Audit Committee

Purpose
The audit committee's primary function is to assist the board of directors in fulfilling its oversight responsibilities by monitoring:

                                 The integrity of financial information which will be provided to the shareholders and others;

                                 The systems of internal controls and disclosure controls which management has established;

                                 The performance of internal and external audit functions; and

                                 The company's compliance with legal and regulatory requirements.


Composition
The committee shall consist of no fewer than three directors. All committee members must meet applicable New York Stock Exchange (NYSE) and Securities and Exchange Commission (SEC) independence and experience requirements. All committee members shall be financially literate or must become financially literate within a reasonable period of time after appointment to the committee. At least one member of the committee shall be an audit committee financial expert as determined by the board in accordance with NYSE listing standards. At least one member of the committee shall serve concurrently on the public policy and compliance committee.

The committee members shall be appointed for one-year terms at the annual meeting of the board. The board shall designate the chairperson.

Administrative Matters
The committee shall meet not less than six times per year and shall report at the next board meeting following each such committee meeting. The committee shall meet at least annually with the public policy and compliance committee. This meeting will allow the audit committee to review non-financial legal and regulatory compliance as well as the risk assessment and risk management processes, which are overseen by the public policy and compliance committee. The committee shall meet periodically with management, the internal auditors, and the independent auditor in separate executive sessions. The committee may request an officer or employee of the company, the company's outside counsel, or representatives of the company's independent auditor to attend a meeting of the committee or to meet with any members of, or advisors to, the committee. The committee may, at any time, retain its own outside advisors at the company's expense.

Supporting Corporate Staff
   General Auditor
   Office of the Corporate Secretary
   Chief Accounting Officer

Duties and Responsibilities
To fulfill its duties and responsibilities, the committee shall:

1.                                Annually review and reassess this charter.

2.                                Maintain a clear understanding with management and the independent auditors that the committee is directly responsible for compensation and oversight of the work of the independent auditor, including:

o                                                        Having the sole authority (subject to shareholder ratification) to appoint or replace the independent auditor;

o                                                        Approving the compensation of the independent auditor;

o                                                        Reviewing and evaluating the lead partner of the independent audit team;

o                                                        Reviewing the audit scope and audit plan of the independent auditor;

o                                                        Obtaining and reviewing, at least annually, a report from the independent auditor which describes the firm's internal compliance procedures, any issues raised from peer reviews, or other quality reviews of the firm, any steps taken to deal with the issues, and all relationships between the firm and Lilly;

o                                                        Ensuring rotation of the lead audit partner as required by law (or any stricter policies as may be established by the committee);

o                                                        Setting clear hiring policies for employees or former employees of the independent auditor; and

o                                                        Resolving disagreements between management and the independent auditor regarding financial reporting.

3.                                Pre-approve all audit services and approve permitted non-audit services (including fees and terms) to be performed for Lilly by the independent auditor, consistent with the requirements of the SEC and NYSE or any stricter standards as may be adopted by the committee.

4.                                Oversee the internal audit function, including:

o                                                        Reviewing the appointment and replacement of the general auditor;

o                                                        Reviewing and approving the internal audit plan;

o                                                        Reviewing significant reports to management prepared by internal audit (and management's response); and

o                                                        Discussing with the independent auditor and management the responsibilities, budget, and staffing of the internal audit function.

The general auditor will report directly to the chair of the audit committee, with a secondary reporting relationship to the chief financial officer for administrative purposes.

5.                                Prepare a report for inclusion in the company's annual proxy statement in accordance with SEC regulations.

6.                                Review, with management and the independent auditors, the annual and quarterly financial results before they are filed in periodic reports with the SEC or other regulators. These reviews shall include discussions with management and the independent auditor regarding significant financial reporting issues and judgments made in connection with the preparation of Lilly's financial statements and any special steps adopted in light of material control deficiencies. The committee shall also receive regular reports from the independent auditor on the critical accounting policies and practices of Lilly and significant alternative treatments of financial information within GAAP that have been discussed with management. The committee shall discuss with the independent auditor the auditor's assessment of the quality, not just the acceptability, of the company's accounting principles as required by SAS No. 61.

7.                                Review and discuss with management Lilly's earnings press releases, including the use of "pro forma" non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies.

8.                                Provide an open avenue of communication between the independent auditor, the general auditor, and the board, including sufficient opportunity for the independent auditor and the general auditor to meet with the committee without members of management present.

9.                                Consider and review with the independent auditor, the chief accounting officer, and the general auditor:

o                                                        The independent auditor's audit of financial statements and their report thereof;

o                                                        The adequacy of the company's internal controls and disclosure controls;

o                                                        Any related significant findings and recommendations of the independent auditors or the internal auditors together with management's responses thereto;

o                                                        Any difficulties encountered in the course of the audits, including any restriction on the scope of work or access to required information; and

o                                                        Any material written communications between the independent auditor and management, including management letters or schedules of unadjusted differences.

10.                             Oversee the company's dissemination of and compliance with the company's code of conduct, including but not limited to those codes that apply specifically to employees involved in matters that affect accounting, auditing, and financial reporting.

11.                             Review procedures to promote and protect employee reporting of suspected fraud or wrongdoing relating to accounting, auditing, or financial reporting, including procedures for:

o                                                        Receiving, retaining, and addressing complaints received by Lilly relating to such matters;

o                                                        Enabling employees to submit to the committee, on a confidential and anonymous basis, any concerns regarding such matters; and

o                                                        Protecting reporting employees from retaliation.

12.                             Together with the public policy and compliance committee, assist the board in its oversight of legal and regulatory compliance. The audit committee shall have sole oversight over matters of financial compliance (accounting, auditing, financial reporting, and investor disclosures). As to all other areas of compliance ("non-financial compliance"), the public policy and compliance committee shall have oversight responsibilities in the first instance; however, the two committees shall meet jointly at least annually to review the major non-financial compliance matters, including:

o                                                        Overall state of compliance

o                                                        Significant legal or regulatory compliance exposure

o                                                        Material reports or inquiries from regulators.

13.                             Together with the public policy and compliance committee, review at least annually a summary of the risk assessment and risk management processes and policies.

14.                             Inquire of management, the general auditor, and the independent auditors about significant financial risks or exposures and evaluate the steps management has taken to assess and minimize such risks to the company, including review of management's financial risk management policies.

15.                             Review policies and procedures with respect to senior management's expense accounts, including their use of corporate assets, and consider the results of any review of these areas by the general auditor or the independent auditor.

16.                             Conduct or authorize investigations into any matters within the committee's scope of responsibilities. The committee may retain (at the company's expense) independent counsel, accountants, or others to assist in the conduct of any investigation.

17.                             The committee shall also undertake such additional activities within the scope of its primary functions as the committee may from time to time determine.