OF THE BOARD OF DIRECTORS OF AMERICAN STANDARD COMPANIES INC. (THE "COMPANY")
The primary purpose of the Audit Committee (the "Committee") is to provide assistance to the Board of Directors in fulfilling their oversight responsibilities with respect to:
a) The quality and integrity of the Company's financial
statements, financial reporting process and system of internal accounting and
b) The Company's compliance with legal and regulatory requirements and ethics policies.
c) The independent auditors' qualifications and independence.
d) Audits of the Company's financial statements, including the performance of the Company's internal audit function and independent auditors.
In fulfilling its responsibility, the Committee shall maintain free and open communication between the Committee, the independent auditors, the internal auditors and management of the Company. The Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the Company and shall have authority to engage independent counsel and advisers, as it deems necessary.
II. STRUCTURE AND OPERATIONS
This Charter governs the operations of the Audit Committee. The Committee shall review the Charter at least annually and recommend any significant changes deemed necessary to the Board of Directors for approval. Specifically the Committee shall:
a) Be comprised of three or more independent Board members each
having a working familiarity with basic financial and accounting practices as
contemplated by the New York Stock Exchange ("NYSE") or acquire such
familiarity within a reasonable amount of time after their appointment to the
Committee and one of which has "accounting or related financial management
expertise" as required by the NYSE listing standards. The term independent
shall have the meaning set forth in the Company's governance principles.
b) Have at least one member who is a "financial expert" under the requirements of the Sarbanes-Oxley Act or as defined by the SEC Regulations.
c) Meet at least quarterly and report regularly to the Board of Directors on its activities.
d) Meet separately and periodically with management, the director of internal audit and the independent auditors to review the quarterly and annual financial statements. Require that independent and internal auditors meet privately with the Committee to discuss issues and concerns warranting special attention.
e) Not have any member serve on the Audit Committee of more than three public corporations, including the Company, unless the Board of Directors (i) determines that such simultaneous service would not impair the ability of such member to effectively serve on the Committee, and (ii) discloses such determination in the annual proxy statement.
III. DUTIES AND RESPONSIBILITIES
The primary responsibility of the Committee is to oversee the Company's financial reporting process on behalf of the Board of Directors and report the results of their activities to the Board. Management of the Company is responsible for the preparation, presentation, and integrity of the Company's financial statements and for the appropriateness of the accounting principles and reporting policies that are used by the Company. The independent auditors are responsible for auditing the Company's financial statements and for reviewing the Company's unaudited interim financial statements.
Specifically, with respect to the following topics the Committee shall:
a) Be directly responsible for the appointment, compensation,
retention and oversight of the work of the independent auditors.
b) Pre-approve all audit and permitted non-audit services provided by the independent auditors. The Committee may delegate pre-approval authority to a member of the Committee.
c) Instruct the independent auditors to report directly to the Committee.
d) Oversee the work of the independent auditors and review any disagreements between management and the independent auditors regarding audit work or financial reporting.
e) Review at least annually the qualifications, performance and independence of the independent auditors.
f) Annually obtain and review a report from the independent auditors describing their internal quality control procedures and material issues raised by quality control or peer reviews of the independent auditors or by any inquiry or investigation of the independent auditors by governmental or professional authorities during the past five years and any corrective steps taken to deal with the issues.
g) Annually obtain and review from the independent auditors a listing of all relationships between them and the Company.
h) Establish clear hiring policies for employees and former employees of the independent auditors that meet the U.S. Securities and Exchange Commission regulations and stock exchange listing standards.
i) Review the integrity and adequacy of the Company's internal and external financial reporting processes including management's assessment of the effectiveness of internal controls at the end of the most recent fiscal year and the independent auditors' report on management's findings.
j) Review and concur with management's appointment, termination or replacement of the General Auditor.
k) Review the integrity and adequacy of all critical accounting policies, analyses prepared by management or the independent auditor discussing significant financial reporting issues and judgements in the preparation of the financial statements, major issues regarding accounting principles and financial statement presentations; major issues associated with the adequacy of internal controls to monitor and manage business risk, and corrective measures; and any other material written communications between the independent auditors and management.
l) Review with the independent auditors: (i) any audit or accounting adjustments proposed by the independent auditors but not undertaken by the Company, (ii) any issues presented by the engagement that may impair the independent auditors' effectiveness or difficulties caused by restrictions placed on the scope of activities or access to information; (iii) significant disagreements with management and management's response; (iv) any communications between the audit team and the audit firm's national office concerning auditing or accounting issues presented by the engagement; and (v) any management or internal control letters issued or proposed by the independent auditors to the Company.
m) Periodically review the effect of new regulatory and accounting initiatives and any off balance sheet structures on the financial statements of the Company.
n) Review with the internal auditors and independent auditors their overall scope and plans for their respective audits, including the adequacy of staffing and compensation.
o) Meet with management and the independent auditors to review and discuss the company's press releases with respect to earnings. The Audit Committee shall discuss generally the financial information and earnings guidance provided to analysts and rating agencies, including the types of information or presentations. The Audit Committee is not required to discuss earnings guidance and other financial information in advance of each earnings release or each instance in which the company may provide earnings guidance or financial information.
p) Meet with management and the independent auditors to review and discuss the interim financial statements and specific disclosures under Management's Discussion and Analysis of Financial Conditions and Results of Operations in each Quarterly Report on Form 10-Q.
q) Meet with management and the independent auditors to review and discuss the audited financial statements and specific disclosures under Management's Discussion and Analysis of Financial Conditions and Results of Operations in the Annual Report on Form 10-K including the clarity of their disclosures.
r) Review with the Company's legal counsel any legal matters, including but not limited to any violations of laws or regulations or breaches of fiduciary duty or other matters that could have a material impact on the financial statements.
s) Discuss with management and the independent auditors the Company's actions and activities concerning risk assessment and risk management.
t) Establish a procedure to ensure the proper receipt and investigation of confidential, anonymous or other complaints relating to questionable accounting, internal controls, auditing matters or other financial, accounting or auditing practices.
u) Annually review this charter; perform an annual evaluation of the Committee and its compliance with this Charter.
v) Prepare any Audit Committee reports required in connection with the annual proxy statement.
w) Provide recommendations to the Board, as the Committee deems appropriate.
x) Maintain minutes and records of the meetings and activities.
y) Review the operation of the Company's pension plans and the policies and actions of the Pension Board, with particular attention to actuarial assumptions, funding policy and investment results.