Sample Audit Committee Charters
Appendix
In the interest of encouraging audit committees to consider and discuss the appropriate
contents for their audit committee charters, this Appendix includes several sample audit
committee charters.
The authors of this course do not formally endorse the form or contents of these charters.
Nonetheless, these samples are provided as illustrations of charters that have been developed
as models or employed in actual practice.
Audit Committee Charter
I. CONTINUOUS ACTIVITIES - GENERAL
1. Provide an open avenue of communication between the independent auditor, Internal
Audit, and the Board of Directors.
2. Meet four times per year or more frequently as circumstances require. The Committee may
ask members of management or others to attend meetings and provide pertinent information
as necessary.
3. Confirm and assure the independence of the independent auditor and the objectivity of the
internal auditor.
4. Review with the independent auditor and the Director of Internal Audit the coordination of
audit efforts to assure completeness of coverage, reduction of redundant efforts, and the
effective use of audit resources.
5. Inquire of management, the independent auditor, and the Director of Internal Audit about
significant risks or exposures and assess the steps management has taken to minimize such
risk to the entity and related entities.
6. Consider and review with the independent auditor and the Director of Internal Audit:
The adequacy of the entities' internal controls including computerized information system
controls and security.
Related findings and recommendations of the independent auditor and Internal Audit together
with management's responses.
7. Consider and review with management, the Director of Internal Audit and the independent
auditor:
Significant findings during the year, including the Status of Previous Audit
Recommendations.
Any difficulties encountered in the course of audit work including any restrictions on the
scope of activities or access to required information.
Any changes required in the planned scope of the Internal Audit plan.
The Internal Audit Department charter, budget and staffing.
8. Meet periodically with the independent auditor, the Director of Internal Audit and
management in separate executive sessions to discuss any matters that the Committee or
these groups believe should be discussed privately with the Audit Committee.
9. Report periodically to the Board of Directors on significant results of the foregoing
activities.
10. Instruct the independent auditor that the Board of Directors, as the members'
representative, is the auditor's client.
II. CONTINUOUS ACTIVITIES - RE: REPORTING SPECIFIC POLICIES
1. Advise financial management and the independent auditor they are expected to provide a
timely analysis of significant current financial reporting issues and practices.
2. Provide that financial management and the independent auditor discuss with the audit
committee their qualitative judgments about the appropriateness, not just the acceptability, of
accounting principles and financial disclosure practices used or proposed to be adopted by the
entity and, particularly, about the degree of aggressiveness or conservatism of its accounting
principles and underlying estimates.
3. Inquire as to the auditor's independent qualitative judgments about the appropriateness, not
just the acceptability, of the accounting principles and the clarity of the financial disclosure
practices used or proposed to be adopted by the entity.
4. Inquire as to the auditor's views about whether management's choices of accounting
principles are conservative, moderate, or aggressive from the perspective of income, asset,
and liability recognition, and whether those principles are common practices or are minority
practices.
5. Determine, as regards to new transactions or events, the auditor's reasoning for the
appropriateness of the accounting principles and disclosure practices adopted by
management.
6. Assure that the auditor's reasoning is described in determining the appropriateness of
changes in accounting principles and disclosure practices.
7. Inquire as to the auditor's views about how the entity's choices of accounting principles and
disclosure practices may affect members and public views and attitudes about the entity.
III. SCHEDULED ACTIVITIES
1. Recommend the selection of the independent auditor for approval by the Board of
Directors and election by Council, approve and compensation of the independent auditor, and
review and approve the discharge of the independent auditor.
2. Consider, in consultation with the independent auditor and the Director of Internal Audit,
the audit scope and plan of the independent auditor and the internal auditors.
3. Review with management and the independent auditor the results of annual audits and
related comments in consultation with the Finance Committee and other committees as
deemed appropriate including:
The independent auditor's audit of the entity and related entities' annual financial statements,
accompanying footnotes and its report thereon.
Any significant changes required in the independent auditor's audit plans.
Any difficulties or disputes with management encountered during the course of the audit.
Other matters related to the conduct of the audit which are to be communicated to the Audit
Committee under International Standards on Ausiting.
4. Review the results of the annual audits of member reimbursements, director and officers'
expense accounts and management perquisites prepared by Internal Audit and the
independent auditor respectively.
5. Review annually with the independent auditor and the Director of Internal Audit the results
of the monitoring of compliance with the entity's code of conduct.
6. Describe in the entity's annual report the Committee's composition and responsibilities, and
how they were discharged.
7. Arrange for the independent auditor to be available to the full Board of Directors at least
annually to help provide a basis for the board to recommend to Council the appointment of
the auditor.
8. Assure that the auditor's reasoning is described in accepting or questioning significant
estimates by management.
9. Review and update the Committee's Charter annually.
IV. "WHEN NECESSARY" ACTIVITIES
1. Review and concur in the appointment, replacement, reassignment, or dismissal of the
Director of Internal Audit.
2. Review and approve requests for any management consulting engagement to be performed
by the entity's independent auditor and be advised of any other study undertaken at the
request of management that is beyond the scope of the audit engagement letter.
3. Review periodically with general counsel legal and regulatory matters that may have a
material impact on the entity's and related entities' financial statements, compliance policies
and programs.
4. Conduct or authorize investigations into any matters within the Committee's scope of
responsibilities. The Committees shall be empowered to retain independent counsel and other
professionals to assist in the conduct of any investigation.
SAMPLE AUDIT COMMITTEE CHARTER
Organization
There shall be a committee of the board of directors to be known as the audit committee. The
audit committee shall be composed of directors who are independent of the management of
the corporation and are free of any relationship that, in the opinion of the board of directors,
would interfere with their exercise of independent judgment as a committee member.
Statement of Policy
The audit committee shall provide assistance to the corporate directors in fulfilling their
responsibility to the shareholders, potential shareholders, and investment community relating
to corporate accounting, reporting practices of the corporation, and the quality and integrity
of the financial reports of the corporation. In so doing, it is the responsibility of the audit
committee to maintain free and open means of communication between the directors, the
independent auditors, the internal auditors, and the financial management of the corporation.
Responsibilities
In carrying out its responsibilities, the audit committee believes its policies and procedures
should remain flexible, in order to best react to changing conditions and to ensure to the
directors and shareholders that the corporate accounting and reporting practices of the
corporation are in accordance with all requirements and are of the highest quality.
In carrying out these responsibilities, the audit committee will:
Review and recommend to the directors the independent auditors to be selected to audit the
financial statements of the corporation and its divisions and subsidiaries.
Meet with the independent auditors and financial management of the corporation to review
the scope of the proposed audit for the current year and the audit procedures to be utilized,
and at the conclusion thereof review such audit, including any comments or
recommendations of the independent auditors.
Review with the independent auditors, the company's internal auditor, and financial and
accounting personnel, the adequacy and effectiveness of the accounting and financial controls
of the corporation, and elicit any recommendations for the improvement of such internal
control procedures or particular areas where new or more detailed controls or procedures are
desirable. Particular emphasis should be given to the adequacy of such internal controls to
expose any payments, transactions, or procedures that might be deemed illegal or otherwise
improper. Further, the committee periodically should review company policy statements to
determine their adherence to the code of conduct.
Review the internal audit function of the corporation including the independence and
authority of its reporting obligations, the proposed audit plans for the coming year, and the
coordination of such plans with the independent auditors.
Receive prior to each meeting, a summary of findings from completed internal audits and a
progress report on the proposed internal audit plan, with explanations for any deviations from
the original plan.
Review the financial statements contained in the annual report to shareholders with
management and the independent auditors to determine that the independent auditors are
satisfied with the disclosure and content of the financial statements to be presented to the
shareholders. Any changes in accounting principles should be reviewed.
Provide sufficient opportunity for the internal and independent auditors to meet with the
members of the audit committee without members of management present. Among the items
to be discussed in these meetings are the independent auditors' evaluation of the corporation's
financial, accounting, and auditing personnel, and the cooperation that the independent
auditors received during the course of the audit.
Review accounting and financial human resources and succession planning within the
company.
Submit the minutes of all meetings of the audit committee to, or discuss the matters discussed
at each committee meeting with, the board of directors.
Investigate any matter brought to its attention within the scope of its duties, with the power to
retain outside counsel for this purpose if, in its judgment, that is appropriate.
SAMPLE AUDIT COMMITTEE CHARTER
The audit committee is a committee of the board of directors. Its primary function is to assist
the board in fulfilling its oversight responsibilities by reviewing the financial information
which will be provided to the shareholders and others, the systems of internal controls which
management and the board of directors have established, and the audit process.
In meeting its responsibilities, the audit committee is expected to:
1. Provide an open avenue of communication between the internal auditors, the independent
accountant, and the board of directors.
2. Review and update the committee's charter annually.
3. Recommend to the board of directors the independent accountants to be nominated,
approve the compensation of the independent accountant, and review and approve the
discharge of the independent accountants.
4. Review and concur in the appointment, replacement, reassignment, or dismissal of the
director of internal auditing.
5. Confirm and assure the independence of the internal auditor and the independent
accountant, including a review of management consulting services and related fees provided
by the independent accountant.
6. Inquire of management, the director of internal auditing, and the independent accountant
about significant risks or exposures and assess the steps management has taken to minimize
such risk to the company.
7. Consider, in consultation with the independent accountant and the director of internal
auditing, the audit scope and plan of the internal auditors and the independent accountant.
8. Consider with management and the independent accountant the rationale for employing
audit firms other than the principal independent accountant.
9. Review with the director of internal auditing and the independent accountant the
coordination of audit effort to assure completeness of coverage, reduction of redundant
efforts, and the effective use of audit resources.
10. Consider and review with the independent accountant and the director of internal
auditing:
The adequacy of the company's internal controls including computerized information system
controls and security.
Any related significant findings and recommendations of the independent accountant and
internal auditing together with management's responses thereto.
11. Review with management and the independent accountant at the completion of the annual
examination:
The company's annual financial statements and related footnotes.
The independent accountant's audit of the financial statements and his or her report thereon.
Any significant changes required in the independent accountant's audit plan.
Any serious difficulties or disputes with management encountered during the course of the
audit.
Other matters related to the conduct of the audit which are to be communicated to the
committee under International Standards on Auditing.
12. Consider and review with management and the director of internal auditing:
Significant findings during the year and management's responses thereto.
Any difficulties encountered in the course of their audits, including any restrictions on the
scope of their work or access to required information.
Any changes required in the planned scope of their audit plan.
The internal auditing department budget and staffing.
The internal auditing department charter.
Internal auditing's compliance with relevant internal auditing standards or principles.
13. Review filings with the central bank and other published documents containing the
company's financial statements and consider whether the information contained in these
documents is consistent with the information contained in the financial statements.
14. Review with management, the independent accountant, and the director of internal
auditing the interim financial report before it is filed with the central bank or other regulators.
15. Review policies and procedures with respect to officers' expense accounts and perquisites,
including their use of corporate assets, and consider the results of any review of these areas
by the internal auditor or the independent accountant.
16. Review with the director of internal auditing and the independent accountant the results
of their review of the company's monitoring compliance with the company's code of conduct.
17. Review legal and regulatory matters that may have a material impact on the financial
statements, related company compliance policies, and programs and reports received from
regulators.
18. Meet with the director of internal auditing, the independent accountant, and management
in separate executive sessions to discuss any matters that the committee or these groups
believe should be discussed privately with the audit committee.
19. Report committee actions to the board of directors with such recommendations as the
committee may deem appropriate.
20. Prepare a letter for inclusion in the annual report that describes the committee's
composition and responsibilities, and how they were discharged.
21. The audit committee shall have the power to conduct or authorize investigations into any
matters within the committee's scope of responsibilities. The committee shall be empowered
to retain independent counsel, accountants, or others to assist it in the conduct of any
investigation.
22. The committee shall meet at least four times per year or more frequently as circumstances
require. The committee may ask members of management or others to attend the meeting and
provide pertinent information as necessary.
23. The committee will perform such other functions as assigned by law, the company's
charter or bylaws, or the board of directors.
The membership of the audit committee shall consist of at least five independent members of
the board of directors who shall serve at the pleasure of the board of directors. Audit
committee members and the committee chairman shall be designated by the full board of
directors upon the recommendation of the nominating committee.
The duties and responsibilities of a member of the audit committee are in addition to those
duties set out for a member of the board of directors.
CHARTER AND POWERS OF THE AUDIT COMMITTEE
RESOLVED, that the charter and powers of the Audit Committee of the Board of Directors
(the "Audit Committee") shall be:
Overseeing that management has maintained the reliability and integrity of the accounting
policies and financial reporting and disclosure practices of the Bank;
Overseeing that management has established and maintained processes to assure that an
adequate system of internal control is functioning within the Bank;
Overseeing that management has established and maintained processes to assure compliance
by the Bank with all applicable laws, regulations and Bank policy;
RESOLVED, that the Audit Committee shall have the following specific powers and duties:
1. Holding such regular meetings as may be necessary and such special meetings as may be
called by the Chairman of the Audit Committee or at the request of the independent
accountants or the General Auditor;
2. Creating an agenda for the ensuing year;
3. Reviewing the performance of the independent accountants and making recommendations
to the Board of Directors regarding the appointment or termination of the independent
accountants;
4. Conferring with the independent accountants and the internal auditors concerning the
scope of their examinations of the books and records of the Bank and its subsidiaries;
reviewing and approving the independent accountants' annual engagement letter; reviewing
and approving the Bank's internal audit charter, annual audit plans and budgets; directing the
special attention of the auditors to specific matters or areas deemed by the Committee or the
auditors to be of special significance; and authorizing the auditors to perform such
supplemental reviews or audits as the Committee may deem desirable;
5. Reviewing with management, the independent accountants and internal auditors significant
risks and exposures, audit activities and significant audit findings;
6. Reviewing the range and cost of audit and non-audit services performed by the
independent accountants;
7. Reviewing the Bank's audited annual financial statements and the independent accountants'
opinion rendered with respect to such financial statements, including reviewing the nature
and extent of any significant changes in accounting principles or the application therein;
8. Reviewing the adequacy of the Bank's systems of internal control;
9. Obtaining from the independent accountants and internal auditors their recommendations
regarding internal controls and other matters relating to the accounting procedures and the
books and records of the Bank and its subsidiaries and reviewing the correction of controls
deemed to be deficient;
10. Providing an independent, direct communication between the Board of Directors, internal
auditors and independent accountants;
11. Reviewing the adequacy of internal controls and procedures related to executive travel
and entertainment, including use of Bank-owned aircraft;
12. Reviewing with appropriate Bank personnel the actions taken to ensure compliance with
the Bank's Code of Conduct and the results of confirmations and violations of such Code;
13. Reviewing the programs and policies of the Bank designed to ensure compliance with
applicable laws and regulations and monitoring the results of these compliance efforts;
14. Reviewing the procedures established by the Bank that monitor the compliance by the
Bank with its loan and indenture covenants and restrictions;
15. Reporting through its Chairman to the Board of Directors following the meetings of the
Audit Committee;
16. Maintaining minutes or other records of meetings and activities of the Audit Committee;
17. Reviewing the powers of the Committee annually and reporting and making
recommendations to the Board of Directors on these responsibilities;
18. Conducting or authorizing investigations into any matters within the Audit Committee's
scope of responsibilities. The Audit Committee shall be empowered to retain independent
counsel, accountants, or others to assist it in the conduct of any investigation;
19. Considering such other matters in relation to the financial affairs of the Bank and its
accounts, and in relation to the internal and external audit of the Bank as the Audit
Committee may, in its discretion, determine to be advisable.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of Directors in fulfilling
its oversight responsibilities by reviewing: the financial reports and other financial
information provided by the Corporation to any governmental body or the public; the
Corporation's systems of internal controls regarding finance, accounting, legal compliance
and ethics that management and the Board have established; and the Corporation's auditing,
accounting and financial reporting processes generally. Consistent with this function, the
Audit Committee should encourage continuous improvement of, and should foster adherence
to, the corporation's policies, procedures and practices at all levels. The Audit Committee's
primary duties and responsibilities are to:
Serve as an independent and objective party to monitor the Corporation's financial reporting
process and internal control system.
Review and appraise the audit efforts of the Corporation's independent accountants and
internal auditing department.
Provide an open avenue of communication among the independent accountants, financial and
senior management, the internal auditing department, and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by carrying out the activities
enumerated in Section IV. of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as determined by the
Board, each of whom shall 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. [Restate here, Board's definition of
"independence."] All members of the Committee shall have a working familiarity with basic
finance and accounting practices, and at least one member of the Committee shall have
accounting or related financial management expertise. Committee members may enhance
their familiarity with finance and accounting by participating in educational programs
conducted by the Corporation or an outside consultant.
The members of the Committee shall be elected by the Board at the annual organizational
meeting of the Board or until their successors shall be 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.
III. MEETINGS
The Committee shall meet at least four times annually, or more frequently as circumstances
dictate. As part of its job to foster open communication, the Committee should meet at least
annually with management, the director of the internal auditing 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. In addition, the
Committee or at least its Chair should meet with the independent accountants and
management quarterly to review the Corporations financials consistent with IV.4. below).
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
1. Review and update this Charter periodically, at least annually, as conditions dictate.
2. Review the organization's annual financial statements and any reports or other financial
information submitted to any governmental body, or the public, including any certification,
report, opinion, or review rendered by the independent accountants.
3. Review the regular internal reports to management prepared by the internal auditing
department and management's response.
4. Review with financial management and the independent accountants the 10-Q prior to its
filing or prior to the release of earnings. The Chair of the Committee may represent the entire
Committee for purposes of this review.
Independent Accountants
5. Recommend to the Board of Directors the selection of the independent accountants,
considering independence and effectiveness and approve the fees and other compensation to
be paid to the independent accountants. On an annual basis, the Committee should review and
discuss with the accountants all significant relationships the accountants have with the
Corporation to determine the accountants' independence.
6. Review the performance of the independent accountants and approve any proposed
discharge of the independent accountants when circumstances warrant.
7. Periodically consult with the independent accountants out of the presence of management
about internal controls and the fullness and accuracy of the organization's financial
statements.
Financial Reporting Processes
8. In consultation with the independent accountants and the internal auditors, review the
integrity of the organization's financial reporting processes, both internal and external.
9. Consider the independent accountants' judgments about the quality and appropriateness of
the Corporation's accounting principles as applied in its financial reporting.
10. 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 auditing department.
Process Improvement
11. Establish regular and separate systems of reporting to the Audit Committee by each of
management, the independent accountants and the internal auditors regarding any significant
judgments made in management's preparation of the financial statements and the view of
each as to appropriateness of such judgments.
12. Following completion of the annual audit, review separately with each of management,
the independent accountants and the internal auditing department any significant difficulties
encountered during the course of the audit, including any restrictions on the scope of work or
access to required information.
13. Review any significant disagreement among management and the independent
accountants or the internal auditing department in connection with the preparation of the
financial statements.
14. Review with the independent accountants, the internal auditing department and
management the extent to which changes or improvements in financial or accounting
practices, as approved by the Audit Committee, have been implemented. (This review should
be conducted at an appropriate of time subsequent to implementation of changes or
improvements, as decided by the Committee.)
Ethical and Legal Compliance
15. Establish, review and update periodically a Code of Ethical Conduct and ensure that
management has established a system to enforce this Code.
16. Review management's monitoring of the Corporation's compliance with the organization's
Ethical Code, and ensure that management has the proper review system in place to ensure
that Corporation's financial statements, reports and other financial information disseminated
to governmental organizations, and the public satisfy legal requirements.
17. Review activities, organizational structure, and qualifications of the internal audit
department.
18. Review, with the organization's counsel, legal compliance matters including corporate
securities trading policies.
19. Review, with the organization's counsel, any legal matter that could have a significant
impact on the organization's financial statements.
20. Perform any other duties.