October 2003
[COMPANY NAME]
[NOTE: This form of charter is drafted with more “bells and whistles” than are required
in any particular charter, particularly non-NYSE companies. Particular provisions that should be considered
optional are in brackets. Other provisions may only be required by the NYSE but are not in brackets because
they are recommended as part of any company’s charter. The following additional provisions
are not required for Nasdaq companies but are recommended, either in the charter itself or in a separate workplan
adopted by the audit committee: IV.A.7, 10 and 11; IV.B.4, 5, 6, 7, 9, 13, 14 and 15. Regardless of which
provisions are bracketed, it is up to each company’s board of directors to determine
what form of charter is appropriate, and no provision should be considered mandatory unless it is specifically
required by applicable listing standards.]
I. Statement of Policy
This Charter specifies the scope of the responsibilities
of the Audit Committee (the “Committee”) of the
Board of Directors (the “Board”) of [Company] (the “Company”)
and the manner in which those responsibilities shall be performed,
including its structure, processes and membership requirements.
The primary purpose of the Committee is to [oversee the accounting and financial reporting processes of the Company
and the audits of the Company’s financial statements [Nasdaq]] [assist
the Board in fulfilling its oversight responsibilities by reviewing and reporting to the Board on the integrity of the financial
reports and other financial information provided by the Company
to any governmental body or to the public, and on the Company’s
compliance with legal and regulatory requirements [NYSE]].
The Committee shall also review the qualifications, independence
and performance, and approve the terms of engagement of the
Company’s independent auditor [, review the performance
of the Company’s internal audit function] and prepare
any reports required of the Committee under rules of the Securities
and Exchange Commission (“SEC”). [NYSE & NASDAQ]
The Company shall provide appropriate funding, as determined
by the Committee, to permit the Committee to perform its duties
under this Charter, to compensate its advisors and to compensate
any registered public accounting firm engaged for the purpose
of rendering or issuing an audit report or related work or
performing other audit, review or attest services for the Company.
[SARBANES Section 301 & SEC Release No. 34-47137]The
Committee, at its discretion, has the authority to initiate investigations,
and hire legal, accounting or other outside advisors or experts
to assist the Committee, as it deems necessary to fulfill its
duties under this Charter. [SARBANES Section 301 & SEC
Release No. 34-47137 & NYSE & NASDAQ] The Committee
may also perform such other activities consistent with this
Charter, the Company’s Bylaws and governing law, as the
Committee or the Board deems necessary or appropriate.
II. Organization and Membership Requirements
The Committee shall comprise three or more
directors selected by the Board [NYSE/NASDAQ], each of whom
shall satisfy the independence and experience requirements of [The Nasdaq Stock Market] [the New York Stock
Exchange] [Nasdaq only: , provided that one director who does not meet the independence criteria of Nasdaq, but is not a current
employee or officer, or an immediate family member of an employee or officer, may be appointed to the Committee, subject
to the approval of the Board pursuant to, and subject to the limitations under, the “exceptional and limited
circumstances” exceptions as provided under the rules
of Nasdaq.]. In addition, the Committee shall not include
any member who:
-
[Nasdaq only: has participated in the preparation of the
financial statements of the Company or any current subsidiary
at any time during the past three (3) years; or]
- accepts any consulting, advisory, or other compensatory fee, directly or indirectly, from the Company, other
than in his or her capacity as a member of the Committee, the Board, or any other committee of the Board;
or [SARBANES Section 301 & NYSE & NASDAQ]1
-
is an affiliate of the Company or any subsidiary of the Company, other than a director who meets
the independence requirements of [the New York Stock Exchange] [The Nasdaq Stock
Market]. [SARBANES Section 301; SEC Release No. 34-47137; NYSE; NASDAQ]
2
Each member of the Committee must be able to read and understand fundamental financial
statements, including a balance sheet, income statement and cash flow statement.
[NYSE, NASDAQ & Regulation S-K Rule 306] [Nasdaq: In addition, at least one
member shall have past employment experience in finance or accounting, professional certification in accounting,
or other comparable experience or background resulting in the individual being financially sophisticated, which may
include being or having been a chief executive, chief financial
or other senior officer with financial oversight responsibilities. [Nasdaq]] [NYSE: In addition, at least one member shall have accounting or related financial management expertise,
such qualification to be interpreted by the Board in its business judgment. [NYSE]]3 [No Committee member shall simultaneously serve on the audit committee of more
than three public companies without prior disclosure to the Committee and the Board and an affirmative determination by the
Board that such service does not impair the ability of such member to serve
effectively on the Committee, which determination shall be disclosed in the annual proxy statement.] [NYSE]
The members of the Committee shall be [appointed by the Board] [appointed by the Board
on the recommendation of the Nominating and Corporate Governance Committee] [the latter formulation is
preferred] and shall serve until their successors are duly elected and qualified or their
earlier resignation or removal. Any member of the Committee may be replaced by the Board [on the
recommendation of the Nominating and Corporate Governance Committee [Not required, but recommended by
NYSE]]. Unless a chairman is elected by the full Board, the members of the Committee may designate a
chairman by majority vote of the full Committee membership. [Bylaws]
III. Meetings
The Committee shall meet as often as it determines
[,
but not less frequently than quarterly.] A majority of the members
shall represent a quorum of the Committee, and, if a quorum
is present, any action approved by at least a majority of
the members shall represent the valid action of the Committee.
[Bylaws] The Committee may form and delegate authority to
subcommittees, or to one or more members of the Committee,
when appropriate. The Committee shall meet with management
[,
internal auditors] and the independent auditor in separate
executive sessions as appropriate.
[NYSE] The Committee shall
meet with the independent auditor and management [on a quarterly
basis] to review the Company’s financial statements
and financial reports.
[NYSE] The Committee shall maintain
written minutes of its meetings, which minutes will be filed
with the minutes of the meetings of the Board.
[Bylaws] The
Committee will also record summaries of its recommendations
to the Board in written form, which will be incorporated
as part of the minutes of the Board meeting at which those
recommendations are presented.
[Bylaws]
IV. Committee Authority and Responsibilities
To fulfill its responsibilities and duties the Committee shall:
A.
Oversight of the Company’s Independent Auditor
-
Be directly and solely responsible for the appointment, compensation, retention and oversight
of any independent auditor (including resolution of disagreements between management and
the independent auditor regarding financial reporting)
engaged by the Company for the purpose of preparing or issuing an audit report
or related work, with each such auditor reporting directly
to the Committee.
[SARBANES Section 301 & SEC Release No. 34-47137 & NYSE & NASDAQ]
-
Periodically review and discuss with the independent auditor (i) the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended, and (ii) any formal written statements received
from the independent auditor consistent with and in satisfaction of Independence Standards Board Standard
No. 1, as amended, including without limitation, descriptions of (x) all relationships between the
independent auditor and the Company, (y) any disclosed relationships or services that may impact the
independent auditor’s objectivity and independence and (z) whether any of the Company’s senior
finance personnel were recently employed by the independent auditor. [Statement on Auditing
Standards No. 61 & Independence Standards Board Standard No. 1]
-
[Obtain and review annually a report from the independent auditor describing (i) the
independent auditor’s internal quality-control procedures, (ii) any material issues raised by the most
recent internal quality-control review or peer reviews 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 such issues, and (iii) all relationships between the independent
auditor and the Company.] [NYSE; no similar Nasdaq requirement]
- [Evaluate annually the qualifications, performance and independence of the independent auditor,
including a review of whether the independent auditor’s quality-control procedures are adequate and a
review and evaluation of the lead partner of the independent auditor, taking into account the opinions of
management and the Company’s internal auditors, and report to the Board on
its conclusions, together with any recommendations for additional
action.] [NYSE; no similar Nasdaq requirement, but the Company may wish to consider such
provision in light of the Committee’s responsibility for oversight of the independent auditor]
-
[Consult with the independent auditor to assure the rotation of the lead audit partner having
primary responsibility for the audit and the audit partner responsible for reviewing the audit every five
years, consider issues related to the timing of such rotation and the transition to new lead and reviewing
partners, and consider whether, in order to assure continuing auditor independence, there should be regular
rotation of the audit firm, and report to the Board on its conclusions.]4 [SARBANES
Section 203; SEC Release No. 33-8183; NYSE]
-
Approve in advance the engagement of the independent auditor for
all audit services and non-audit services, based on independence, qualifications and, if applicable, performance, and approve the fees
and other terms of any such engagement; provided, however, that (i) the Committee may establish pre-approval policies and procedures for any engagement to render such services, provided that such policies and procedures
(x) are detailed as to particular services, (y) do not involve delegation to management of the Committee’s responsibilities hereunder and (z) provide that, at its next scheduled meeting, the Committee is informed as to each such service for which the independent auditor is engaged pursuant to such policies and procedures, and (ii) the Committee may delegate to one or more members of the Committee the authority to grant pre-approvals for such services,5 provided that (a) the decisions of such member(s) to grant any such pre-approval shall be presented to the Committee at its next scheduled meeting and (b) the Committee has established policies and procedures for such pre-approval of services consistent with the requirements of clauses (i)(x) and (y) above. [SARBANES Sections 202 & 301;
SEC Release No. 33-8183; NYSE; NASDAQ]6
-
Meet with the independent auditor prior to the audit to discuss
the planning and staffing of the audit. [Not required, but recommended]
[Discuss with the independent auditor the responsibilities, budget and staffing of
the internal audit functions.] [NYSE]
-
Approve as necessary the termination of the engagement of the independent auditor. [SEC
Release No. 34-47137 & NYSE; makes express the right to terminate implied by
the oversight function]
-
[Establish policies for the hiring of employees or former employees of the independent
auditor who participated in any capacity in the audit of the Company, taking into account the impact
of such policies on auditor independence.]7 [See SARBANES Section 206; SEC Release
No. 33-8183; NYSE]
-
Regularly review with the independent auditor any significant difficulties encountered during
the course of the audit, any restrictions on the scope of work or access to required information
and any significant disagreement among management and the independent auditor in connection with
the preparation of the financial statements. [NYSE] Review with the
independent auditor any accounting adjustments that were noted or proposed by the
independent auditor but that were “passed” (as immaterial or otherwise)
[SARBANES Section 401], any communications between the audit team and the independent
auditor’s national office respecting auditing or accounting issues presented by the
engagement [Recommended, but not required, by NYSE], any
“management” or “internal control” letter or schedule of unadjusted
differences issued, or proposed to be issued, by the independent auditor to the Company, or any other
material written communication provided by the independent auditor to the Company’s
management. [SARBANES Section 204; SEC Release No. 33-8183]
-
Review with the independent auditor the critical
accounting policies and practices used by the Company, all alternative treatments
of financial information within generally accepted accounting principles
(“GAAP”) that the independent auditor has discussed with management, the ramifications of the use of such
alternative disclosures and treatments and the treatment preferred by the independent auditor.
[SARBANES Section 204; SEC Release No. 33-8183; NYSE]
B. Review of Financial Reporting, Policies and Processes
-
Review and discuss with management
and the independent auditor the Company’s annual audited
financial statements [NYSE] and any certification, report,
opinion or review rendered
by the independent auditor, and recommend to the Board
whether the audited financial statements should be included
in the
Company’s annual report on Form 10-K [Item
306 of S-K].
-
Review and discuss with management
and the independent auditor the Company’s quarterly financial statements.
[NYSE]
-
Review and discuss with management
and the independent auditor the Company’s disclosure under “Management’s
Discussion and Analysis of Financial Condition and Results
of Operations” appearing in the Company’s
periodic reports. [NYSE]
-
Review and discuss earnings press releases
and other information provided to securities
analysts
and rating
agencies, including
any “pro forma” or adjusted financial information.
[NYSE] [Not required by Sarbanes, but recommended in
light of Section 401(b) thereunder and SEC Release No. 33-8176.]
-
Periodically meet separately with management[,
with internal auditors] and with the
independent auditor. [NYSE]
-
Review with management and the independent auditor any significant judgments
made in management’s preparation of the financial statements and the view of each as to appropriateness of such judgments. [NYSE]
-
Review with management its assessment of the effectiveness and adequacy of the Company’s internal
control structure and procedures for financial reporting (“Internal Controls”), review
[annually] with the independent auditor the attestation to and report on the assessment
made by management, and consider with management [, the internal auditors] and the
independent auditor whether any changes to the Internal Controls are appropriate in light of
management’s assessment or the independent auditor’s attestation. [NYSE &
SARBANES Section 404 (not required by Sarbanes, but recommended in light of
SARBANES Section 404)]
-
[To the extent that it deems appropriate,] [Review with
management its evaluation of the Company’s procedures and controls designed to assure that
information required to be disclosed in its periodic public reports is recorded, processed,
summarized and reported in such reports within the time periods specified by the SEC for the filing of
such reports (“Disclosure Controls”), and consider whether any changes are appropriate
in light of management’s evaluation of the effectiveness of such Disclosure Controls.]
[SARBANES Section 302 (not required by Sarbanes, but recommended in light of SEC
Release No. 33-8124)]
-
Review and discuss with management and the independent auditor any off-balance sheet transactions or structures and their effect on the Company’s financial results and operations, as well as the disclosure regarding such transactions and structures in the Company’s public filings. [NYSE; also recommended in light of SARBANES Section 401(a) and SEC Release No. 33-8182.]
-
Review with management and the independent
auditor the effect of regulatory and accounting initiatives on the financial statements. Review
any major issues regarding accounting principles and financial statement presentations, including any significant changes in selection
of an application of accounting principles. Consider and approve, if appropriate, changes to the Company’s auditing and accounting principles and practices as suggested by the independent auditor or management. [NYSE]
-
[Review any analyses prepared by management and/or the independent [or internal] auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including the effects of
alternative GAAP methods on the
financial statements.] [NYSE]
-
Review any special audit steps adopted in light of Material control deficiencies. [NYSE] [Review with the independent auditor and management the extent
to which changes or improvements in financial or accounting practices, as approved by the Committee, have been implemented.]
[NOTE: Paragraphs 13 through 15 are optional for companies that have internal auditors and are inapplicable to companies that do not have internal auditors. All NYSE companies are required to have internal auditors.]
-
[Review the appointment and replacement of the internal auditors.]
-
[Review the significant reports to management prepared by the internal auditors.]
-
[Discuss with management and the internal auditors the internal auditors’ responsibilities,
budget and staffing and the planned scope of internal audits.]
C. Risk Management, Related Party Transactions, Legal Compliance
and Ethics
-
Review with the chief executive and chief financial officer of the Company any report on significant
deficiencies in the design or operation of the Internal Controls that could adversely
affect the Company’s ability to record, process, Summarize or report financial data, any material
weaknesses in Internal Controls identified to the auditors, and any fraud, whether
or not material, that involves management or other employees who have a significant role in the
Company’s Internal Controls. [SARBANES Section 302(a)(5)]
-
Review and approve any related-party transactions, after reviewing each such transaction for potential
conflicts of interests and other improprieties. [Required by NASDAQ;
NYSE silent on which committee should perform this function]
-
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. Adopt, as necessary, appropriate remedial measures or actions with respect to such complaints or concerns. [SARBANES
Section 301 & SEC Release No. 34-47137 & NASDAQ]
-
[In consultation with the Nominating
and Corporate Governance Committee,] [adopt][consider and
present to the Board for
adoption] a Code of [Nasdaq:
Conduct for all employees and directors]
[NYSE: Ethics for the Company’s principal
executive officer, principal financial officer,
principal accounting officer or
controller, and persons performing similar
functions], which
meets the requirements of Item 406 of the
SEC’s Regulation
S-K, and provide for and review prompt disclosure
to the public of any change in, or waiver
of, such Code of [Nasdaq:
Conduct][NYSE: Ethics, provided that such
Code of Ethics may be combined with
the Company’s Code of Conduct]. [SARBANES
Section 406 and SEC Release No. 33-8177] [Review
such Code of [Conduct][Ethics]
periodically and recommend such changes to
such Code of [Conduct][Ethics] as the Committee
shall deem appropriate,
and adopt procedures
for monitoring and enforcing compliance with
such Code of [Conduct][Ethics].]8
-
NYSE only: [Consult with the
Nominating and Corporate Governance Committee regarding
its
consideration][Consult
with the Board
regarding its adoption] of a
Code of Code of Business Conduct and
Ethics applicable
to all
employees and
directors and required
by the rules of the New York Stock Exchange,
and adopt procedures for monitoring and
enforcing compliance
with such Code of Business
Conduct. [NYSE] 9
-
As requested by the Board, review and investigate conduct alleged by
the Board to be in violation of [NYSE (only if Company adopts separate Code of Ethics): the Company’s Code of Ethics or the] the Company’s Code of Business Conduct and Ethics, and adopt as necessary or appropriate, remedial, disciplinary, or other measures with respect to such
conduct.
-
[Discuss with management and
the independent auditor any correspondence with regulators or governmental agencies that raise material issues regarding
the Company’s financial
statements or accounting policies.]
-
[Discuss guidelines and policies to govern the process by
which risk assessment and management is undertaken and handled. Discuss with management the
Company’s major financial risk exposures and the steps
management has taken to monitor and control such exposures.]
[NYSE; no similar
Nasdaq requirement]
-
[Review with the Company’s general counsel and report to the Board on litigation, material government investigations and compliance with applicable legal requirements and the Company’s
Code of Business Conduct and Ethics.]
-
Prepare the report required by the rules of the SEC to be included in the
Company’s annual proxy statement. [Item 306 of Regulation S-K; NYSE; NASDAQ]
-
[Develop[, in coordination
with the Nominating and Corporate Governance Committee,] and implement an
annual performance evaluation of
the Committee.] [NYSE]
-
[Regularly report to
the Board on the Committee’s
activities, recommendations and conclusions.] [NYSE]
-
Review and reassess the Charter’s adequacy [Nasdaq: as appropriate][NYSE: at least annually].
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