Professional Documents
Culture Documents
Audit Committee Charter
Audit Committee Charter
Audit Committee Charter
PURPOSE
The audit committee (the committee) of the board of directors (the board) of Company XYZ (the company) should
provide assistance to the board when fulfilling its responsibilities to the company and to its shareholders, potential
shareholders, the investment community and other stakeholders with respect to its oversight of the following:
• The quality and integrity of the company’s accounting and reporting practices and controls
• The company’s financial statements and reports
• The company’s compliance with legal and regulatory requirements
• The independent auditor’s qualifications and independence
• The performance of the company’s internal audit function and independent auditors
The committee will fulfill these responsibilities primarily by carrying out the activities enumerated in Section IV of
this charter.
COMPOSITION
The committee should comprise three or more members of the board, each of whom should be determined by the
board independently under the rules of the New York Stock Exchange and any other applicable listing or legal
requirements, including the more rigorous independence requirements applicable specifically to audit committee
members.
All members of the committee should have a working familiarity with basic finance and accounting practices, and
at least one member of the committee should be an “audit committee financial expert” as defined by the securities
and Exchange Commission (SEC). Committee members should have other similiar qualities as the board
determines appropriate.
The members of the committee should be appointed by the board at its annual organizational meeting and should
serve until the board’s next organizational meeting or until their successors are duly qualified and elected. The
members of the committee may be removed, with or without cause, by a majority vote of the board.
Unless a chairperson is elected by the full board, the members of the committee may designate a chairperson by
majority votes of the full committee membership. The chairperson will chair all regular sessions of the committee
and set the agenda for the committee meetings.
MEETINGS
The committee should meet at least four times annually or more frequently as their responsibilities dictate. As part
of its job to foster open communication, the committee should, at least annually, meet separately with
management, the director of the internal audit department and the independent auditors to discuss any matters
that the committee or any of these groups believes should be discussed privately. Also, the committee should
meet with the independent auditors and management quarterly to review the company’s financial statements and
reports consistent with Section IV below. The committee may meet in person or through telephone at any time.
All members of the board who are not members of the committee may attend meetings of the committee but may
not vote. The committee may invite any management or other personnel of the company, or any third parties, to
its meetings as deemed appropriate to carry out its responsibilities.
2 Source: www.knowledgeleader.com
RESPONSIBILITIES AND DUTIES
The committee, discharging its oversight role, is empowered to study or investigate any matter of interest or
concern that it deems appropriate. The committee should have the authority to retain outside legal, accounting or
other advisors for this or any other purpose, including the authority to approve the fees payable to these advisors
and any other terms of retention.
The committee should be given full access to the company’s internal audit group, management, personnel and
independent auditors as necessary to carry out these responsibilities. While acting within the scope of its stated
purpose, the committee should have the authority of the board. To fulfill its responsibilities and duties, the
committee should perform the following:
DOCUMENTS/REPORTS REVIEW
• Review the company’s annual audited financial statements and any quarterly financial statements and reports,
including the company’s disclosures under the “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and a discussion with the independent accountants of the matters required to be
discussed by Statements on Auditing Standards Nos. 61 and 71, with management and the independent
auditors, before public dissemination, as applicable.
• Review and discuss the company’s earnings press releases, as well as financial information and earnings
guidance provided to analysts and rating agencies, with management and the independent auditors.
INDEPENDENT AUDITORS
• Retain (and terminate, as the case may be) the company’s independent auditors (subject to shareholder
ratification) and approve all audit engagement fees and terms.
• Oversee the work of any registered public accounting firm employed by the company, including the resolution
of any disagreement between management and the independent auditor regarding financial reporting, when
preparing or issuing an audit report or related work.
• Approve any audit and any permissible non-audit engagement or relationship between the company and the
independent auditors in advance.
• Review the qualifications, performance and independence of the independent auditors at least annually. The
committee should perform the following when conducting its review and evaluation:
− Obtain and review a report by the company’s independent auditors describing the following:
◦ The auditing firm’s internal quality control procedures
◦ Any material issues raised by the most recent internal quality control review or peer
review of the auditing firm 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 auditing
firm and any steps taken to deal with any such issues
◦ All relationships between the independent auditors and the company (to enable the
assessment of the independent auditors’ independence)
− Ensure the rotation of the lead audit partner and reviewing partner on the schedule required by
the SEC, the Public Accounting Oversight Board (PCAOB) or any other applicable authority. As part of its
review, the committee should confirm with any independent auditors providing audit services in any fiscal
year that the lead (or coordinating) audit partner (having primary responsibility for the audit) or the audit
partner responsible for reviewing the audit has not performed audit services for the company in any of the
five previous fiscal years of the company.
− Consider the opinions of management and the company’s internal auditors (or of other personnel
responsible for their internal audit function).
− Receive written statements from these auditors as required by Independence Standards Board
State No. 1 or any other applicable rules, and recommend actions to the board and\or management that are
deemed appropriate to ensure the independence of external auditors.
− Review with the independent auditors any audit problems or difficulties and management’s
response.
3 Source: www.knowledgeleader.com
− Define hiring policies to be implemented by the company for employees or former employees of
the independent auditors to ensure independence.
LEGAL/COMPLIANCE/GENERAL
• Review, with the company’s counsel, any legal matter that could have a significant impact on the company’s
financial statements or operations.
• Report the following regularly to the board:
− Any issues that arise regarding the quality or integrity of the company’s financial statements, the
company’s compliance with legal and regulatory requirements, the performance and independence of the
company’s independent auditors, or the performance of the internal audit function.\
− Other matters that are relevant to the committee’s discharge of its responsibilities
− Minutes or other records of meetings and activities of the committee
The committee should perform a review and evaluation, at least annually, of its performance and its members,
including reviewing the compliance of the committee with this charter. Also, the committee should review and
reassess, at least annually, the adequacy of this charter and recommend to the board any improvements to this
charter that the committee considers necessary or valuable. The board should also issue an annual evaluation of
the committee’s performance.
4 Source: www.knowledgeleader.com
AUDIT COMMITTEE CHARTER: SAMPLE 2
The committee of the board should consist of a minimum of X directors. Members of the committee should be
appointed by the board upon the recommendation of the XYZ Committee and may be removed by the board at its
discretion. All members of the committee should be independent directors under the New York Stock Exchange’s
listing requirements and the company’s independence guidelines, and should also satisfy the SEC’s more
rigorous independence requirement. All members should have sufficient financial experience and an ability to
enable them to discharge their responsibilities, and at least one member should be a financial expert.
The purpose of the committee is to assist the board in its oversight of the integrity of the financial statements of
the company, the company’s compliance with legal and regulatory requirements of the independence and
qualifications of the independent auditor, and the performance of the company’s internal audit function and
independent auditors.
Furthermore, the committee should have the following authority and responsibilities:
• Discuss the annual audited financial statements and quarterly financial statements, including matters required
to be reviewed under applicable legal, regulatory or New York Stock Exchange requirements, with
management and the independent auditor.
• Discuss earnings press releases and financial information and earnings guidance provided to analysts and to
rating agencies with management and the independent auditor, as appropriate.
• Select the independent auditor to examine the company’s accounts, controls and financial statements. The
committee should have the sole authority and responsibility to select, evaluate, compensate and oversee the
work of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the company (including resolution of disagreements
between management and the auditor regarding financial reporting). The independent auditor and each
registered public accounting firm will report directly to the committee. The committee should have the sole
authority to approve all audit engagement fees and terms and the committee, or a member of the committee,
must pre-approve any audit and non-audit services provided to the company by the company’s independent
auditor.
• Discuss any audit problems or difficulties with management and the independent auditor, as appropriate, and
management’s response and the company’s risk assessment and risk management policies, including the
company’s major financial risk exposure and steps taken by management to monitor and mitigate such
exposure.
• Review the company’s financial reporting and accounting standards and principles, significant changes in such
standards or principles or in their application, and the key accounting decisions affecting the company’s
financial statements, including alternatives to, and the rationale for, the decisions made.
• Review and approve the internal corporate audit staff functions, including:
− Purpose, authority and organizational reporting lines
− Annual audit plan, budget and staffing
− Concurrence in the appointment, compensation and rotation of the vice president-corporate audit
staff
• Review the company’s internal system of audit and financial controls and the results of internal audits with the
senior vice president of finance, the vice president corporate audit staff or others the committee deems
appropriate.
• Obtain and review, at least annually, a formal written report from the independent auditor delineating: the
auditing firm’s internal quality control procedures and any material issues raised within the preceding five years
by the auditing firm’s internal quality control reviews, peer reviews of the firm, or any governmental or other
inquiry or investigation related to any audit conducted by the firm. The committee will also review steps taken
by the auditing firm to address any findings in any of the foregoing reviews. Also, in order to assess auditor
independence, the committee will review, at least annually, all relationships between the independent auditor
and the company.
5 Source: www.knowledgeleader.com
• Prepare and publish an annual committee report in the company’s proxy statement.
• Set policies for hiring employees or former employees of the company’s independent auditor.
• Review and investigate any matters pertaining to the integrity of management, including conflicts of interest or
adherence to standards of business conduct as required in the policies of the company. This should include
regular reviews of the compliance processes in general and the corporate ombudsman process in particular. In
connection with these reviews, the committee will meet, as deemed appropriate, with the general counsel and
other company officers or employees.
• Establish procedures for the receipt, retention and treatment of complaints on accounting, internal accounting
controls or auditing matters, as well as for confidential, anonymous submissions by company employees of
concerns regarding questionable accounting or auditing matters.
At least quarterly, the committee should meet separately with the corporate audit staff and also with the
company’s independent auditors.
The committee should have authority to retain such outside counsel, experts and other advisors, as the committee
may deem appropriate in its sole discretion. The committee should have sole authority to approve related fees
and retention terms.
6 Source: www.knowledgeleader.com
AUDIT COMMITTEE CHARTER: SAMPLE 3
PURPOSE
The committee should provide assistance to the company’s board of directors when fulfilling its responsibility to
shareholders, the investment community and governmental agencies that regulate the activities of the company
with respect to oversight of:
• The integrity of the company’s financial reporting process and financial statements and systems of internal
controls
• The company’s compliance with legal and regulatory requirements
• The independent auditor’s qualifications and independence and performance
• The performance of the company’s internal audit function
The committee should prepare the report that SEC rules require to be included in the company’s annual proxy
statement.
Committee members may not serve on audit committees of more than X public companies, that is, companies,
the securities of which are registered under Section 12 of the Exchange Act or that are required to file reports
under Section 15(d) of the Exchange Act, or that files or has filed a registration statement that has not yet become
effective under the Securities Act of 1933 and that it has not withdrawn, including the company, unless the board
achieves the following:
• Determine that simultaneous services would not impair the ability of members to effectively serve on the
committee.
• Disclose this determination in the annual proxy statement. Service on the company’s audit committee and the
audit committee of any of its subsidiaries should be deemed as service on one audit committee for purposes of
this paragraph.
Committee members should not receive compensation from the company other than:
• Director’s fees for service as a director of the company, including reasonable compensation for serving on the
committee and regular benefits that other directors receive
• A pension or similar compensation for past performance, provided that such compensation is not conditioned
on continued or future service to the company
7 Source: www.knowledgeleader.com
APPOINTMENT AND REMOVAL
The members of the committee should be appointed annually by the board, acting upon the recommendation of
the chair of the board and the governance committee, and should serve until the term of their appointments so
long as they remain a member of the board.
CHAIR
In the absence of a member designated by the board to serve as chair, the members of the committee may
appoint by the majority vote of the full committee membership, from among their number, a person to preside at
their meetings.
DELEGATION
The committee may delegate certain responsibilities and duties as it deems appropriate to the following:
• Subcommittees composed of the committee’s own members
• Officers of the company (the committee may delegate to a “designated member or members” of the committee
the authority to approve non-audit services to be provided by the independent auditor in advance so long as
these approvals are disclosed to the full committee at its next scheduled meeting)
The following functions should be the common recurring activities of the committee when carrying out its purpose
outlined in Section I of this charter. These functions should serve as a guide with the understanding that the
committee may carry out additional functions and adopt additional policies and procedures as appropriate in light
of changing business, legislative, regulatory or other conditions. The committee should also carry out any other
responsibilities and duties delegated to it by the board from time to time related to the purpose of the committee
outlined in Section I of this charter.
The committee, when discharging its oversight role, is empowered to study or investigate any matter of interest or
concern that the committee deems appropriate. During this time, the committee should have the authority to retain
outside legal, accounting or other advisors for this purpose, including the authority to approve fees payable to
such advisors and any other terms of retention. The company should provide appropriate funding, as determined
by the audit committee, for payment of compensation to the independent auditor for the purpose of rendering an
audit report and to any advisors employed by the audit committee.
The committee should be given full access to the company’s internal audit department, the board, corporate
executives and independent auditor as necessary to carry out these responsibilities and duties. While acting
within the scope of the purpose of the committee outlined in Section I of this charter, the committee should have
all the authority of the board.
Notwithstanding the foregoing, the committee is not responsible for certifying the company’s financial statements
or guaranteeing the independent auditor’s report nor is the committee responsible for guaranteeing the company’s
compliance with laws, regulations or its compliance policies or programs. The fundamental responsibility for the
company’s financial statements and disclosures and its compliance with laws and regulations rests with
management and the independent auditor.
INDEPENDENT AUDITOR
The committee should perform the following regarding the independent auditor:
• Select and retain the independent auditor (and propose, in any proxy statement, that shareholders ratify the
appointment of the independent auditor) and, where appropriate, terminate the independent auditor. At least
annually, evaluate the independent auditor’s qualifications, performance and independence, including that of
the lead partner. During this time, the committee should obtain and review a report by the company’s
independent auditor describing the following:
8 Source: www.knowledgeleader.com
◦ The auditing firm’s internal quality control procedures
◦ Any material issues raised by the most recent internal quality control review, or peer
review, of the auditing firm, 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 auditing
firm, and any steps taken to deal with any issues
◦ All relationships between the independent auditor and the company (to assess the
auditor’s independence)
− Evaluate the written disclosures and the letter that the independent auditor submits to the
committee regarding the auditor’s independence in accordance with Independence Standards Board
Standard No. 1, and discuss such reports with the independent auditor.
• Approve the terms of the audit engagement and fees to be paid to the independent auditor for audit services.
• Inform, in writing, each registered public accounting firm currently performing audit services for the company
that such firm reports directly to the committee.
• Oversee the work of any unregistered public accounting firm engaged by the company to perform audit
services, including the resolution of any disagreement between management and the auditor regarding
financial reporting, for the purpose of preparing and issuing an audit report or related work; any accounting
adjustments that were noted or proposed by the auditor but were “passed” (as immaterial or otherwise); and
any communications between the audit team and the audit firm’s national office respecting auditing or
accounting issues presented by the engagement.
• Review with the independent auditor the responsibilities, budget and staffing of the company’s internal audit
function.
• Approve in advance any significant audit or non-audit engagement or relationship between the company and
the independent auditor, which is not prohibited by law, and approve the fees for such services. Assure the
regular rotation of the lead audit partner as required by law and consider whether, in order to assure continuing
auditor independence, there should be regular rotation of the audit firm itself.
• Instruct the independent auditor to report to the committee on all critical accounting policies of the company, all
alternative treatments of financial information within GAAP that have been discussed with management,
ramification of the use of such alternative disclosures and treatments and the treatment preferred by the
independent auditor, and other material written communication between the independent auditor and
management.
• Discuss with the independent auditor the matters required to be discussed by SAS 62 – Communications with
the audit committee, as amended from time to time.
9 Source: www.knowledgeleader.com
should not take place in advance of each earnings release or each instance in which the company may provide
earnings guidance.
• Review the management letter regarding the company’s internal controls delivered by the independent auditor
in connection with the audit.
• Meet and discuss privately periodically in separate executive sessions with management, the company’s
general auditor and the independent auditor to discuss matters that the committee or either of these groups
believes could significantly affect the financial statements.
• Review significant changes to the company’s accounting principles and practices proposed by the independent
auditor, the company’s general auditor or management.
10 Source: www.knowledgeleader.com
• Oversee the company’s commitment performance made by management during regulatory examinations,
make recommendations and monitor the company’s compliance with the committee’s recommendations.
• Establish procedures for the receipt, retention and treatment of any complaints received by the company about
its accounting, internal accounting controls or auditing matters and for the confidential and anonymous
submission by employees of concerns regarding questionable accounting or auditing matters.
• Receive periodic reports from management as to the administration of, and compliance with, the code of ethics
for senior financial officers. receive periodic reports from management as to the administration of and
compliance with the code of conduct.
• Review and act upon all requests for waivers of the code of conduct in favor of any executive officer or director
of the company and any waiver of the code of ethics for senior financial officers.
• Set clear hiring policies for employees or former employees of the independent auditor.
REPORTS
The committee should perform the following regarding reports:
• Provide minutes of committee meetings to the board, and report regularly to the board any significant matters
arising from the committee’s work. A report to the board may take the form of an oral report by the chair or any
other member of the committee designated by the committee or the chair to make such a report.
MEETINGS
Most committee members should constitute a quorum for the transaction of any business at any committee
meetings. If less than a majority attend a meeting, a majority of the members present may adjourn the meeting
from time to time without further notice, and quorum present at any such adjourned meeting may transact
business.
If a quorum is present when a vote is taken, then the affirmative vote of most committee members present should
constitute the act of the committee.
Any action permitted or required to be taken at a committee meeting may be taken without a meeting if all the
members of the committee should sign one or more written consents setting forth the action. Action taken by
written consent is effective when the last committee member signs the consent unless the consent specificies an
earlier or later effective date.
A committee member who is present at a meeting of the committee at which action is taken should be presumed
to have assented to the action taken unless such member’s dissent should be entered in the meeting minutes or
unless such member should file his written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof, or should forward such dissent by registered mail to the secretary of the
company immediately after the meeting’s adjournment. A member who votes in favor of an action should have no
right to dissent.
Committee members may participate in, or conduct, a committee meeting through the use of any means of
communication by which all committee members participating can hear each other during the meeting.
Participation means should constitute presence in person at the meeting.
11 Source: www.knowledgeleader.com
The committee should meet at least four times annually as directed by the chair of the committee, except that the
board, the chair of the board or the chair of the committee may call special meetings of the committee. The notice
of a special meeting should state the date and time and, if the meeting is not exclusively telephonic, the place of
the meeting. Unless otherwise required by law, neither the business to be transacted at, nor the purpose of, any
regular or special meetings need be specified in the notice or waiver of notice of such meeting.
Any committee member may waive notice of any meeting of the committee at any time. Whenever any notice is
required to be given to any committee member and under this charter or applicable law, a waiver thereof in writing
signed by the member, entitled to notice should be deemed equivalent to giving notice. The attendance of a
member at a meeting of the committee should constitute a waiver of notice of the meeting except where a
member attends a meeting for the express purpose of objecting to the transaction of any business because the
meeting is not lawfully convened. A member waives objection to consideration of a particular matter at a meeting
that is not within the purpose or purposes described in the meeting notice unless the member objects to
considering the matter when it is presented.
12 Source: www.knowledgeleader.com
AUDIT COMMITTEE CHARTER: SAMPLE 4
PURPOSE
The primary function of the finance and audit committee (the committee) is to provide advice with respect to the
corporation’s financial matters and to assist the board of directors when fulfilling its oversight responsibilities
regarding finance, accounting, tax and legal compliance. Consistent with this function, the committee endeavors
to encourage continuous improvement of, and foster adherence to, the corporation’s policies, procedures and
practices at all levels. The committee’s following primary duties and responsibilities are to:
• Serve as an independent and objective party to monitor the corporation’s financial reporting process and
internal controls system.
• Review and appraise the audit efforts of the corporation’s independent accountants and internal audit
department.
• Evaluate the corporation’s quarterly financial performance as well as its compliance with laws and regulations.
• Oversee management’s establishment and enforcement of financial policies and business practices.
• Provide an open avenue of communication among the independent accountants, financial and senior
management, counsel, the internal audit department, and the board of directors.
Section IV of this charter sets forth the primary responsibilities and duties of the committee. The committee may,
in its discretion, also review reports from management on other finance, legal and administrative issues to the
extent that it deems appropriate or necessary.
COMPOSITION
The committee should be composed of three or more directors as determined by the board, each of whom should
be independent directors and free from any relationship that, in the opinion of the board, would interfere with the
exercise of his or her independent judgment as a member of the committee. An independent director is a director
who achieved the following:
• Been employed by the corporation or an affiliate for at least three years prior to the election to that committee
• Received any compensation from the corporation or an affiliate exceeding $XXX during the prior fiscal year
(excluding benefits under a tax-qualified retirement plan, nondiscretionary compensation or compensation for
board services)
• Been affiliated with a for-profit business entity to which the corporation made or from which the corporation
received payments (other than investments in securities) that exceed the greater of X% of the corporation’s or
such entity’s annual gross revenues or $X whichever is greater in any of the past three years
• Been an executive of another entity where any of the corporation’s executives serve on that entity’s
compensation committee
• Affiliated with a tax-exempt entity that receives significant contributions from the corporation
• Been a spouse, parent, sibling, child or in-law of any person who is or has been in the past X years employed
by the corporation or an affiliate as an executive officer
All members of the committee should have a working familiarity with basic finance and accounting practices, and
at least one member of the committee should have past employment experience in accounting or related financial
management, requisite professional certification in accounting, or any other comparable experience or
background, which results in the individual’s financial sophistication, including being or having been a chief
executive officer, chief financial officer or other senior officer with financial oversight responsibilities.
13 Source: www.knowledgeleader.com
The members of the committee should be elected by the board at the annual organizational board meeting. Each
member of the committee should serve until the next annual organizational meeting of the board or until his or her
successor has been duly elected and qualified. Unless a chair is elected by the full board, the members of the
committee may designate a chair by majority vote of the full committee membership.
MEETINGS
The committee should hold regular meetings as necessary and special meetings as meetings may be called by
the chairman of the committee. As part of its efforts to foster open communication, the committee should meet
annually (or more frequently as it deems appropriate) with management, the director of the internal audit
department and the independent accountants in separate executive sessions to discuss any matters that the
committee or each of these groups believe should be discussed privately. Also, the committee or its chair should
meet with the independent accountants and management quarterly to review the corporation’s financial
statements consistent with the points below. The committee should report its activities to the board at each board
meeting.
The committee should perform the following to fulfill its responsibilities and duties:
DOCUMENTS/REPORTS REVIEW
• Review this charter at least annually and update it as conditions dictate. Submit the charter to the board of
directors for approval and have the charter published at least every three years in the corporation’s proxy
statement.
• Review the corporation’s quarterly financial statements and any other reports or financial information deemed
appropriate by the committee, including any certification, report, opinion or review rendered by the independent
accountants.
• Review the regular internal reports to management prepared by the internal audit department and
management’s response to such reports.
• Review the financial management of the corporation Form 10-As and Form 10-Ks prior to filing. The chair of
the committee may represent the entire committee for this review’s purpose.
• Prepare a report to be included in the corporation’s proxy statement for each annual meeting that discloses
whether the committee has reviewed the financial statements with management and discussed Statement on
Auditing Standards No. 61 (Communicating With Audit Committees) and the Independence Standards Board
Standard No. 1 (Auditor Independence) with the independent accountants, and if it has recommended
including the audited financial statement in the Form 10-K to the board of directors.
CONTROL PROCESSES
• Consider and approve, if appropriate, major changes to the corporation’s auditing and accounting principles
and practices as suggested by the independent accountants, management or the internal audit department.
• Establish regular and separate systems of reporting to the committee by management, the independent
accountants and the internal auditors regarding management’s preparation of the financial statements.
• Review the disclosures made by the corporation’s principal executive officer and principal financial officers
regarding compliance with their certification requirements under the Sarbanes-Oxley Act of 2002 and the rules
promulgated thereunder, including the corporation’s internal controls of financial reporting and disclosure
controls and procedures.
• Review the following with management and the independent accountants at the completion of the annual
examination:
− The corporation’s annual financial statements and related footnotes
− The independent accountants’ audit of the financial statements and their report
14 Source: www.knowledgeleader.com
− Any significant changes required in the independent accountants’ audit plan
− Any serious difficulties or disputes with management encountered during the audit
− The existence of significant estimates and judgments underlying the financial statements,
including the rationale behind those estimates as well as the details of material accruals and reserves
− Other matters related to the conduct of the audit, which are communicated to the committee
under generally accepted auditing standards
• Review any significant disagreement among management and the independent accountants or the internal
audit department in connection with the preparation of the statements.
• Make and approve recommendations to change or improve the financial and accounting practices and
evaluate their implementation.
INDEPENDENT ACCOUNTANTS
• Recognize that independent accountants are ultimately accountants, considering their independence and
effectiveness. The committee has the sole authority to retain and terminate the independent accountants of the
corporation, including sole authority to approve all audit engagement fees and terms and all non-audit services
to be provided by independent accountants. The committee must pre-approve all non-audit services to be
provided by the corporation’s independent accountants. The committee may, from time to time, delegate its
authority to approve non-audit services on a preliminary basis to one or more committee members, provided
that such designees present such approvals to the full committee at the next committee meeting.
• Receive a formal written statement regarding the independent accountants’ independence annually, and
review and discuss, with the accountants, all significant relationships the accountants have with the
corporation to determine the accountants’ independence.
• Review the performance of the independent accounts and discharge the independent accountants when
circumstances warrant.
• Consult with the independent accountants out of the presence of management periodically about internal
controls and the fullness and accuracy of the organization’s financial statements.
• Consider the independent accountants’ judgments about the quality and appropriateness of the corporation’s
accounting principles as applied in its financial reporting.
INTERNAL AUDITORS
• Review and evaluate the process used when establishing the annual internal audit plan.
• Consider, in consultation with the director of internal audit, the audit scope and role of the internal auditors.
• Review and evaluate the scope, risk assessment and nature of the internal auditors’ plan and any subsequent
changes, including whether the internal auditors’ plan is sufficiently linked to the corporation’s overall business
objectives and management’s success and risk factors.
• Consider and review the following with management and the director of internal audit:
− Significant findings during the year and management’s responses to them, including the timetable
for implementation of the recommendations to correct weaknesses in internal control
− Any difficulties encountered during internal audits, including any restrictions on the scope of work
or access to required information
− Any changes required to the planned scope of the audit plan of the internal audit department
− The internal audit department’s budget, staffing and qualifications
• Confirm and assure the independence of the internal auditors.
MISCELLANEOUS
• Oversee the corporation’s policies and procedures regarding compliance with applicable laws and regulations
and with the corporation’s code of conduct and business ethics and receive reports from the chief compliance
officer.
• Establish procedures for the following:
15 Source: www.knowledgeleader.com
− The receipt, retention and treatment of complaints received by the corporation regarding
accounting, internal accounting controls or auditing matters
− The confidential, anonymous submission by employees of the corporation of concerns regarding
questionable accounting or auditing matters.
• Ensure that management has the proper review system in place to ensure that the corporation’s financial
statements, reports and other financial information disseminated to the public satisfy legal requirements.
• Perform any other activities consistent with this charter, the corporation’s bylaws and governing law as the
committee or the board deems necessary or appropriate.
• The committee should have the power to hire legal, financial or other advisors as they deem necessary in their
best judgment regarding cost without the need to obtain the prior approval of any officer of the company. The
secretary of the company will arrange for payment invoices of such third parties.
While the committee has the responsibilities and powers set forth in this charter, it is not the committee’s
responsibility to plan or conduct audits or to determine that the corporation’s financial statements are complete
and accurate and comply with GAAPs. This is the responsibility of management and the independent
accountants.
16 Source: www.knowledgeleader.com
AUDIT COMMITTEE CHARTER: SAMPLE 5
PURPOSE
The audit committee (the committee) is appointed by the board to assist the board in monitoring the following:
• The company’s integrity of the financial statements
• The independent auditor’s qualifications and independence
• The company’s internal audit function and independent auditor’s performance
• The compliance by the company with legal and regulatory requirements
The committee should prepare the report required by the rules of the SEC to be included in the company’s annual
proxy statement.
COMMITTEE MEMBERSHIP
The board should appoint the members of the committee. The committee should consist of no fewer than XX
members. The members of the audit committee should meet any applicable independence, experience or
expertise requirements established by statute, the rules and regulations of the New York Stock Exchange, or the
rules and regulations of the SEC. The committee members should not simultaneously serve on the audit
committees of more than two other public companies.
MEETINGS
The committee should meet as often as possible, but not less frequently than quarterly. The committee should
meet periodically with management, the internal auditors and the independent auditor in separate executive
sessions. The committee may request any officer or employee of the company or the company’s outside counsel
or independent auditor to attend a meeting of the committee or to meet with any members of, or consultants to,
the committee.
The committee should have the sole authority to appoint or replace the independent auditor (subject, if applicable,
to shareholder ratification). The committee should be directly responsible for the compensation and oversight of
the work of the independent auditor (including resolution of disagreements between management and the
independent auditor regarding financial reporting) when preparing or issuing an audit report or related work. The
independent auditor should report directly to the committee.
The committee should pre-approve all auditing services and permitted non-audit services (including the fees and
terms thereof) to be performed for the company by its independent auditor, subject to the de minimum exceptions
for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, which are
approved by the committee prior to the completion of the audit. The committee may form and delegate authority to
grant preapprovals of audit and permitted non-audit services if decisions of such subcommittee to grant
preapprovals should be presented to the full audit committee at its next scheduled meeting.
The audit committee should have the authority, to the extent it deems necessary or appropriate, to retain
independent legal, accounting or other advisors. The company should provide for appropriate funding, as
determined by the audit committee, for payment of compensation to the independent auditor for the purpose of
rendering or issuing an audit report and any advisors by the audit committee.
17 Source: www.knowledgeleader.com
The audit committee should make regular reports to the board. The audit committee should, as and when it
deems appropriate, review and re-assess the adequacy of this charter. The audit committee should annually
review the audit committee’s own performance.
The audit committee should perform the following goals to the extent it deems necessary or appropriate:
18 Source: www.knowledgeleader.com
auditor provides non-audit services, consider whether the provision of non-audit services is compatible with
maintaining the independent auditor’s independence.
• Establish policies for the company’s hiring of employees or former employees of the independent auditor.
• Meet with the independent auditor prior to the audit to discuss the planning and staffing of the audit.
While the audit committee has the responsibilities and powers mentioned in this charter, it is not the audit
committee’s duty to plan or conduct audits or to determine that the company’s financial statements and
disclosures are complete and accurate and comply with GAAPs and applicable rules and regulations. These are
the responsibilities of management and the independent auditor.
19 Source: www.knowledgeleader.com
AUDIT COMMITTEE CHARTER: SAMPLE 6
ROLE
The audit committee (the committee) of the board of directors (the board) assists the board when fulfilling its
responsibility for oversight of the quality and integrity of the accounting and reporting practices of the company,
the qualifications and independence of the public accounting firm engaged to prepare or issue an audit report on
the financial statements of the company (the independent auditor), performance of the internal auditor and the
company’s internal audit function, and other duties as directed by the board. The committee’s role includes
discussing with management the company’s processes to manage financial risk and for compliance with
significant applicable legal, ethical and regulatory requirements. The committee has sole authority over the
appointment and replacement of the independent auditor and is directly responsible for compensation and
oversight of the independent auditor.
MEMBERSHIP
The membership of the committee is composed of at least three directors. Each member should meet the
experience requirements of the listing standards of the XYZ Stock Market and applicable laws and regulations.
Each member will be free of any relationship that, in the opinion of the board, would interfere with his or her
individual exercise of independent judgment. Applicable laws and regulations will be followed when evaluating a
member’s independence. Committee members will not serve simultaneously on the audit committees of more
than two other public companies. The board appoints the chairperson.
OPERATIONS
The committee meets at least once each quarter. Additional meetings may occur as the committee or its chair
deems advisable. The committee will keep adequate minutes of all its proceedings, and will report its actions to
the next board meeting. Committee members will be furnished with copies of the minutes of each meeting and
any action taken by unanimous consent. The committee will be governed by the same rules regarding meetings
(including meetings by conference telephone or similar communications equipment), action without meetings,
notice, waiver of notice, and quorum and voting requirements as applicable to the board. The committee is
authorized and empowered to adopt its own rules of procedures not inconsistent with:
• Any provision hereof
• Any provision of the bylaws of the corporation
• The laws of the state of XXX
COMMUNICATIONS/REPORTING
The independent auditor reports directly to the committee. The committee is expected to maintain free and open
communication with the independent auditor, the company’s internal auditors and the company’s management.
This communication will include periodic separate executive sessions with each of these parties.
EDUCATION
20 Source: www.knowledgeleader.com
The company is responsible for providing the committee with educational resources related to accounting
principles and procedures, current accounting topics pertinent to the company and other materials as requested
by the committee. The company will assist the committee when maintaining appropriate financial literacy.
AUTHORITY
The committee will have the resources and authority necessary to discharge its duties and responsibilities,
including the authority to retain outside counsel or other experts or consultants, as it deems appropriate. Any
communication between the committee and legal counsel during obtaining legal advice will be considered
privileged communications of the company, and the committee will take all necessary steps to preserve the
privileged nature of those communications.
RESPONSIBILITIES
The committee’s specific responsibilities in carrying out its oversight role are delineated in the audit committee's
responsibilities calendar. As the compendium of committee responsibilities, the most recently updated calendar
will be considered an addendum to this charter. The committee will review and re-assess the adequacy of this
charter annually to reflect changes in regulatory requirements, authoritative guidance and evolving oversight
practices, and recommend any proposed changes to the board.
The committee relies on the expertise and knowledge of management, the internal auditors and the independent
auditor when carrying out its oversight responsibilities. Company management is responsible for determining that
the company’s financial statements are complete, accurate and comply with GAAPs. The independent auditor is
responsible for auditing the company’s financial statements. It is not the committee’s duty to plan or conduct
audits, determine that the financial statements are complete and accurate, and comply with GAAPs to conduct
investigations or assure compliance with laws and regulations or the company’s internal policies, procedures and
controls.
21 Source: www.knowledgeleader.com
AUDIT COMMITTEE CHARTER: SAMPLE 7
The audit committee (the committee) of the board of directors (the board) of XYZ Company (XYZ) performs the
following:
• Assist the board in fulfilling its responsibilities for general oversight of the following:
− The company’s integrity of the financial statements
− The independent auditor’s qualifications and independence
− The company’s internal audit function and independent auditor’s performance
− The compliance by the company with legal and regulatory requirements
− The company’s risk assessment and risk management
• Prepare the report required by proxy rules of the SEC to be included in XYZ’s annual proxy statement.
• Set forth the additional duties and responsibilities in Section IV below.
The committee has the authority to obtain advice and assistance from outside legal, accounting or other advisors
as the committee deems necessary to carry out its duties. The committee should receive appropriate funding, as
determined by the committee, from XYZ for payment of compensation to the outside legal, accounting or other
advisors employed by the committee.
MEMBERSHIP
The committee should consist of at least three directors, who shall each be independent under applicable stock
exchange listing standards, as determined by the board. Each member of the committee must meet the applicable
stock exchange financial literacy and expertise requirements. Also, no committee member may have participated
in the preparation of the financial statements of XYZ or any of XYZ’s current subsidiaries at any time during the
past X years.
The committee should convene at least X times each year with additional meetings called as the committee
deems appropriate. The committee chair is responsible for the agenda, including input from management, staff
and other committee and board members as appropriate. Most committee members should be present to
constitute a quorum for the transaction of the committee’s business. The committee should meet regularly in
separate executive sessions and also in private sessions with management, the internal auditors and the
independent auditors to facilitate full communication. The committee should be given open access to XYZ’s
internal auditors, board chairman, XYZ executives and independent auditors, as well as XYZ’s books, records,
facilities and other personnel.
22 Source: www.knowledgeleader.com
DUTIES AND RESPONSIBILITIES
23 Source: www.knowledgeleader.com
• Review the adequacy and effectiveness of XYZ’s disclosure controls and procedures.
• Review the adequacy and effectiveness of XYZ’s internal controls, including any significant deficiencies in
such controls and significant changes or material weaknesses in such controls reported by the independent
auditors.
• Review the adequacy and effectiveness of XYZ’s information security policies and the internal controls
regarding information security.
• Review the overall scope, qualifications resources activities, organizational structure and effectiveness of the
internal audit function.
• Approve the appointment, replacement, reassignment or dismissal of the director of internal audit.
• Review with management and the director of internal audit the results of their review of compliance with
applicable laws and regulations and XYZ’s standards of business conduct and internal audit reports, and
review the results of its review of compliance with applicable listing standards with management.
• Ensure that procedures are established for the receipt, retention and treatment of complaints on accounting,
internal accounting controls or auditing matters, as well as for confidential, anonymous submissions by XYZ’s
employees of concerns regarding questionable accounting or auditing matters and compliance with the
standards of business conduct.
• Receive and, if appropriate, respond to attorneys’ reports of evidence of material violations of securities laws
and breaches of fiduciary duty on similar violations of US or state law.
• Review significant risks or exposures related to litigation and other proceedings and regulatory matters that
may have a significant impact on XYZ’s financial statements.
• Review the results of significant investigations, examinations or reviews performed by regulatory authorities
and management’s response.
• Review and approve all “related-party transactions,” as defined in applicable SEC rules.
• Conduct or authorize investigations into any matters within the committee’s scope of responsibilities.
• Consider other matters regarding XYZ’s financial affairs, its controls, and the internal and independent auditors
of XYZ as the committee, in its discretion, may determine to be advisable.
• Report regularly to the board regarding the committee’s activities.
24 Source: www.knowledgeleader.com
AUDIT COMMITTEE CHARTER: SAMPLE 8
PURPOSE
The audit committee (the committee) of the board of directors (the board) is instrumental in the board’s fulfillment
of its oversight responsibilities related to the following:
• The integrity of the company’s financial statements
• The company’s compliance with legal and regulatory requirements
• The qualifications, independence and performance of the company’s external auditors
• The company’s internal audit function performance
• The business practices and ethical standards of the company (the audit committee should also fulfill the other
responsibilities outlined in this charter)
COMMITTEE MEMBERSHIP
The committee should be composed of at least three members all designated by the board as independent. To be
considered independent, each committee member must meet the independence, financial and expertise
requirements of (Insert Name of Stock Exchange), the Sarbanes-Oxley Act of 2002 (SOX), and other applicable
laws and regulations. The nominating and corporate governance committee should recommend nominees for
appointment to the audit committee annually and as vacancies or newly created positions occur. Audit committee
members should be appointed by the board and may be removed by the board at any time. At the time of the
appointment, all audit committee members should be able to read and understand financial statements. The
board should appoint one member as a financial expert based on documented experience and qualifications. If a
regular member is unable to act due to absence, illness or any other cause, the committee chairperson, or in his
absence by the board, may appoint another independent director of the board to serve as an alternate member.
The nominating and corporate governance committee should recommend to the board, and the board should
designate, the chair of the audit committee. The committee chairperson should not serve for more than X years,
though he/she may remain a member of the committee and may serve as the committee chairperson again in a
future term.
MEETINGS
Minimum quarterly, the audit committee may meet as frequently as required. The meeting may be conducted in
person, through conference calls or any other means permissible by law. Only the audit committee chairperson
and members should be entitled to participate in committee meetings. If invited by the committee, other members
or individuals may attend as deemed necessary.
The audit committee will be responsible for electing a secretary annually to perform the following duties:
• Provide meeting notifications to other committee members.
• Draft minutes of the proceedings and resolutions of all meetings of the committee, including recording the
names of people present and in attendance. The minutes should be forwarded to the committee chairperson
for review and subsequently to all members of the committee.
25 Source: www.knowledgeleader.com
• Provide detailed documentation and minutes regarding any discussion of the criteria outlined in the committee
responsibilities. In the event of a concern of accounting irregularities, fraud or a significant violation of senior
management is established, careful attention should be given to the level of detail regarding the completeness
and accuracy of the minutes.
QUORUM
The quorum necessary for the transaction of business should be the majority of the audit committee members.
Per the guidelines outlined in the committee membership, an alternate independent member may be appointed by
the board to serve in the interim due to absence, illness or any other cause.
AUTHORITY
The audit committee has the sole authority to seek information it requires from employees, company officers,
company documents, and external parties and to investigate, engage advisors or otherwise obtain independent
legal, accounting or other professional services it requires at the expense of the company.
COMMITTEE RESPONSIBILITIES
The audit committee should review, in conjunction with management, the company’s policies generally
concerning the company’s earnings press releases and regarding financial information and earnings guidance
provided to analysts and rating agencies, including in each case the type and presentation of information to be
disclosed, paying particular attention to the use of non-GAAP financial information.
The audit committee should review, in conjunction with the CEO and CFO, the company’s internal and disclosure
controls and procedures over financial reporting, including whether there are deficiencies, material weaknesses,
potential fraud opportunities or any other corrective actions to perform concerning controls and procedures.
The audit committee should have sole authority over the resolution of any disagreements between management
and the independent auditor regarding the company’s financial reporting.
The audit committee should review and discuss with the independent auditors any significant audit problems or
difficulties and management’s responses or other resolutions, including matters required to be discussed with the
audit committee by the auditors under Statement on Auditing Standards No. 61 (communication with audit
committees).
26 Source: www.knowledgeleader.com
The audit committee should prepare the audit committee report, which the SEC requires in the company’s annual
proxy statement.
EXTERNAL AUDIT
The audit committee should make recommendations to the board regarding the appointment, re-appointment, or
removal of the external auditors. The external auditors should report directly to the committee. If the external
auditors resign, the committee should investigate the issues giving rise to such resignation and consider whether
any action is required.
The audit committee should review the scope and staffing of the external auditors’ annual audit plan(s).
The audit committee should evaluate the external auditors’ qualifications, performance and independence and
should present its assessment to the full board at least annually. As part of the evaluation, the audit committee
should consider the following by obtaining and reviewing a report or reports from the company’s external auditors:
• Describe the external auditors’ internal quality control procedures.
• Describe any material issues raised by the following:
− The most recent internal quality control review or peer review of the auditing firm
− Any inquiry or investigation by governmental or professional authorities, within the preceding five
years, regarding one or more independent audits carried out by the auditing firm and any steps to deal with
any such issues.
• Describe all relationships between the external auditors and the company, consistent with Independence
Standards Board Standard No. X.
• Assure that Section 10A of the Securities Exchange Act of 1934 (and amendments) has not been implicated.
The audit committee should obtain the opinion of management and the internal auditors of the independent
auditors’ qualifications, performance and independence.
The audit committee should assist in establishing policies regarding the company’s hiring practices of current or
former employees of the independent auditors.
INTERNAL AUDIT
At least annually, the audit committee should evaluate the performance, responsibilities, budget and staffing of the
company’s internal audit function. This evaluation should include a review of the responsibilities, budget and
staffing of the company’s internal audit function with the external auditors.
OTHER DUTIES
The audit committee should also perform the following duties:
• Review the absence of any conflicts or related-party transactions concerning the CFO and his/her significant
business and investment transactions annually. The CFO should be prohibited from any profit-making
business activities outside of the company that relates to activities of the company and should not have been
employed by the company’s external auditor firm(s) during the prior X years or, if involved in the firm’s audit of
the company, during the prior X years.
• Obtain reports from management on the company’s conformity with the company’s code of business conduct
and ethics. Review disclosures required to be made under the securities laws of insider and affiliated party
transactions. Advise the board of the company’s policies and procedures regarding compliance with applicable
laws and regulations and with the company’s code of business conduct and ethics. Review the procedures that
the company has implemented regarding compliance with the company’s code of business conduct and ethics.
27 Source: www.knowledgeleader.com
• Monitor the implementation of procedures for the receipt, retention and treatment of complaints regarding
accounting, internal accounting controls, auditing or other matters, including mechanisms for anonymous
submission of related concerns by company employees.
• Review with the company’s general counsel legal matters regarding financial transactions, fraud or any other
issue that could have a significant impact on the annual reports.
REPORTING
The audit committee should provide an update to the board about committee activities:
• After each meeting, identify matters that action or improvement is needed, including where the committee is
not satisfied with any aspect of risk management and internal controls, financial reporting or audit-related
activities, including the independence and performance of the external auditors or any other matters the
committee deems appropriate while making recommendations of the steps to be taken.
• Bring to the attention of the board material issues, as well as complaints or concerns regarding accounting,
internal accounting controls, auditing or other matters, and, at least annually, review with the board the
company’s report regarding compliance with internal controls (including insider trading compliance).
• Provide a report regarding the audit committee’s discharge of responsibilities, overall performance, and
recommendations for improvement in the design and effectiveness of the audit committee at least annually to
the board.
• Provide a report annually to shareholders regarding how the audit committee has discharged its
responsibilities and how auditor objectivity and independence has been safeguarded.
It is not the duty of the audit committee to plan or conduct audits or determine that the company’s financial
statements are complete, accurate and in accordance with GAAP. This is the responsibility of management and
the external auditors. Furthermore, while the audit committee is responsible for reviewing the company’s policies
and practices concerning risk assessment and management, it is the responsibility of the CEO and senior
management to determine the appropriate level of the company’s exposure to risk. It is the duty of the audit
committee to report regularly to the board concerning any issues that arise concerning 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 external auditors, the performance of the internal audit function
or any other matter within the scope of the committee’s functions.
28 Source: www.knowledgeleader.com