Audit Committee

Audit Committee Charter
April 2003

Purpose
The Audit Committee of BMC Software, Inc.is appointed by the Board of Directors to assist it in fulfilling its responsibility to oversee (i) the quality and integrity of the Company’s financial statements and the process that produces them, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the quality and integrity of the Company’s risk management processes, and (iv) the qualifications and independence of the independent auditors. The Audit Committee also oversees the performance of the Company’s internal audit function and the independent auditors.

Membership
The Audit Committee will consist of three to five members of the Board. Every member of the Audit Committee must meet the independence and experience requirements of the New York Stock Exchange, any other regulatory requirements applicable to the Company and any additional independence requirements set forth in the Company’s Corporate Governance Guidelines. All members of the Audit Committee must be financially literate, and at least one member of the Audit Committee must be an “audit committee financial expert,” as defined by the regulations of the Securities and Exchange Commission. The members of the Audit Committee may be replaced by the Board at any time.

Authority and Responsibilities

  1. The Audit Committee has sole responsibility for the retention and termination of the independent auditors. In this regard, the Audit Committee ensures that the Company’s management and its independent auditors are aware that the independent auditors are ultimately accountable to the Audit Committee. The Audit Committee pre-approves the payment of all audit and non-audit fees to the Company’s independent auditors or, in lieu thereof, adopts a pre-approval policy for the payment of fees for non-audit services. The Audit Committee approves, in advance, the hiring of any employees of any independent auditors who were engaged on the Company’s account within the previous three (3) years. The Audit Committee serves as the focal point for communications between the Board, the independent auditors, the internal auditors and management of the Company.
  2. The Audit Committee reviews and approves the annual audit scope of the independent auditors and the internal auditors. The independent auditors are required to conduct a formal review of the quarterly financial statements prior to filing each Form 10Q and to review their findings and conclusions with the Audit Committee.
  3. The Audit Committee reviews the independence of the independent auditors by reviewing and evaluating written statements from the independent auditors describing all relationships with the Company and comparable statements from management. The Audit Committee reviews the experience and qualifications of the senior members of the independent auditors’ team and the quality control procedures of the independent auditors.
  4. The Audit Committee discusses with the independent auditors the results of its audit from the preceding year, including:
    a. A review of the audited financial statements and the memorandum containing recommendations for improving accounting procedures and internal controls and any disagreements with management.
    b. The adequacy of the organization’s internal control structure.
    c. Management’s cooperation with the independent auditors.
    d. The adequacy and quality of the organization’s accounting principles and policies when compared to its industry in general.
    e. A determination that the organization’s financial statements will constitute full disclosure and an easily comprehendible and meaningful report to the Company’s shareholders and creditors.
    f. A review of the effect of regulatory and accounting initiatives, as well as off balance sheet structures, on the Company’s financial statements.
  5. The Audit Committee discusses items 4.b. and 4.d. above, as well as all significant findings, with the Company’s internal auditors.
  6. The Audit Committee discusses quarterly with the Company’s Director of Internal Audit the issues and observations of the Company’s internal quality control procedures, the Internal Audit projects, and audit plan and periodically reviews the same to ensure they have been addressed and resolved.
  7. The Audit Committee reviews with management the “Management’s Discussion and Analysis” section of the Company’s annual report to shareholders and discusses earnings press releases, as well as financial information and earnings guidance provided to the financial community.
  8. The Audit Committee discusses with management and the independent and internal auditors, as appropriate, the Company’s risk assessment and risk management policies, including the Company’s major risk exposures and steps to be taken by management to monitor and mitigate such exposures.
  9. The Audit Committee reviews quarterly with management, the internal auditors and the independent auditors all significant issues concerning litigation, contingencies, claims, or assessments and all material transactions and accounting issues and transactions that require disclosure in the Company’s financial statements. The review includes a discussion of recent FASB or other regulatory agency pronouncements that may have a material impact on the Company.
  10. The Audit Committee monitors instances where management seeks second opinions on significant accounting matters.
  11. The Audit Committee reviews management’s evaluation of the adequacy of the Company’s internal control structure and the extent to which major recommendations made by the independent and internal auditors have been implemented.
  12. The Audit Committee reviews the audit results of governmental and regulatory agencies and independent accountants engaged for specific purposes. The Audit Committee reviews with management and the internal auditors any correspondence with regulators or governmental agencies and any employee complaints or published reports which raise material issues regarding the Company’s financial statements or accounting policies.
  13. The Audit Committee establishes procedures to receive and address complaints, both direct and anonymous, regarding accounting, internal control, or auditing issues and to protect from retaliation those individuals providing such information in good faith.
  14. The Audit Committee directs and supervises an investigation into any matter as deemed necessary to discharge its duties and responsibilities. In connection with any such investigation, the Audit Committee has access to all books, records, facilities and personnel of the Company and the authority to employ outside counsel, auditors or other experts at Company expense for such purpose.
  15. The Audit Committee is responsible for preparing a report for inclusion in the Company’s annual proxy statement.
  16. The Audit Committee has the authority to retain and terminate advisors to assist in discharging its duties including the authority to approve such advisors’ fees and retention terms.
  17. The Audit Committee provides a report of its meetings and activities to the full Board on a regular basis.

Organization

  1. The Audit Committee meets on a regularly scheduled basis, at least quarterly and more frequently as necessary, to fulfill its responsibilities.  The Audit Committee meets during the external audit planning phase to review the scope and details of the audit and approve the audit fee.  A second meeting is held at the conclusion of the external audit to review the audit opinion, the recommendations of the independent auditors, and any situation involving irregularities or weaknesses in internal control structure.  Management, internal audit, and other corporate compliance persons meet with the Committee as needed, but at least annually.
  2. A quorum of the Audit Committee consists of a majority of its members.  All actions of the Audit Committee must be approved by a majority vote of the members present, unless there are only two members present, in which case such actions require a unanimous vote.
  3. Voting may be conducted verbally and the results, together with all other business conducted at each meeting, will be recorded in the minutes of the meeting.
  4. In conjunction with the Corporate Governance Committee and its evaluation process, the Audit Committee annually reviews its own performance and the adequacy of this charter.

Members of Audit Committee
George F. Raymond, Chairman
Jon E. Barfield
John W. Barter
Louis J. Lavigne, Jr.
Kathleen O'Neil