Audit Committee Charter

 

Purpose and Authority

 

The purpose of the Audit Committee (the "Committee") of HouseValues, Inc. is to assist the Board in fulfilling its oversight responsibilities by overseeing the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company, and reviewing the financial information to be provided to the Company's shareholders and others. The Committee shall have the power to conduct or authorize investigations into any matters within the Committee's scope of responsibilities. In connection with such investigations or otherwise in the course of fulfilling its responsibilities under this charter, the Committee shall have the authority to retain special legal, accounting, or other consultants or advisors to advise it, and to determine the funding by the Company for such consultants or advisors, and may request any officer or employee of the Company, its outside legal counsel or outside auditor to attend a meeting of the Committee or to meet with any members of, or consultants or advisors to, the Committee. The Committee shall also have the authority to determine the funding by the Company of ordinary administrative expenses of the Committee that are necessary and appropriate in carrying out its duties.

 

The Company's outside auditor shall be accountable to the Committee and the Board of Directors, and the Committee shall have the authority and responsibility to select, oversee, approve the compensation of, and, where appropriate, replace the outside auditor. In the course of fulfilling its specific responsibilities hereunder, the Committee shall strive to maintain an open avenue of communication between the Company's outside auditor and the Board of Directors.

 

The responsibilities of a member of the Committee shall be in addition to such member's duties as a member of the Board of Directors.

 

While the Committee shall have the responsibilities and powers set forth in this charter, it shall not be the duty of the Committee to plan or conduct audits or to determine whether the Company's financial statements are complete, accurate, or in accordance with generally accepted accounting principles. These are the responsibilities of management and the outside auditor. Nor shall it be the duty of the Committee to conduct investigations or to assure compliance with laws and regulations or the Company's own policies.

 

Composition

 

Independence

The Committee shall be composed of at least three members of the Board of Directors who shall serve at the pleasure of the Board of Directors. The membership of the Committee shall meet the independence and financial literacy, experience and expertise requirements of The Nasdaq Stock Market, Inc. or similar requirements of such other securities exchange or quotation system as may from time to time apply to the Company, and such requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the Securities and Exchange Commission (the "SEC").

Appointment and Removal of Members

Committee members and the Committee Chair shall be appointed by the Board on the recommendation of the Nominating and Corporate Governance Committee. The Board may remove any member from the Committee at any time with or without cause.

 

Vacancies

Vacancies on the Committee arising from for any reason may be filled by the Board at any regular or special meeting.

 

Duties and Responsibilities

 

The responsibilities of the Committee shall be as follows:

 

General

Meet at least once per quarter, or more frequently as circumstances or the obligations of the Committee require and keep minutes of each meeting.

 

 

Report Committee actions to the Board of Directors with such recommendations as the Committee may deem appropriate.

 

 

Annually review and reassess the adequacy of this charter and submit it to the Board of Directors for approval.

 

 

Perform such functions as may be assigned by law, the Company's Articles of Incorporation or Bylaws, or the Board of Directors.

Outside Auditor

As necessary, consider with management and the outside auditor the rationale for employing audit firms other than the principal outside auditor.

 

 

Select, appoint and oversee the outside auditor, resolve disagreements between management and the outside auditor regarding financial reporting, approve the compensation of the outside auditor, and, as necessary, review and approve the discharge of the outside auditor. The outside auditor shall report directly to the Committee.

 

 

Take reasonable steps to confirm the independence of the outside auditor, which shall include (a) ensuring receipt from the outside auditor of a formal written statement delineating all relationships between the outside auditor and the Company, consistent with Independence Standards Board Standard No. 1, (b) discussing with the outside auditor any disclosed relationships or services that may impact the objectivity and independence of the outside auditor and (c) as necessary, taking, or recommending that the Board of Directors take, appropriate action to oversee the independence of the outside auditor.

 

 

Pre-approve all audit and permissible non-audit services provided by the outside auditor, and, to the extent the Committee determines necessary, establish policies and procedures with respect to such pre-approvals. The Committee may delegate this authority to one or more members of the Committee. The pre-approval decisions of any Committee member to whom pre-approval authority is delegated must be presented to the full Committee at its next scheduled meeting.

Audit Process and Results

Consider, in consultation with the outside auditor, the audit plan and scope.

 

 

Review with the outside auditor the coordination of the audit effort to assure completeness of coverage and the effective use of audit resources.

 

 

Review reports from the outside auditor regarding:

 

 

All critical accounting policies and practices to be used.

 

 

All alternative treatments of financial information within GAAP that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the outside auditor.

 

 

Other material written communications between the outside auditor and management, such as any management letter or schedule of unadjusted differences.

 

 

Consider and review with the outside auditor:

 

 

The adequacy of the Company's internal controls, including computerized information system controls and security.

 

 

Any report or attestation issued by the outside auditor regarding the Company's internal controls.

 

 

Any related significant findings and recommendations of the outside auditor together with management's responses thereto.

 

 

The matters required to be discussed by Statement on Auditing Standards No. 61, as the same may be modified, supplemented or superseded from time to time.

 

 

Consider and review with management:

 

 

Significant findings during the year and management's responses thereto.

 

 

Any reports by management regarding the effectiveness of, or any deficiencies in, the design or operation of internal controls, any material weaknesses in internal controls, and any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls.

 

 

Review and discuss with management and the outside auditor at the completion of the annual examination:

 

 

The Company's audited financial statements and related footnotes.

 

 

The outside auditor's audit of the financial statements and their report thereon.

 

 

Any significant changes required in the outside auditor's audit plan.

 

 

Any difficulties or disputes with management encountered during the course of the audit, including any restrictions on the scope of their work or access to required information.

 

 

Other matters related to the conduct of the audit which are to be communicated to the Committee under generally accepted auditing standards.

 

 

Review and discuss with management and the outside auditor:

 

 

The unaudited quarterly financial statements.

 

 

The effect of regulatory and accounting initiatives, as well as off-balance sheet structures on the Company's financial statements.

 

 

Any correspondence with regulators or governmental agencies and any employee complaints or published reports that raise material issues regarding the Company's financial statements or accounting policies.

 

 

The findings of any examination by regulatory agencies regarding the Company's financial statements or accounting policies.

 

 

Inquire of management and the outside auditor about significant risks or exposures and assess the steps management has taken to minimize such risks to the Company.

 

 

Meet with the outside auditor and management in separate executive sessions to discuss any matters that the Committee or these groups believe should be discussed privately with the Committee.

 

 

Earnings Releases; Securities and Exchange Commission Filings

On a quarterly basis, review the Company's quarterly earnings press release prior to dissemination.

 

 

Review and discuss with management and the outside auditor, as appropriate filings with the SEC and other published documents containing the Company's financial statements, including the disclosure contained in such filings under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 

 

Prepare the report required by the rules of the SEC to be included in the Company's annual proxy statement.

 

 

Internal Controls and Legal Matters

Review the Company's 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 outside auditor.

 

 

Review legal and regulatory matters that may have a material impact on the financial statements and review related Company compliance policies.

 

 

Review and approve all "related-party transactions," as that term is defined in Item 404 of Regulation S-K, as promulgated by the SEC, as required by Nasdaq rules.

 

 

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 the Company of concerns regarding questionable accounting or auditing matters, as required under applicable SEC and Nasdaq rules.

 

 

Establish, monitor and enforce the code of ethics for the Chief Executive Officer and other senior financial officers in compliance with applicable SEC and Nasdaq rules.

 

 

Receive corporate attorneys' reports of evidence of material violations of securities laws or breaches of fiduciary duty.

 

 

Perform an evaluation of Committee performance at least annually to determine whether it is functioning effectively.

Meetings

 

The Committee may hold such meetings as are necessary or appropriate in order for the Committee to fulfill its responsibilities. Special meetings of the Committee may be called by the Chairman of the Committee or any two (2) Committee members. In the absence of a member designated by the Board to serve as Chairman of the Committee, the Committee members may appoint from among their number a person to preside at their meetings. At all meetings of the Committee, the presence of at least two (2) members shall be necessary to constitute a quorum. The affirmative vote of a majority of the members present shall be necessary and sufficient for the adoption of any resolution.

 

Evaluation

 

The Committee shall review and reassess this Charter at least annually and, if appropriate, shall propose changes to the Board.

 

The Committee shall obtain or perform an annual evaluation of the Committee's performance and make applicable recommendations.