Audit Committee Charter and Proxy Statement Disclosures
Audit Committee Charter
Nasdaq and NYSE listed companies are required to have a formal written charter for their audit committees. The audit committee must review and reassess the adequacy of the charter annually. The charter must at a minimum specify the following:
- the scope of the audit committee’s responsibilities and how it carries out those responsibilities, including structure, processes and membership requirements;
- the audit committee’s responsibility for ensuring its receipt from the independent auditors of a formal written statement delineating all relationships between the independent auditors and the company, consistent with Independence Standards Board, Standard No. 1;
- the audit committee’s responsibility for actively engaging in a dialogue with the independent auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent auditors and for taking or recommending appropriate action to oversee the independence of the independent auditors;
- the independent auditors’ ultimate accountability to the Board of Directorsand the audit committee, and the ultimate authority and responsibility of the Board and audit committee to select, evaluate and, where appropriate, replace the independent auditors.
Audit Committee Report for the Proxy Statement
The audit committee is also responsible for the annual preparation of the audit committee report, which must be included in the company’s annual proxy statement to shareholders.
The audit committee report must include the following disclosures:
- whether the audit committee has reviewed and discussed the audited financial statements with management;
- whether the committee has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61;
- whether the audit committee has received the written disclosures and letter from the independent auditors required by Independence Standards Board, Standard No. 1;
- whether the audit committee has discussed with the independent auditors the independence of the independent auditors from management;
- based on the review and discussions above, whether the audit committee recommended to the Board of Directors that the audited financial statements be included in the company’s annual report on Form 10-K.
Other Required Proxy Statement Disclosures
In addition, the company must provide the following disclosures regarding its audit committee and its independent auditors in its proxy statement:
- the names of each audit committee member;
- the number of audit committee meeting sheld;
- whether the members of the audit committee are independent, as defined by the applicable securities exchange;
- whether the Company’s Board of the Directors has adopted a written charter for the audit committee;
- a brief description of the functions performed by the committee;
- the fees billed for professional services rendered by the independent auditors, separated according to fees for audit services, for information technology services and for other non-audit services, and whether the audit committee has considered whether fees billed for information technology services and other non-audit services are compatible with maintaining the auditors’ independence;
- if greater than 50%, the percentage of hours spent on the audit of the company’s financial statements by personnel of the independent auditor that are other than full-time, permanent employees of the independent auditor;
- at least once every three years, the company must include a copy of its written charter a san appendix to the proxy statement mailed to shareholders.