By Antonio Diaz,2014-05-18 04:07
8 views 0



    A. Purpose

    The purpose of the Audit Committee is to assist the Board of Directors’ (the “Board”) oversight of:

    ? the quality and integrity of the Company’s financial statements, financial reporting

    process and internal operating controls;

    ? the Company’s compliance with legal and regulatory requirements;

    ? the independent auditor’s qualifications and independence; and

    ? the performance of the Company’s internal audit function and independent auditors.

    B. Structure and Membership

    1. Number. The Audit Committee shall consist of at least two members of the Board.

    2. Independence. Except as otherwise permitted by the applicable rules of any national

    securities exchange or any association of securities dealers on which the Company lists

    any class of its capital stock (the “Listing Exchange”) and Section 301 of the Sarbanes-

    Oxley Act of 2002 (the “Sarbanes-Oxley Act”) (and the applicable rules thereunder),

    each member of the Audit Committee shall be “independent” as defined by such rules

    and Act. To insure compliance with this provision, the Audit Committee shall:

    a. monitor the Audit Committee’s members throughout the year to confirm that

    they all remain independent as required by the listing exchange rules; and

    b. consider whether any members of the Audit Committee have relationships with

    the Company that may create the appearance of a lack of independence, even

    though such relationships do not technically disqualify the person from being


    3. Financial Literacy. Each member of the Audit Committee shall be able to read and

    understand fundamental financial statements, including the Company’s balance sheet,

    income statement, and cash flow statement, at the time of his or her appointment to the

    Audit Committee. As of December 15, 2003, at least one member of the Audit

    Committee shall meet the requirements of an “audit committee financial expert” (as

    defined by applicable Listing Exchange and SEC rules). All members of the Audit

    Committee shall participate in continuing education programs if and as required by the

    rules and regulations of any Listing Exchange.

    4. Chair. Unless the Board elects a Chair of the Audit Committee, the Audit Committee

    shall elect a Chair by majority vote.

    5. Compensation. The compensation of Audit Committee members shall be as determined

    by the Board. No member of the Audit Committee may receive any compensation from

    the Company other than director’s fees.

    6. Selection and Removal. The Board shall appoint members of the Audit Committee and

    the Board may remove members of the Audit Committee from such committee, with or

    without cause.

    C. Authority and Responsibilities General

    The Audit Committee shall discharge its responsibilities, and shall assess the information provided

    by the Company’s management and the independent auditor, in accordance with its business

    judgment. Management is responsible for the preparation, presentation, and integrity of the

    Company’s financial statements and for the appropriateness of the accounting principles and

    reporting policies that are used by the Company. The independent auditors are responsible for

    auditing the Company’s financial statements, for reviewing the Company’s unaudited interim

    financial statements, and for such other audit functions as outlined in the independent auditor’s

    letter of engagement.

    Oversight of Independent Auditors

    1. Selection. The Audit Committee shall be solely and directly responsible for annually

    appointing the independent auditors to be proposed for stockholder approval. The Audit

    Committee is solely responsible for evaluating the independent auditor and, when

    necessary, terminating the independent auditor. The Audit committee may authorize the

    CEO to sign the engagement letter but only after the engagement has been reviewed and

    approved by the Audit Committee.

    2. Independence. The Audit Committee shall directly take, or recommend that the full

    Board take, appropriate action to oversee the independence of the independent auditor. In

    connection with this responsibility, the Audit Committee shall annually obtain and review

    a formal written statement from the independent auditor describing all relationships

    between the independent auditor and the Company, including the disclosures required by

    Independence Standards Board Standard No. 1. The Audit Committee shall actively

    engage in dialogue with the independent auditor concerning any disclosed relationships

    or services that might influence the objectivity and independence of the auditor. In

    addition, the Audit Committee shall:

    a. confirm the regulator rotation of the lead audit partner and reviewing partner as

    required by Section 203 of the Sarbanes-Oxley Act;

    b. confirm that the Chief Executive Officer (“CEO”), Chief Financial Officer

    (“CFO”), Controller and Chief Accounting Officer (or other persons serving in

    similar capacities) were not employed by the independent auditor, or if

    employed, did not participate in any capacity in the audit of the Company, in

    each case, during the one-year period preceding the date of initiation of the audit,

    as required by Section 206 of the Sarbanes-Oxley Act; and

    c. annually consider whether, in order to assure continuing auditor independence,

    there should be regular rotation of the independent audit firm. 3. Compensation. The Audit Committee shall have sole and direct responsibility for setting

    the compensation of the independent auditor. The Audit Committee shall inform the

    Board of any significant auditor fees to be incurred beyond the fees from the ordinary

    audit and tax services. The Audit Committee is empowered, without further action by the

    Board, to cause the Company to pay the compensation of the independent auditor

    established by the Audit Committee.

    4. Engagement and Pre-approval of Services. The Audit Committee is responsible for the

    independent auditor engagement and shall pre-approve all audit services (which may

    entail providing comfort letters in connection with securities underwritings), and non-

audit services (other than de minimus non-audit services as defined by the Sarbanes-

    Oxley Act and the applicable rules thereunder) to be provided to the Company by the

    independent auditor. The Audit Committee shall cause the Company to disclose in its

    SEC periodic reports the approval by the Audit Committee of any non-audit services

     performed by the independent auditor.

    5. Prohibited Services. The Audit Committee shall oversee the Company’s compliance with Section 201 of the Sarbanes-Oxley Act and shall not permit the engagement of the

    independent auditor for prohibited non-audit services, thereunder, including the following:

    a. bookkeeping or other services related to the accounting records or financial

    statements of the audit client;

    b. financial information systems design and implementation;

    c. appraisal or valuation services, fairness opinions or contribution-in-kind reports;

    d. actuarial services;

    e. internal audit outsourcing services;

    f. management functions or human resources;

    g. broker or dealer, investment adviser or investment banking services;

    h. legal services and expert services unrelated to the audit; and

    i. any other service that the Board determines, by regulation, is impermissible.

    6. Direct Report. The independent auditor shall report directly to the Audit Committee and the Audit Committee shall have sole and direct responsibility for overseeing the

    independent auditor, including resolution of disagreements between Company

    management and the independent auditor regarding financial reporting. In connection

    with its oversight role:

    a. The Audit Committee shall, from time to time, as appropriate, obtain and review

    the reports required to be made by the independent auditor pursuant to paragraph

    (k) of Section 10A of the Securities Exchange Act of 1934, as amended (the

    “Exchange Act”), regarding:

    (i) critical accounting policies and practices;

    (ii) alternative treatments of financial information within generally

    accepted accounting principles that have been discussed with Company

    management, ramifications of the use of such alternative disclosures

    and treatments, and the treatment preferred by the independent auditor;


    (iii) other material written communications between the independent auditor

    and Company management.

    b. The Audit Committee shall also review with the independent auditor:

    (i) planning and staffing of the audit;

    (ii) the letter of management representations given to the outside auditor

    and inquire of the auditor whether any difficulties were encountered in

    obtaining the letter;

(iii) audit problems or difficulties the independent auditor encountered in

    the course of the audit work and management’s response, including any

    restrictions on the scope of the independent auditor’s activities or on

    access to requested information and any significant disagreements with


    (iv) major issues as to the adequacy of the Company’s internal controls and

    any special audit steps adopted in light of material control deficiencies; (v) analyses prepared by management and/or the independent auditor

    setting forth significant financial reporting issues and judgments made

    in connection with the preparation of the financial statements, including

    analyses of the effects of alternative GAAP methods on the financial

    statements; and

    (vi) the effect of regulatory and accounting initiatives on the financial

    statements of the Company.

    c. The Audit Committee will review with the independent auditors, from time to

    time, as and when appropriate:

    (i) significant risks and/or uncertainties with respect to the quality,

    accuracy or fairness of presentation of the Company’s financial


    (ii) recently disclosed problems with respect to the quality, accuracy or

    fairness of presentation of the financial statements of companies

    similarly situated to the Company and recommended actions which

    might be taken to prevent or mitigate the risk of problems at the

    Company arising from such matters;

    (iii) any accounting adjustments that were noted or proposed by the auditor

    but were “passed” (as immaterial or otherwise);

    (iv) any communications between the audit team and the audit firm’s

    national office respecting auditing or accounting issues presented by

    the engagement;

    (v) accounting for unusual transactions;

    (vi) adjustments arising from audits that could have a significant impact on

    the Company’s financial reporting process; and

    (vii) any recent SEC comments on the Company’s SEC reports, including, in

    particular, any unresolved or future-compliance comments.

    d. The Audit Committee shall inquire of the independent auditor concerning the

    quality, not just the acceptability, of the Company’s accounting determinations,

    particularly with respect to revenue, earnings, significant items subject to

    estimate, and other judgmental areas. The Audit Committee shall also ask the

    independent auditor whether management’s choices of accounting principles and

    policies are, as a whole, in accordance with GAAP and whether there are other

    acceptable alternatives to the principles and policies applied by management.

    e. The Audit Committee shall promptly notify the Board of any significant issues

    brought to the attention of the Audit Committee by the independent auditor.

    f. The Audit Committee shall inform the independent auditor, Company

    management (including the CFO, and Controller) and the head of internal

    auditing that they should promptly contact the Audit Committee or its Chair

    about any significant issue or disagreement concerning the Company’s

    accounting practices or financial statements that is not resolved to their

    satisfaction. If the Audit Committee Chairperson is contacted about such an

    issue, he or she shall; (i) confer with the independent auditor about the issue; (ii)

    notify the other members of the Audit Committee; and (iii) decide whether it is

    necessary for the Audit Committee to meet before its next scheduled meeting.

    g. The Audit Committee shall obtain and review a copy of the most recent

    independent auditor inspection report as issued by the Public Company

    Accounting Oversight Board pursuant to Section 104 of the Sarbanes-Oxley Act.

    h. The Audit Committee shall obtain from the independent auditor assurance that,

    if the independent auditor detects or becomes aware of any illegal act, the

    independent auditor will immediately and adequately inform the Audit

    Committee directly and provide the Audit Committee with a written report

    detailing the such illegal acts detected and any specific conclusions or

    recommendations for change with respect to such illegal acts.

    i. The Audit Committee shall discuss with management and the independent

    auditor any correspondence with regulators or governmental agencies and any

    published reports that raise material issues regarding the Company’s financial

    statements or accounting policies.

    Review of Audited Financial Statements

    7. Discussion of Audited Financial Statements. The Audit Committee shall review and

    discuss with the Company’s management and independent auditor the Company’s

    audited financial statements, including the matters about which Statement on Auditing

    Standards No. 61, “Communications with Audit Committees” - requires discussion.

    8. Recommendation to Board Regarding Financial Statements. The Audit Committee shall

    consider whether it will recommend to the Board that the Company’s audited financial

    statements be included in the Company’s Annual Report on Form 10-K or Form 10-KSB,

    as applicable.

    9. Audit Committee Report. The Audit Committee shall prepare for inclusion where

    necessary in a proxy or information statement of the Company relating to an annual

    meeting of security holders at which directors are to be elected (or special meeting or

    written consents in lieu of such meeting), the report described in Item 306 of Regulation

    S-B or S-K, as applicable. The Audit Committee shall therein report to the stockholders,

    in such proxy or information statement, whether it has:

    (i) reviewed and discussed the audited financial statements with


    (ii) discussed with the independent auditors the matters required to be

    discussed under Statement on Auditing Standards No. 61, as may be

    modified or supplemented;

    (iii) received written disclosures from the outside auditor regarding

    independence as required by Independence Standards Board Standard

    No. 1, as may be modified and supplemented, and has discussed with

    the independent auditors the auditor’s independence; and

    (iv) based on the discussions referred to in Section 9(i)-(iii) above,

    recommended to the Board that the audited financial statements be

    included in the Company’s Annual Report on Form 10-K or Form 10-

    KSB, as applicable, for the last fiscal year for filing with the Securities

    and Exchange Commission.

    Review of Other Financial Disclosures

    10. Independent Auditor Review of Interim Financial Statements. The Audit Committee shall

    direct the independent auditor to perform all reviews of interim financial information

    prior to disclosure by the Company of such information and to discuss promptly with the

    Audit Committee and the CFO any matters identified in connection with the auditor’s

    review of interim financial information which are required to be discussed by Statement

    on Auditing Standards Nos. 61, 71 and 90. The Audit Committee shall direct

    management to seek Audit Committee consent in the event that the Company proposes to

    disclose interim financial information before completion of the independent auditor’s

    review of interim financial information.

    11. Earnings Release and Other Financial Information. The Audit Committee shall review

    and discuss generally Company policy as to the type of information to be disclosed in the

    Company’s earnings press releases and other presentations (including any use of “pro

    forma” or “adjusted” non-GAAP, information), as well as in financial information and earnings guidance provided to analysts, rating agencies and others to facilitate fair

    accurate and transparent financial disclosure and compliance with applicable statutory

    and regulatory requirements. In addition, the Audit Committee shall review earnings

    releases before their issuance.

    12. Quarterly Financial Statements. The Audit Committee shall discuss the results of the

    SAS 71 “Interim Financial Information” review performed by the independent auditor.

    The Audit Committee shall also discuss with the Company’s management and

    independent auditor the Company’s quarterly financial statements, including the

    Company’s disclosures under “Management’s Discussion and Analysis of Financial

    Condition and Results of Operations”. This discussion and review shall take place before

    the filing of the Form 10-Q or 10-QSB, as applicable.

    13. Tax Reporting The Audit Committee shall inquire as to: (i) the status of the Company’s

    tax returns; (ii) whether there are any significant items that have been or might be

    disputed by the respective jurisdictional taxing authorities; and (iii) inquire about the

    status of related tax reserves.

    Controls and Procedures

    14. Oversight. The Audit Committee shall coordinate the Board of Director’s oversight of the

    Company’s internal accounting controls, the Company’s disclosure controls and

    procedures and the Company’s code of conduct. The Audit Committee shall therefore:

    a. receive and review the reports of the CEO and CFO required by Section 302 of

    the Sarbanes-Oxley Act (and the applicable rules there under) and Rule 13a-14

    of the Exchange Act. Section 302 of the Sarbanes-Oxley Act requires, among

    other things, that the CEO and CFO to certify that they have disclosed to the

    Audit Committee:

    (i) all significant deficiencies in the design or operation of internal

    controls which could adversely affect the Company’s ability to record,

    process, summarize and report financial data and have identified for the

    Company’s auditors any material weaknesses in internal controls; and

    (ii) any fraud, whether material or not material, that involves management

    or other employees who have a significant role in the Company’s

    internal controls.

b. Receive and review the reports on internal accounting controls contemplated by

    Sections 103 and 404 of the Sarbanes-Oxley Act.

    c. Obtain reports from management and the Company’s senior internal auditing

    executive, that the Company is in conformity with applicable legal requirements

    and the Company’s code of conduct. To the extent applicable, inquiries shall be

    made of the independent auditor regarding the independent auditor’s awareness,

    if any, of violations of applicable legal requirements or violations of the

    Company’s code of conduct. d. Review reports and disclosures of insider and affiliated party transactions.

    e. Advise the Board with respect to the Company’s policies and procedures

    regarding compliance with applicable laws and regulations and with the

    Company’s code of conduct. f. Discuss with the Company’s General Counsel, if applicable, and, where

    appropriate, outside counsel, legal matters, regulatory proceedings, and current

    and pending litigation that may have a material impact on the Company’s

    financial statements, compliance policies, or corporate governance.

    g. Review in-house policies and procedures for regular review of officers’

    expenses and perquisites, including use of corporate assets.

    h. Review any unusual accounting issues that the Company intends to discuss with

    the SEC’s accounting staff prior to when management contacts the SEC so as to

    provide the SEC with the Audit Committee’s position on the Company’s

    proposed accounting treatment as directed in the SEC’s “Guidance for

    Consulting with the Office of the Chief Accountant”.

    15. Procedures for Complaints. The Audit Committee shall establish procedures for: a. the receipt, retention and treatment of complaints received by the Company

    regarding accounting, internal accounting controls or auditing matters;

    b. the confidential, anonymous submission by employees of the Company of

    concerns regarding questionable accounting or auditing matters; and

    c. periodically reviewing the complaint procedures to confirm that they can operate


    16. Related-Party Transactions. The Audit Committee shall review all related party transactions on an ongoing basis and all such transactions must be approved by the Audit


    17. Quality-Control Report. At least annually, the Audit Committee shall obtain and review a report by the independent auditor describing:

    a. the firm’s internal quality control procedures; and

    b. any material issues raised by the most recent internal quality-control review, or

    peer review, of the 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 firm, and any steps taken to deal with any

    such issues.

18. Risk Management. The Audit Committee shall discuss the Company’s policies with

    respect to risk assessment and risk management, including guidelines and policies to

    govern the process by which the Company’s exposure to risk is handled, the Company’s

    major financial risk exposures and the steps management has taken to monitor and

    control such exposures.

    19. Additional Powers. The Audit Committee shall have the authority to utilize additional

    outside accountants, attorneys, or other advisors to assist the Audit Committee in special

    circumstances. The Audit Committee shall have such other duties as may be delegated

    from time to time by the Board.

    D. Procedures and Administration 1. Meetings. The Audit Committee shall meet as necessary to discharge its responsibilities

    but it shall meet at least quarterly, prior to the filing of the interim quarterly reports and

    annual report. The Audit Committee shall meet quarterly, in private sessions with the

    independent auditors to discuss pertinent matters, including the quality of management

    and financial personnel, and any management restrictions on the scope of the audit

    examination, or other matters that should be discussed with the Audit Committee. The

    Audit Committee, at least annually, shall meet separately with (i) Company management

    and (ii) as applicable, the Company personnel comprising the internal audit. The Audit

    Committee shall keep minutes of its meetings as it shall deem appropriate to accurately

    describe the issues considered by the Audit Committee and the Audit Committee’s final

    due care determination of how to proceed.

    2. Subcommittees. The Audit Committee may form and delegate authority to one or more

    subcommittees (including a subcommittee consisting of a single member), as it deems

    appropriate from time to time under the circumstances. Any decision of a subcommittee

    to pre-approve audit or non-audit services shall be presented to the full Audit Committee

    at its next scheduled meeting.

    3. Reports to Board. The Audit Committee shall report regularly to the Board and review

    with the Board any issues that arise with respect to the quality or integrity of the

    Company’s financial statements, the Company’s compliance with legal or regulatory

    requirements, the performance and independence of the Company’s independent auditors

    or the performance of the internal audit function.

    4. Independent Advisors. The Audit Committee shall have the authority to engage and

    determine funding for such independent legal, accounting, and other advisors as it deems

    necessary or appropriate to carry out its responsibilities. Such independent advisors may

    be the regular advisors to the Company. The Audit Committee is empowered, without

    further action by the Board, to cause the Company to pay the compensation of such

    advisors as established by the Audit Committee.

    5. Investigations. The Audit Committee shall have the authority to conduct or authorize

    investigations into any matters within the scope of its responsibilities as it shall deem

    appropriate, including the authority to request any officer, employee or advisor of the

    Company to meet with the Audit Committee or any advisors engaged by the Audit


    6. Funding. The Audit Committee is empowered, without further action by the Board, to

    cause the Company to pay the ordinary administrative expenses of the Audit Committee

    that are necessary or appropriate in carrying out its duties.

7. Annual Self-Evaluation. At least annually, the Audit Committee shall evaluate its own

    performance and composition.

    8. Charter. The Audit Committee shall provide to management and the outside auditors a

    copy of the Audit Committee charter to communicate the intended responsibilities and

    relationships between the Company’s outside auditors, management, the Audit

    Committee and the Board as representatives of the stockholders. At least annually, the

    Audit Committee shall review and reassess the adequacy of this Charter and recommend

    any proposed changes to the Board for approval.

Report this document

For any questions or suggestions please email