2003 Audit Charter: ELK

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ElkCorp
AUDIT COMMITTEE CHARTER
(Revised August 27, 2002)
THE COMMITTEE
One committee of the Board of Directors will be known as the Audit Committee (Audit
Committee or Committee). The Committee will be comprised of three or more directors
as determined by the Board of Directors. Each member of the Committee shall be
independent of management and free from any material relationship with ElkCorp. The
Board must determine in its best judgement that each member of the Committee is
independent and financially literate under the applicable standards. All members of the
Committee will have a working familiarity with basic finance and accounting practices.
At least one member of the Committee will be a financial expert under applicable
standards
Committee members shall be appointed, and each Committee member shall serve for
a period of one year or until such time as his successor has been duly named and
qualified.
The primary function of the Audit Committee is to assist the Board of Directors in
fulfilling its oversight of the integrity of ElkCorp's financial statements, ElkCorp's
compliance with legal and regulatory requirements, the independent auditors'
qualifications and independence, and the performance of ElkCorp's internal audit
function and independent auditors. The Committee will review: the financial reports
and other financial information provided by ElkCorp (collectively with its subsidiaries,
the Corporation) to any governmental body or the public; the Corporation's systems of
internal controls regarding finance, accounting, legal compliance and ethics that
management and the Board have established; and the Corporation's auditing,
accounting and financial reporting process generally. Consistent with this function, the
Audit Committee should encourage continuous improvement of, and should foster
adherence to, the Corporation's policies, procedures and practices at all levels.
The Corporation's independent accountants are ultimately accountable to the Audit
Committee of the Corporation. The Corporation's independent auditors will report
directly and solely to the Audit Committee.
GENERAL RESPONSIBILITIES:
  • To retain and terminate the Corporation's independent auditors (subject, if
    necessary or appropriate, to shareholder ratification).
  • To assist the Board in fulfilling its fiduciary responsibilities to the shareholders with
    respect to matters relating to the Corporation's accounting, reporting, audit, and
    internal control practices.
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  • To facilitate open avenues of communication among the internal auditors, the
    independent accountants, the Audit Committee and the Board of Directors.
  • To report Committee actions to the full Board of Directors and make appropriate
    recommendations.
  • To inquire as to the independence of the independent public accountant. As part of
    this responsibility, the Committee will ensure that the independent accountants
    submit on a periodic basis to the Committee a formal written statement delineating
    all relationships between such accountants and the Corporation. The Committee is
    responsible for actively engaging in a dialogue with the independent accountants
    with respect to any disclosed relationships or services that may impact the
    objectivity and independence of the independent accountants and for
    recommending that the Board of Directors take appropriate action in response to
    the independent accountants' report to satisfy itself of the independent accountants'
    independence.
  • To conduct or authorize investigations into matters within the Committee's scope of
    responsibility. The Committee is authorized, with or without Board approval, to
    retain independent counsel, accountants or other advisors as may be necessary or
    appropriate to assist the Committee in fulfilling its duties.
  • To meet at least three times each year, and more frequently if circumstances
    warrant. A majority shall constitute a quorum of the Committee. A portion of each
    meeting may exclude Corporation employees to provide opportunity for
    independent discussion. The Committee members will have sole discretion in
    determining the meeting attendees and agenda.
  • To review and approve, specifically and in advance, any non-audit services
    proposed to be provided to the Corporation by its independent auditors, and ensure
    that such services do not interfere with the independence of such auditors, and do
    not give rise to an appearance of impropriety.
  • To consider policies and procedures for audit partner rotation on a five-year cycle,
    and if required or appropriate, audit firm rotation.
  • To establish procedures for the receipt, retention and treatment of complaints
    received by the Corporation regarding accounting, internal accounting controls, or
    auditing matters, and the confidential, anonymous submission by employees of
    concerns regarding accounting auditing or internal control issues.
  • To meet separately and periodically, with management, with internal auditors and
    with independent auditors.
  • To review and establish hiring policies for employees or former employees of the
    Corporation's independent auditors (including a minimum one-year "cooling off
    period" before hire).
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  • To establish and recommend Board approval performance standards for Committee
    members, and the procedures and timing of an annual performance evaluation.
    RESPONSIBILITIES FOR ENGAGING INDEPENDENT ACCOUNTANTS AND
    REVIEWING INTERNAL AUDIT FUNCTION:
  • To select and evaluate the independent accountants for the annual audit and
    quarterly reviews, and to approve any replacement of the independent accountants
    if circumstances warrant such action. The Committee's actions in these areas of
    responsibility may be subject to ratification by the Corporation's shareholders. The
    Audit Committee also will review and approve fees paid to the independent
    accountants.
  • To confirm and assure the objectivity of the internal audit function and the
    independence of independent accountant, including a review of management
    consulting services provided by the independent accountant.
  • To assure that the internal auditing function and the independent accountant
    coordinate internal and external audit activities to the external process. The
    purpose of coordinating this effort is to assure completeness of coverage and to
    reduce redundancy and overall costs.
    RESPONSIBILITIES FOR REVIEWING THE ANNUAL EXTERNAL AUDIT,
    REVIEWING INTERNAL AUDITS AND REVIEWING QUARTERLY AND ANNUAL
    FINANCIAL STATEMENTS:
  • At least quarterly, the Audit Committee will obtain and review a report by the
    independent auditor describing: the firm's internal quality-control procedures; any
    material issues raised by the most recent internal quality-control review, or peer
    review, of the firm, or by any inquiry or investigation by governmental or
    professional authorities, within the preceding five years, respecting one or more
    independent audits carried out by the firm, and any steps taken to deal with any
    such issues; and (to assess the auditor's independence) all relationships between
    the independent auditor and the Corporation.
  • The Audit Committee will strive to insure that the independent accountant provides
    the Committee with a timely notification and analysis of significant financial
    reporting issues.
  • The Audit Committee will ask management, the internal auditors and the
    independent accountant about significant risks and exposures and will assess
    management's steps to minimize them.
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    THE AUDIT COMMITTEE WILL REVIEW THE FOLLOWING WITH THE
    INDEPENDENT ACCOUNTANT AND THE INTERNAL AUDITORS:
  • The planned arrangements and scope of the annual audit.
  • The adequacy of the Corporation's internal controls, including computerized
    information systems controls and security.
  • Any significant findings and recommendations made by the independent accountant
    or internal auditors together with management's response.
  • The need for the internal auditor and the independent accountant to assess their
    responsibility for detecting accounting and financial reporting errors, fraud, and
    defalcations, illegal acts and noncompliance with the Corporation's Policy on Legal
    and Ethical Compliance/Conflicts of Interest/Gifts (General Policy Letter D-2)
    ("Code of Conduct") and regulating requirements.
  • The need for changes or improvements, including improvements in efficiency, in
    financial or accounting practices or controls.
    THE AUDIT COMMITTEE WILL REVIEW WITH MANAGEMENT AND THE
    INDEPENDENT ACCOUNTANT:
  • The Corporation's annual financial statements and related notes and quarterly
    financial statements, including all of the Corporation's disclosures under
    "Management's Discussion and Analysis of Financial Condition and Results of
    Operations."
  • The independent accountant's audit of and report on the financial statements.
  • The auditor's qualitative judgment about the quality, not just the acceptability, of the
    accounting principles and financial disclosures.
  • The matters required to be discussed by Statement on Auditing Standards No. 61,
    as it may be amended, including but not limited to:
  • Methods used to account for significant unusual transactions.
  • Effect of significant accounting policies in controversial or emerging areas.
  • Process and basis for sensitive accounting estimates.
  • Disagreements between independent accountants and management over
    accounting or disclosure matters.
  • Any serious difficulties or disputes with management encountered during the course
    of the audit. The Committee is directly responsible for the resolution of
    disagreements between management and the Corporation's independent auditors
    regarding financial reporting.
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  • Anything else about the audit procedures or findings that GAAS or other applicable
    standards, rules or regulations require the independent accountant to discuss with
    the Committee or vice versa.
    THE AUDIT COMMITTEE WILL CONSIDER AND REVIEW WITH MANAGEMENT
    AND THE INTERNAL AUDITORS:
  • Any significant findings during the year and management's response to them.
  • The budget and staffing for internal auditing.
  • Activities, organizational structure, and qualifications of the internal auditors.
    THE AUDIT COMMITTEE WILL REVIEW THE ANNUAL REPORTS FILED WITH THE
    SEC (FORM 10-K) AND OTHER PUBLISHED DOCUMENTS CONTAINING THE
    CORPORATION'S FINANCIAL STATEMENTS AND WILL CONSIDER AND
    RECOMMEND TO THE BOARD WHETHER THE FINANCIAL STATEMENTS BE
    INCLUDED IN THE CORPORATION'S ANNUAL REPORT ON FORM 10-K.
    THE AUDIT COMMITTEE WILL REVIEW EACH QUARTERLY FINANCIAL REPORT
    (FORM 10-Q) WITH MANAGEMENT AND THE INDEPENDENT ACCOUNTANTS
    BEFORE THOSE INTERIM REPORTS ARE RELEASED TO THE PUBLIC OR FILED
    WITH SEC OR OTHER REGULATORS.
    PERIODIC RESPONSIBILITIES:
  • Review and reassess the Committee's charter and responsibilities at least annually.
  • Meet with internal auditors, the independent accountant, and management in
    separate executive sessions to discuss matters that should be discussed privately
    with the Committee.
  • Review the Committee's methodology and functions at least annually; evaluate its
    performance and institute appropriate changes to improve performance or reflect
    changes in the business environment.
  • Prepare annual Committee Report or other proxy statement disclosure about the
    Committee in accordance with Regulations of the Securities and Exchange
    Commission and other applicable law.
  • Disclose at least triennially in the proxy statement the Committee's charter.
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  • Review and update periodically the Corporation's Code of Conduct and other
    General Policy and Administrative Procedure Letters that pertain to the
    Corporation's financial reporting process, system of internal control, and
    compliance and ensure that management has established a system to enforce
    these policies. Review management's monitoring of employees' compliance with
    laws, regulations and the Corporation's Code of Conduct.
  • Review and update periodically the Corporation's Code of Ethics for financial
    officers.
  • Review, with the Corporation's counsel, legal compliance matters, including
    corporate securities trading policies.
  • Review, with the Corporation's counsel, any legal matters that could have a
    significant impact on the Corporation's financial statements.
  • Review and discuss with management the Corporation's earnings press releases,
    as well as financial information and earnings guidance provided to analysts and
    rating agencies.
    INDIVIDUAL AGENDAS FOR EACH OF THE THREE SCHEDULED MEETINGS ARE
    AS FOLLOWS:
    First Meeting (With External Auditors May or earlier)
  • Establish expectations of the Audit Committee.
  • Insure the independence of the independent public accountant.
  • Review and approve fees.
  • Coordination of internal and external audit activities.
  • Review of significant risks and exposures.
  • Planned arrangements and scope of annual audit.
  • Evaluate management consulting services provided by independent accounting firm
    as it relates to independence of the external auditor and other matters disclosed in
    the independent accountants' disclosure statement.
  • Executive session with external auditors.
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    Second Meeting (With External Auditors before release of year-end financial
    results)
  • Review of Corporation's annual financial statements and related notes.
  • Significant findings and recommendations of the external auditor on the financial
    statements.
  • External auditors' judgment of appropriateness and quality of accounting principles
    and disclosures.
  • Findings on reporting errors, fraud, and defalcations and regulatory issues.
    (With Legal Counsel)
  • Review of compliance with the Corporation's Policy on Legal Obligation's of
    Directors, Officers and Employees Under Securities Laws (General Policy Letter D-
    4).
  • Review of disclosures pursuant to Corporation's director and officer questionnaires.
  • Review of legal claims and assessments that could have a significant impact on the
    Corporation's financial statements.
    Third Meeting (With Internal and External Auditors before release of Form 10-K)
    Independent auditors:
  • Review of Corporation's Form 10-K.
  • Significant findings on adequacy of Corporation's internal control, including systems
    controls and security.
  • Management letter and management response.
  • Review and approve notice to New York Stock Exchange or other applicable
    exchange or self-regulatory organization regarding Committee matters.
    Internal audit:
  • Findings for past year's work.
  • Scope for the next year's internal audit activities.
  • Budget and staff for next year.
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  • Review of internal audit organization and qualifications.
  • Review of results of management's monitoring of employees' compliance with the
    Code of Conduct.