement remedial or other appropriate actions and otherwise to carry out its responsibilities as a QLCC. The Committee shall have full access to all books, records, facilities and personnel of the Company as deemed necessary or appropriate by any member of the Committee to discharge his or her responsibilities hereunder. The Committee shall have the authority to require that any of the Company’s personnel, counsel, auditors or investment bankers, or any other consultant or advisor to the Company, attend any meeting of the Committee or meet with any member of the Committee or any of its special legal, accounting or other advisors and consultants.
The Committee shall oversee the Company’s financial reporting process on behalf of the Board and shall have direct responsibility for the appointment, compensation, retention and oversight of the work of the auditors, who shall report directly and be accountable to the Committee. The Committee’s job is one of oversight and it recognizes that the Company’s management is responsible for preparing the Company’s financial statements and that the outside auditors are responsible for auditing those financial statements. Accordingly, the Committee is responsible for the review and resolution of any disagreements the outside auditors may have with the Company’s management. The Committee recognizes that Company management, as well as the outside auditors, have more time, knowledge and more detailed information about 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.
In general, the common recurring activities of the Committee in carrying out its oversight function are specified below. These functions are set forth as obligations under existing laws, rules and regulations with the understanding that the Committee may diverge from these obligations as consistent with changes in the applicable laws, rules and regulations.
- The Committee shall evaluate the performance of the auditors, assess their qualifications and determine whether to retain or to terminate the existing auditors or to appoint and engage new auditors for the ensuing year. The Committee shall have the ultimate authority and responsibility to appoint and remove, compensate and review the performance of the independent auditors.
- The Committee shall meet and review with the outside auditors all critical accounting policies and practices of the Company, alternative treatments of financial information within GAAP that have been discussed by the outside auditors with management, and the treatment preferred by the outside auditors.
- The Committee shall prepare the report of the Committee required by the rules of the SEC to be included in the Company’s annual proxy statement.
- The Committee shall meet and review with management and the outside auditors the results of the annual audit and the audited financial statements to be included in the Company’s Annual Report on Form 10-K and Annual Report to Stockholders, review and consider with the outside auditors the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees (“AS No. 1301”) and, based on the discussions with management and the outside auditors, recommend to the Board whether the audited financial statements should be included in the Company’s Annual Report on Form 10-K.
- As a whole, or through the Committee chair, the Committee shall meet and review with management and the outside auditors the Company’s interim financial results and the unaudited interim financial statements to be included in quarterly filings with the SEC and the matters required to be discussed by AS No. 1301; this review will occur prior to the Company’s filing of the Quarterly Reports on Form 10-Q.
- The Committee shall review and discuss any earnings press releases, as well as any financial information and earnings guidance provided to analysts and rating agencies.
- The Committee shall review and discuss with management and the outside auditors the quality and adequacy of the Company’s internal controls and the attestation of the independent auditors with respect to those controls required by Section 404 of the Sarbanes-Oxley Act of 2002, and the Committee shall have the further authority to meet with the internal auditors or individuals performing those functions on behalf of the Company. The review shall include any material issues raised by the internal auditors or by any inquiry or investigation by governmental authorities. The Committee shall also review and discuss with the auditors and, if appropriate, management any management or internal control letter issued or, to the extent practicable, proposed to be issued by the auditors, as well as management’s response, if any, to such letter and any additional material written communications between the auditors and management.
- The Committee shall at least annually:
(a) receive from the outside auditors a formal written statement delineating all relationships between the auditor and the Company consistent with applicable requirements of the Public Company Accounting Oversight Board (United States);
(b) discuss with the outside auditors any such disclosed relationships and their impact on the outside auditor’s independence; and
(c) take appropriate action to oversee the independence of the outside auditor.
- The Committee shall determine and approve engagements of the auditors, prior to commencement of such engagements (unless in compliance with exceptions available under applicable laws and rules related to immaterial aggregate amounts of services), to perform:
(a) all proposed audit, review and attest services, including the scope of and plans for the audit, the adequacy of staffing and the compensation to be paid, at the Company’s expense, to the auditors; and
(b) any proposed permissible non-audit services, including the scope of the service and the compensation to be paid therefore.
These determinations and approvals may be pursuant to pre-approval policies and procedures established by the Committee consistent with applicable laws and rules, including the delegation of pre-approval authority to one or more Committee members so long as any such pre-approval decisions are presented to the full Committee at the next scheduled meeting.
- The Committee shall, in accordance with the Company’s Statement of Policy with respect to Related Person Transactions, review and approve any related person transactions entered into by the Company.
- The Committee shall establish and maintain procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls or auditing matters of the Company, including the establishment of procedures for confidential, anonymous submissions by Company employees with respect to the foregoing matters.
- The Committee shall receive reports at least quarterly concerning the existence or status of any significant financial reporting or fraud risks facing the Company, and discuss and evaluate the steps management has taken or proposes to take to mitigate such risks to the Company.
- The Committee shall review and discuss with management and the auditors any material conflicts or disagreements between management and the auditors regarding financial reporting or accounting practices or policies and resolve any conflicts or disagreements regarding financial reporting.
- The Committee shall confer with management and the auditors regarding the scope, adequacy and effectiveness of the internal control over financial reporting, including any special audit steps taken in the event of material control deficiencies.
- The Committee shall carry out the responsibilities of a QLCC as set forth in the Rules of Professional Conduct.
- The Committee shall review the Company’s tax strategy, the status of any material tax audits and proceedings and any other material tax matters.
- The Committee shall approve and periodically review, at least on an annual basis or more often in the event of a change in Company strategy or the use by the Company of additional types of swaps transactions, (i) the Company’s current and prospective hedging strategy and use of swaps by the Company and its subsidiaries, and (ii) the Company’s hedging policies and procedures, including the Company’s policies for the use of the end-user exception promulgated under the Dodd-Frank Act and the Company’s decision to clear or not to clear swaps transactions.
- The Committee shall review and discuss with management the sufficiency of the Company’s information technology resources, as well as the Company’s program to identify, assess, manage and monitor cyber-security risks.
- The Committee shall periodically review, discuss and assess its own performance, including a review of its compliance with this charter, in accordance with the process developed by the Company’s Nominating and Corporate Governance Committee.
- The Committee shall review and assess the adequacy of this charter on an annual basis and recommend any proposed changes to the Board for approval.
- The Committee shall perform such other functions and shall have such powers as may be necessary or appropriate in the efficient and lawful discharge of the foregoing.
Minutes and Meetings
The Committee shall hold such regular or special meetings as its members shall deem necessary or appropriate. Minutes of each meeting of the Committee shall be prepared and distributed to each member of the Committee and the Secretary of the Company promptly after each meeting.
1 This Charter of the Audit Committee of the Board of Directors was originally adopted on July 25, 2000, and subsequently amended on March 31, 2003, February 24, 2004, March 2, 2009, September 15, 2010, September 18, 2013, September 19, 2014, December 8, 2017 and September 5, 2018.