(Approved July 24, 2006)
AUDIT COMMITTEE CHARTER
1. The Audit Committee oversees the accounting, auditing, financial reporting and internal financial control matters of Armstrong.
2. The Committee monitors the integrity of the Company’s management, and its policies, legal compliance (in coordination with other committees), reporting practices and systems of internal controls regarding finance and accounting.
3. The Committee is directly responsible for the appointment, compensation, retention and oversight of the work of the independent auditor, the internal audit firm, and any other registered public accountant engaged in auditing, audit-related, review or attest services.
4. The Committee monitors the qualifications and independence of the Company’s independent auditors and the performance of the internal auditing function and independent auditors.
5. The Committee provides one avenue of communication among the independent auditors, management, the internal auditing function, and the Board of Directors concerning accounting, auditing, financial reporting and controls.
The Audit Committee receives its authority and its assignments from the Board of Directors, except in matters where its authority is derived by law or rules of the principal stock exchange(s) where the securities of the Company are listed (the “Exchange”). The Committee regularly reports to the Board. The Committee has ultimate authority and responsibility to select, appoint, compensate, evaluate and where appropriate, replace the independent auditors. The independent auditors are directly accountable to the Committee. The Committee has direct access to the independent auditors as well as access to anyone in the Company. The Committee may investigate any activity of the Company. The Committee has the ability to contractually bind the Company, commit the Company to pay for services, expenses, or other costs, and retain, at the Company’s expense, special legal, accounting or other consultants or experts, all as it deems necessary in the performance of its duties. The Company will provide appropriate funding, as determined by the Committee, for its expenses and for payment of compensation to auditing firms and other advisors it determines necessary to carry out its duties.
1. Audit Committee members’ qualifications shall meet the requirements as may be set by the Board of Directors from time to time, plus all applicable legal and regulatory requirements, including those of the Exchange.
2. The Audit Committee shall be comprised of at least three directors who each meet the independence standards prescribed by law, the Exchange, and the Board of Directors. These include being independent of management and operating executives, not being an affiliated person of the Company or any subsidiary, being free from any relationship that would interfere with the exercise of his or her independent judgment, and not directly or indirectly receiving any consulting, advisory or other compensatory fee from the company apart from compensation as a director. The prohibition on other compensatory fees includes indirect acceptance through payments to spouses or other family members and to entities in which the director is a partner, officer or holds a similar position, all as defined by law. The prohibition excludes amounts received from fixed retirement compensation for past service.
3. All members of the Committee shall be financially literate.
4. At least one member of the Committee shall have accounting or related financial management expertise and other qualities, as defined by the Sarbanes-Oxley Act and the SEC, to be considered “an audit committee financial expert”.
5. Audit Committee members and the Chair shall be recommended by the Nominating and Governance Committee and appointed by the Board of Directors. A member of the Committee may be removed by majority vote of the board. The terms of Committee members shall be arranged to maintain continuity to the extent practicable, consistent with the rotation process specified in the Company’s Corporate Governance Principles.
The Audit Committee shall meet at least five times per year (at least once each quarter) on a schedule adopted by the Committee and as many additional times as the Committee deems necessary. The Chairman of the Board, the Chair of the Committee or any two other members of the Committee may call a special meeting in the manner prescribed by the Bylaws of the Company for a special meeting of the board. The Committee Chair may request members of management, representatives of the independent auditors and other persons to be present at meetings. At least quarterly, the Committee shall meet privately with the Chief Financial Officer, the Chief Accounting Officer, the Director of Internal Auditing (or representatives of the firm providing such services), the independent auditors, and as a committee to discuss any matters that the Committee or any of these individuals believe should be discussed.
Minutes of each meeting are to be prepared at the direction of the Committee Chair and sent to Committee members and all other directors. Copies are to be provided to the independent auditors, the Director of Internal Auditing (or representatives of the firm providing such services), the Chief Executive Officer, the Chief Financial Officer, the Chief Accounting Officer and the General Counsel.
A. Charter Review
1. Review and reassess the adequacy of this charter each year. Submit the charter to the Board of Directors for approval and publish the document as required by law or Exchange rules.
B. Financial Reporting
1. Review the Company’s annual audited financial statements and the documents containing such filings prior to filing or distribution. The review should include discussion with management and independent auditors of significant issues regarding accounting principles, practices, audit findings, disclosures, judgments and any other requirements under accounting standards and rules.
2. In consultation with the management, the independent auditors and the internal auditors, consider the integrity of the Company’s financial reporting processes and controls. Discuss assessment of significant financial risk exposures and the steps management has taken to monitor, control, and report such exposures. Review significant findings prepared by the independent auditors and the internal auditing function together with management’s responses.
3. Prior to issuing quarterly financial statements, review those statements and the related filings with financial management and the independent auditors and consider any items required to be communicated by the independent auditors in accordance with SAS 61.
4. Prior to issuing quarterly earnings release, the Audit Committee will review with management the information being communicated to the public in the press release, as well as the financial information and earnings guidance provided to analysts and rating agencies.
C. Independent Auditors
D. Internal Audit Function and Legal Compliance
1. Annually review and approve the budget and audit plan of the internal audit function.
2. On at least a semi-annual basis, review with the Company’s counsel any legal matters that could have a significant impact on the organization’s financial statements, the Company’s compliance with applicable laws and regulations (in coordination with other committees), and inquiries received from regulators or governmental agencies.
E. Other Audit Committee Responsibilities
1. Annually prepare such report and certification to shareholders and the Exchange as required by Securities and Exchange Commission regulations or Exchange rules.
2. Report to the Board of Directors at its next meeting on significant results of the foregoing activities.
a. the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters;
b. the confidential anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters; and
c. the receipt from counsel for the Company of a report of evidence of a material violation of securities law or breach of fiduciary duty or similar violation by the Company or any agent thereof,