AMENDED AND RESTATED CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF CMS ENERGY CORPORATION

 

 

 

 

1.       Purpose and Duties

      The Audit Committee (the "Committee") shall provide assistance to the Board of Directors (the "Board") of CMS Energy Corporation (the "Corporation") in fulfilling their oversight responsibility to the shareholders, potential shareholders, the investment community, and others relating to:

  • the integrity of the Corporation's financial statements and financial information, the financial reporting process, and the system of internal accounting and financial controls;
  • the performance of the Corporation's internal audit function and independent auditors;
  • the evaluation of the independent auditor's qualifications and independence; and
  • the Corporation's compliance with the review of reports and certifications prepared by the Chief Executive Officer and Chief Financial Officer as required by the rules of the Securities and Exchange Commission (the "SEC").

 

 

The Committee, in carrying out its duties and responsibilities, believes its policies and procedures should remain flexible, in order to best react to changing conditions and circumstances. The Committee should take appropriate actions to set the overall corporate "tone" for quality financial reporting, sound internal controls and business risk practices, and ethical behavior. The following shall be the principal duties and responsibilities of the Committee. These are set forth as a guide with the understanding that the Committee may supplement them as appropriate.

 

 

The Committee shall make recommendations to the Board of Directors regarding significant environmental laws and regulations affecting the Corporation's operations.

 

 

The Committee shall oversee responsibility for compliance with the Corporation's Code of Conduct and Statement of Ethics Handbook. The Committee shall have the right to approve any waiver of the Code of Conduct and Statement of Ethics for directors or executive officers and any such waiver will be promptly disclosed to shareholders in accordance with applicable legal and regulatory requirements, as well as the New York Stock Exchange listing rules.

 

 

The Committee shall oversee the Corporation's financial reporting process on behalf of the Board and report the results of their activities to the Board. While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to design internal controls or to plan or conduct audits or to determine that the Corporation's financial statements are complete and accurate and are in accordance with generally accepted accounting principles. Rather, the Committee should maintain a healthy skepticism and pursue issues until the Committee is satisfied that they have received adequate information to make an informed judgment. In this regard, management is responsible for the preparation, presentation, and integrity of the Corporation's financial information, the design and implementation of an effective system of internal controls and the appropriateness of the accounting principles and reporting policies used by the Corporation. The independent auditor is responsible for auditing the Corporation's annual financial statements and for reviewing the Corporation's unaudited interim financial statements.

 

 

The Committee shall be directly responsible for the appointment and termination (subject, if applicable, to shareholder ratification), compensation, and oversight of the work of the independent auditors, including resolution of disagreements between management and the independent auditor regarding financial reporting. The independent auditors shall report directly to the Committee. The Committee shall pre-approve all audit and non-audit services provided by the independent auditors and shall approve all fees for such services and shall not engage the independent auditors to perform the specific non-audit services proscribed by law or regulation. The Committee delegates to its Chair authority to approve permitted services, provided that the Chair reports any such decisions to the Committee at its next scheduled meeting.

 

 

The Committee shall meet with the independent auditor prior to the audit to review the planning and staffing of the audit as well as compliance with appropriate audit standards.

 

 

The Committee shall receive regular reports from the independent auditor on the Corporation's critical accounting policies and practices, and all alternative accounting treatments permitted by generally accepted accounting principles.

 

 

At least annually, the Committee shall obtain and review the report by the independent auditors describing:

  • The Corporation's financial reporting and accounting standards and principles.
  • The Corporation's internal quality control procedures and an assessment of the effectiveness of the internal control structure and procedures for financial reporting.
  • Any material issues raised by the most recent internal quality control review of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, with respect to one or more independent audits carried out by the firm, and any steps taken to deal with any such issues.
  • The auditor's independence with respect to the Corporation. The Committee will discuss such reports with the independent auditor, consider whether the provision of non-audit services is compatible with maintaining the auditor's independence and, if so determined by the Committee, recommend that the Board take appropriate action to satisfy itself of the independence of the auditor.
  • The independent auditor's required communications contained within the Statement on Auditing Standards No. 61 relating to the conduct of the audit.

 

 

In addition, the Committee shall review the experience and qualifications of the senior members of the independent auditor's team and set clear hiring policies for employees or former employees of the independent auditors that meet the SEC regulations and stock exchange listing standards.

 

 

The Committee shall review and approve the organization of the internal audit function, including the respective responsibilities of any outside auditing firm performing internal audit functions and of officers and employees of the Corporation performing such functions (collectively, the "Internal Audit Function"). Not less than annually, the Committee shall review the effectiveness of the Internal Audit Function as a whole.

 

 

If an outside auditing firm is to perform any Internal Audit Function, the Committee shall select such outside auditing firm and review and approve the terms of the engagement with any such firm. As a part of its overall review of the Internal Audit Function, not less than annually, the Committee shall review the effectiveness of such firm and determine whether the engagement should be continued or terminated. Also as part of the Committee's review, it shall review the effectiveness of the Corporation's auditing and compliance staff and its budget. An auditing plan for a three-year period shall be submitted to the Committee annually, and the Committee shall approve the plan for at least the current year and periodically monitor performance under the plan. Additionally, the Chair of the Committee shall be consulted before the appointment or removal of the supervisor of the Corporation's employees participating in the Internal Audit Function, if any, and the Committee shall approve the responsibilities and the reporting relationship of such supervisor.

 

 

The Committee shall review all significant reports of the Internal Audit Function and summary reports to management and management's responses. The Committee shall also review any problems or difficulties the Internal Audit Function may have encountered or any restrictions on the scope of audit activities.

 

 

The Committee shall assess the extent to which the planned audit scopes of the Internal Audit Function and the independent auditors can be relied on to identify material or significant internal control weaknesses or fraud. The Committee shall review management's assessment of the effectiveness of financial reporting internal controls as of the end of the most recent fiscal year and the independent auditor's attestation report on management's assertion, all as required by Section 404 of the Sarbanes-Oxley Act of 2002 and the regulations of the SEC. Also, the Committee shall discuss with management, the auditors performing the Internal Audit Function, and the independent auditors the adequacy and effectiveness of the accounting and financial reporting internal controls, including the Corporation's policies and procedures to assess, monitor, and manage financial and business risk, and legal business conduct standards compliance programs.

 

 

Prior to release, the Committee shall review and discuss earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies.

 

 

The Committee shall review with management and the independent auditors the financial statements and disclosures under Management's Discussion and Analysis of Financial Condition and Results of Operations to be included in the Corporation's Annual Report on Form 10-K (and in the annual report to shareholders, if applicable), including their judgment about the quality, not just the acceptability, of accounting principles, the reasonableness of significant judgments, and the clarity of the disclosures in the financial statements. Also, the Committee shall discuss the results of the annual audit and any other matters required to be communicated to the committee by the independent auditors under generally accepted auditing standards.

 

 

The Committee shall review the interim financial statements and disclosures under Management's Discussion and Analysis of Financial Condition and Results of Operations with management and the independent auditors prior to the filing of the Corporation's Quarterly Report on Form 10-Q. Also, the Committee shall discuss the results of the quarterly review and any other matters required to be communicated to the Committee by the independent auditors under generally accepted auditing standards.

 

 

The Committee shall establish procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal controls or auditing matters, and for the confidential, anonymous submission by the Corporation's employees of concerns regarding questionable accounting or auditing matters.

 

 

The Committee shall review and investigate any matters pertaining to the integrity of management, including conflicts of interest or adherence to standards of business conduct as required by the policies of the Corporation. This should include regular reviews of the compliance processes utilized by the Corporation.

 

 

The Committee shall receive reports on behalf of the Board from the Chief Compliance Officer concerning the Corporation's compliance and ethics programs and issues, and provide guidance to, and receive advice and counsel from, as appropriate, the Chief Compliance Officer relating to such programs and issues.

 

 

The Committee shall receive and review corporate attorneys' reports of material contingent liabilities, evidence of any violation of securities laws or breaches of fiduciary duty and any other matters that may have a material impact on the financial statements of the Corporation, its compliance policies and any material reports or inquiries received from regulators or governmental agencies.

 

 

The Committee shall review periodically with management the Corporation's risk management policies, controls and exposures and advise the Board and management of its findings and any recommendations.

 

 

The Committee shall prepare its report to be included in the Corporation's annual proxy statement, as required by SEC regulations. The Committee shall approve, for inclusion in the Corporation's proxy statement, the recommendations for the appointment of the independent auditor.

2.       Composition

 

 

This charter governs the operations of the Committee. The Committee shall review and reassess the charter at least annually and obtain the approval of the charter by the Board.

 

 

The committee shall be members of, and appointed by, the Board upon the recommendation of the Governance and Public Responsibility Committee and shall be comprised of at least three directors, each of whom the Board has determined has no material relationship with the Corporation and is otherwise independent of management and the Corporation. Members of the Committee shall be considered independent as long as they do not accept any consulting, advisory or other compensatory fee from the Corporation and are not an affiliated person of the Corporation or its subsidiaries, and meet the independence requirements of the New York Stock Exchange listing standards, the Sarbanes-Oxley Act of 2002 and the regulations of the SEC.

 

 

All Committee members shall be financially literate, and at least one member shall be an "audit committee financial expert," as defined by the SEC regulations. The Committee shall have the authority to provide the proper educational programs for its members to ensure the financial and accounting expertise that is expected of each Committee member.

 

 

The Chair of the Committee shall designate a person, who need not be a member, to act as secretary and to record the minutes of its proceedings, which shall be kept in accordance with the Bylaws of the Corporation. The agenda of each meeting will be prepared at the direction of the Chair and, whenever reasonably practicable, delivered to each member before the meeting.

 

 

3.       Meetings

 

 

The Committee shall meet at least quarterly and shall have the authority to call meetings at its discretion and to invite officers and employees of the Corporation, auditors performing the Internal Audit Function, and independent auditors to attend.

 

 

As part of its responsibility to foster open and frank communications, the Committee shall meet with management, representatives of the Internal Audit Function, and the independent auditors in separate private sessions to discuss any matters, issues or concerns that the Committee or any of these groups believe should be discussed.

 

 

The Committee shall report on its deliberations, findings and conclusions to the Board and maintain minutes and any other records relating to the meetings that are deemed necessary by the Committee. Any member may add relevant matters to the agenda by timely notice to the Chair.

 

 

4.       Performance Evaluation

 

 

The Committee shall evaluate its performance and produce and provide to the Board an annual report on its performance in accordance with the requirements of this charter and set forth the goals and objectives of the Committee for the upcoming year. The performance evaluation shall also recommend to the Board any improvements to the Committee's charter deemed necessary or desirable by the Committee. The performance evaluation by the Committee shall be conducted in such a manner, as the Committee deems appropriate. The report to the Board may take the form of an oral report by the Chair of the Committee or any other member of the Committee designated by the Committee to make this report.

 

 

5.       Resources and Authority

 

 

In discharging its oversight role, the Committee shall have the resources and funding necessary to discharge its duties and responsibilities and is empowered to investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the Corporation. The Committee has the authority to engage independent counsel and other advisers as it determines necessary to carry out its duties. The Committee may direct any officer or employee of the Corporation and request any employee of the Corporation's independent auditors, outside legal counsel or other consultants or advisors to attend a Committee meeting or meet with any Committee members.

 

 

6.       Delegation to Subcommittee

 

 

The Committee may, in its discretion, delegate all or a portion of its duties and responsibilities to one or more members of the Committee.