AUDIT COMMITTEE CHARTER

OF

FLUSHING FINANCIAL CORPORATION

 

Statement of Purpose

 

The audit committee will assist the board of directors in fulfilling its oversight responsibilities. The audit committee will review the financial reporting process, the systems and processes of internal control and compliance and the audit process. In performing its duties, the committee will maintain effective working relationships with the board of directors, management and the internal and external auditors. To effectively perform his or her role, each committee member will obtain an understanding of the detailed responsibilities of committee membership as well as the company’s business, operations and risks.

  

Organization

 

The committee will be comprised of three or more directors as determined by the board of directors, each of whom will be “independent” within the meaning of the rules applicable to companies quoted on the Nasdaq National Market. Committee members will serve at the pleasure of the board of directors. A committee chairman will be designated by the board of directors. All committee members will have, at a minimum, a working familiarity with basic finance and accounting practices. The board of directors will endeavor to appoint at least one committee member that is an “audit committee financial expert” as that term is defined by the Securities and Exchange Commission (the “SEC”). Committee members may enhance their understanding of finance and accounting through educational programs offered by the company or an outside consultant.

 

Meetings

 

Meetings of the committee will be held not less than quarterly. In furtherance of its purpose, the committee will provide sufficient opportunity for the external auditors, the director of internal audit and management to meet with the committee in separate executive sessions to discuss any matters that the committee or these groups believe should be discussed privately. The committee will make regular reports and appropriate recommendations to the board of directors.

 

Authority

 

The audit committee will have the sole authority to appoint or replace the external auditor of the company. The audit committee will be directly responsible for the compensation and oversight of the work of the company’s external auditor (including the resolution of disagreements between management and the external auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The external auditor will report directly to the audit committee. The audit committee will have the authority to engage independent counsel and other advisers, as it deems necessary to carry out its responsibilities. The company will provide for appropriate funding, as determined by the audit committee, for payment of compensation to the external auditor engaged by the company for the purpose of rendering or issuing an audit report and to any advisers engaged by the audit committee.

  

Roles and Responsibilities

 

A.

 

Internal Control

 

 

1.

 

Require that the external auditors, internal auditors and management keep the audit committee informed about fraud, illegal acts, deficiencies in internal control, and similar matters.

 

 

2.

 

Consider whether internal control recommendations made by internal and external auditors have been implemented by management.

 

 

3.

 

Determine the extent to which internal and external auditors review (i) computer systems and applications, (ii) the security of such systems and applications, and (iii) the contingency plan for processing financial information in the event of a systems breakdown.

  

B.

 

Financial Reporting

 

 

1.

 

Meet with management and the external auditors to review annual and quarterly financial statements, issues related thereto and the results of the external auditors’ annual audit or quarterly review, as the case may be.

 

 

2.

 

Review the company’s earnings press releases with management, including the use of “pro-forma” or “adjusted” non-GAAP information.

 

 

3.

 

Ask management and the internal and external auditors about significant risks and exposures and the plans to minimize such risks.

 

 

4.

 

Consider significant judgments, including those made as to asset and liability valuation, loan losses or the selection and application of accounting principles.

 

 

5.

 

Review management’s disposition of proposed audit adjustments identified by the external auditors.

 

 

6.

 

Require that the external auditors communicate their judgment regarding the integrity and quality of the financial statements to the committee and review, upon receipt, the report (oral or written) of the external auditors on:

 

 

 

All critical accounting policies and practices

 

 

 

All alternative accounting treatments within GAAP for policies and practices related to material items that have been discussed with management (including ramifications of the use of such alternative treatments and disclosures, and the treatment preferred by the accounting firm)

 

 

 

Material written communications between the accounting firm and management, such as any management letter or schedule of unadjusted audit differences

 

 

7.

 

To gain insight into the fairness of the statements and disclosures, obtain views and, where appropriate, explanations from management and from the internal and external auditors on whether:

 

 

 

Generally accepted accounting principles have been consistently applied

 

 

 

There are any significant or unusual events or transactions

 

 

 

The company’s financial and operating controls are functioning effectively

 

 

 

The financial statements contain adequate and appropriate disclosures

 

 

8.

 

Review disclosures, if any, made to the audit committee by the company’s disclosure committee or, in connection with their certification of periodic reports, the CEO and CFO.

 

C.

 

Internal Audit

 

 

1.

 

Review the activities and organizational structure of the internal audit function.

 

 

2.

 

Review the qualifications of the internal audit function and participate in the appointment, replacement, reassignment or dismissal of the director of internal audit.

 

 

3.

 

Review the effectiveness of the internal audit function.

 

 

4.

 

Review the scope of internal audit’s work plan for the year and receive a summary report of significant findings by internal auditors and management’s response to the conditions reported.

 

D.

 

External Audit

 

 

1.

 

Review the external auditors’ proposed audit scope and approach.

 

 

2.

 

Review the performance of the external auditors.

 

 

3.

 

Obtain from the external auditors and review the confirmation required to be provided by the external auditors as to their independence in accordance with professional standards.

 

 

4.

 

Ensure the 5-year rotation of audit lead and concurring partners as required by law.

 

 

 

5.

 

Recommend to the board of directors policies for the company’s hiring of current or former employees of the external auditor who served as members of the company’s audit engagement team.

 

 

6.

 

Pre-approve, on a case-by-case basis, all audit, review or attest services and permitted non-audit services (including the fee arrangements and terms in respect of such services) to be performed by the external auditors for the company, other than a de minimus amount of non-audit services not to exceed, in the aggregate, 5% of total revenues paid to the external auditors during the fiscal year that were not known as non-audit services at the time of the engagement and that are promptly made known to the audit committee and approved by the audit committee prior to completion of the audit.

 

E.

 

Other Responsibilities

 

 

1.

 

Make the report required by the SEC to be included in the company’s annual proxy statement.

 

 

2.

 

Establish procedures for the receipt, retention and treatment of complaints received by the company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

 

 

3.

 

Require that significant findings and recommendations made by the internal and external auditors are received and discussed on a timely basis.

 

 

4.

 

Perform other oversight functions as requested by the full board of directors.

 

 

5.

 

Periodically review and assess the adequacy of this Charter and recommend any proposed changes to the board of directors for approval.

 

While the committee has the responsibilities and powers set forth in this Charter, it is not the duty of the committee to plan or conduct internal control or other audits, or to ascertain the structure of internal controls, 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 external auditor.