Sample audit committee charter and checklist.

• Author: Borelli, Frank J.

Here are two model documents that will be helpful guides to achieving audit committee mandates and best practices.

IN JANUARY 2000 the Securities and Exchange Commission and the New York Stock Exchange and NASD/AMEX adopted new rules regarding audit committees. Most companies would have by now either revised their existing audit committee charter or adopted one. The new rules required the board of directors of companies to adopt a charter by June 14, 2000, and publish it as an appendix to the proxy statements relating to votes of shareholders occurring after December 15,2000. If a charter is not adopted, that must also be disclosed in the proxy statement. The charter should be included as an appendix in the proxy at least once every three years.

This article provides a copy of a sample charter used by audit committees chaired by Frank J. Borelli (pictured at left), a senior adviser of Marsh & McLennan Companies Inc. He joined Marsh & McLennan, one of the country's leading providers of insurance services and other consulting and financial services, in 1984 as chief financial officer, was named to the board in 1988, and retired from the company in January 2001. He was a member of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees.

Following the sample charter is a supplementary checklist which can be used as a sign-off sheet to support compliance. The checklist also includes some ideas about specific verification requests from the independent public accountants by the audit committee. Borelli reports that these requests have been honored by the public accounting firms.

Sample Audit Committee Charter

The Audit Committee ("the Committee"), of the Board of Directors ("the Board") of Company ("the Company"), will have the oversight responsibility, authority and specific duties as described below.

Composition

The Committee will be comprised of three or more directors as determined by the Board. The members of the Committee will meet the independence and experience requirements of the New York Stock Exchange (NYSE). The members of the Committee will be elected annually at the organizational meeting of the full Board held in May and will be listed in the annual report to shareholders. One of the members of the Committee will be elected Committee Chair by the Board.

Responsibility

The Committee is a part of the Board. Its primary function is to assist the Board in fulfilling its oversight responsibilities with respect to (i) the annual financial information to be provided to shareholders and the Securities and Exchange Commission (SEC); (ii) the system of internal controls that management has established; and (iii) the internal and external audit process. In addition, the Committee provides an avenue for communication between internal audit, the independent accountants, financial management and the Board. The Committee should have a clear understanding with the independent accountants that they must maintain an open and transparent relationship with the Committee, and that the ultimate accountability of the independent accountants is to the Board and the Committee. The Committee will make regular reports to the Board concerning its activities.

While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company's financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the independent auditor. Nor is it the duty of the Audit Committee to conduct investigations, to resolve disagreements, if any, between management and the independent auditor or to assure compliance with laws and regulations and the Company's business conduct guidelines.

Authority

Subject to the prior approval of the Board, the Committee is granted the authority to investigate any matter or activity involving financial accounting and financial reporting, as well as the internal controls of the Company. In that regard, the Committee will have the authority to approve the retention of external professionals to render advice and counsel in such matters. All employees will be directed to cooperate with respect there to as requested by members of the Committee.

Meetings

The Committee is to meet at least four times annually and as many additional times as the Committee deems necessary. Content of the agenda for each meeting should be cleared by the Committee Chair. The Committee is to meet in separate executive sessions with the chief financial officer, independent accountants...