2003 Committee Charter : FMER

Audit Committee Charter
The Audit Committee is appointed by the Board of Directors to assist the Board in
monitoring (1) the integrity of the financial statements of the Company, (2) the
independent auditor's qualifications and independence, (3) the performance of the
Company's internal audit function and independent auditors, (4) the compliance by the
Company with legal and regulatory requirements, and (5) the effectiveness of internal
The Audit Committee shall prepare the report required by the rules of the Securities and
Exchange Commission (the "Commission") to be included in the Company's annual
proxy statement.
Committee Membership
The Audit Committee shall consist of no fewer than three members. The members of the
Audit Committee shall meet the independence and experience requirements of the
National Association of Securities Dealers, Inc. ("NASD") and the rules and regulations
of the Commission, as such requirements are interpreted by the Board of Directors in its
business judgment. A member of the Audit Committee may not accept any consulting,
advising, or other compensatory fee from the Company other than for service on the
Board of Directors. Each member will be able to read and understand fundamental
financial statements at the time of appointment to the Committee. At least one member
of the Audit Committee shall be an audit committee financial expert as defined by the
Commission. Audit committee members shall not simultaneously serve on the audit
committees of more than two other public companies.
The members of the Audit Committee shall be appointed by the Board on the
recommendation of the Corporate Governance and Nominating Committee. Audit
Committee members may be replaced by the Board.
The Audit Committee shall meet as often as it determines, but not less frequently than
quarterly. The Audit Committee shall meet periodically with management, the internal
auditors and the independent auditor in separate executive sessions. The Audit
Committee may request any officer or employee of the Company or the Company's
outside counsel or independent auditor to attend a meeting of the Committee or to meet
with any members of, or consultants to, the Committee.
February 27, 2003
A majority of the members of the Committee will constitute a quorum. Any act of a
majority of the members present at any meeting at which a quorum is present shall be an
act of the Committee.
Committee Authority and Responsibilities
The Audit Committee shall have the sole authority to appoint or replace the independent
auditor. The Audit Committee shall be directly responsible for the compensation and
oversight of the work of the independent auditor (including resolution of disagreements
between management and the independent auditor regarding financial reporting) for the
purpose of preparing or issuing an audit report or related work. The independent auditor
shall report directly to the Audit Committee.
The Audit Committee shall preapprove all auditing services and permitted non-audit
services (including the fees and terms thereof) to be performed for the Company by its
independent auditor. The Audit Committee may form and delegate authority to
subcommittees consisting of one or more members when appropriate, including the
authority to grant preapprovals of audit and permitted non-audit services, provided that
decisions of such subcommittee to grant preapprovals shall be presented to the full Audit
Committee at its next scheduled meeting.
The Audit Committee shall have the authority, to the extent it deems necessary or
appropriate, to retain independent legal, accounting or other advisors. The Company
shall provide for appropriate funding, as determined by the Audit Committee, for
payment of compensation to the independent auditor for the purpose of rendering or
issuing an audit report and to any advisors employed by the Audit Committee.
The Audit Committee shall make regular reports to the Board. The Audit Committee
shall review and reassess the adequacy of this Charter annually and recommend any
proposed changes to the Board for approval. The Audit Committee shall annually
evaluate the Audit Committee's own performance, which evaluation must compare the
performance of the Audit Committee with the requirements of this Charter. The
performance evaluation shall be conducted in such manner as the Audit Committee
deems appropriate. The chairperson of the Audit Committee or any other member of the
Audit Committee designated by the Audit Committee shall make a report to the Board on
the evaluation which report may be made orally.
The Audit Committee, to the extent it deems necessary or appropriate, shall:
Financial Statement and Disclosure Matters
1. Review and discuss with management and the independent auditor the annual audited
financial statements, including disclosures made in management's discussion and
analysis, and recommend to the Board whether the audited financial statements
should be included in the Company's Form 10-K.
February 27, 2003
2. Review and discuss with management and the independent auditor the Company's
quarterly financial statements prior to the filing of its Form 10-Q, including the
results of the independent auditor's review of the quarterly financial statements.
3. Discuss with management and the independent auditor significant financial reporting
issues and judgments made in connection with the preparation of the Company's
financial statements, including any significant changes in the Company's selection or
application of accounting principles, any major issues as to the adequacy of the
Company's internal controls and any special steps adopted in light of material control
4. Review and discuss quarterly reports from the independent auditors on:
(a) All critical accounting policies and practices to be used.
(b) All alternative treatments of financial information within generally accepted
accounting principles that have been discussed with management, ramifications of
the use of such alternative disclosures and treatments, and the treatment preferred
by the independent auditor.
(c) Other material written communications between the independent auditor and
management, such as any management letter or schedule of unadjusted
5. Discuss with management the Company's earnings press releases, including the use
of "pro forma" or "adjusted" non-GAAP information, as well as financial information
and earnings guidance provided to analysts and rating agencies. Such discussion may
be done generally (consisting of discussing the types of information to be disclosed
and the types of presentations to be made).
6. Discuss with management and the independent auditor the effect of regulatory and
accounting initiatives as well as off-balance sheet structures on the Company's
financial statements.
7. Discuss with management the Company's major financial risk exposures and the
steps management has taken to monitor and control such exposures, including the
Company's risk assessment and risk management policies.
8. Discuss with the independent auditor the matters required to be discussed by
Statement on Auditing Standards No. 61 relating to the conduct of the audit,
including any difficulties encountered in the course of the audit work, any restrictions
on the scope of activities or access to requested information, and any significant
disagreements with management.
February 27, 2003
9. Review disclosures made to the Audit Committee by the Company's CEO and CFO
during their certification process for the Form 10-K and Form 10-Q about any
significant deficiencies in the design or operation of internal controls or material
weaknesses therein and any fraud involving management or other employees who
have a significant role in the Company's internal controls.
Oversight of the Company's Relationship with the Independent Auditor
10. Review and evaluate the lead partner of the independent auditor team.
11. Obtain and review a report from the independent auditor at least annually regarding
(a) the independent auditor's internal quality-control procedures, (b) 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, (c) any steps taken to deal with any such issues, and (d) all relationships
between the independent auditor and the Company. Evaluate the qualifications,
performance and independence of the independent auditor, including considering
whether the auditor's quality controls are adequate and the provision of permitted
non-audit services is compatible with maintaining the auditor's independence, and
taking into account the opinions of management and internal auditors. The Audit
Committee shall present its conclusions with respect to the independent auditor to the
12. Ensure the rotation of the lead (or coordinating) audit partner having primary
responsibility for the audit and the audit partner responsible for reviewing the audit as
required by law. Consider whether, in order to assure continuing auditor
independence, it is appropriate to adopt a policy of rotating the independent auditing
firm on a regular basis.
13. Recommend to the Board policies for the Company's hiring of employees or former
employees of the independent auditor who participated in any capacity in the audit of
the Company.
14. Discuss with the national office of the independent auditor issues on which they were
consulted by the Company's audit team and matters of audit quality and consistency.
15. Meet with the independent auditor prior to the audit to discuss the planning and
staffing of the audit.
Oversight of the Company's Internal Audit Function
16. Review the appointment and replacement of the chief internal auditor.
February 27, 2003
17. Review the significant reports to management prepared by the internal auditing
department and management's responses.
18. Review and discuss with the independent auditor and management the internal audit
department responsibilities, plan, budget and staffing and any recommended changes
in the planned scope of the internal audit.
Compliance Oversight Responsibilities
19. Obtain from the independent auditor assurance that, if it detects or becomes aware of
any illegal act, to assure that the Audit Committee is adequately informed and to
provide a report if the independent auditor has reached specified conclusions with
respect to such illegal acts.
20. Obtain reports from management, the Company's chief internal auditor and the
independent auditor that the Company is in conformity with applicable legal
requirements and the Company's Code of Business Conduct and Ethics, which
includes special ethics obligations for employees with financial reporting
responsibilities. Advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and regulations and with the
Company's Code of Business Conduct and Ethics.
21. Ensure that the Company conducts on an ongoing basis an appropriate review of all
related party transactions and that all such transactions are approved by the Audit
Committee or a comparable body of the Board of Directors.
22. Establish procedures for the receipt, retention and treatment of complaints received
by the Company regarding accounting, internal accounting controls or auditing
matters, and the confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.
23. Discuss with management and the independent auditor any correspondence with
regulators or governmental agencies and any published reports which raise material
issues regarding the Company's financial statements or accounting policies.
24. Review the significant results of regulatory examinations of the Company.
25. Discuss with the Company's General Counsel legal matters that may have a material
impact on the financial statements or the Company's compliance policies.
26. Discuss guidelines and policies governing the process by which management assesses
and manages the Company's exposure to risk, the Company's major financial risk
exposures and the steps management has taken to monitor and control such risks.
February 27, 2003
Limitation of Audit Committee's Role
While the Audit Committee has the responsibilities and powers set forth in this Charter, it
is not the duty of the Audit Committee to plan or conduct audits or to determine that the
Company's financial statements and disclosures are complete and accurate and are in
accordance with generally accepted accounting principles and applicable rules and
regulations. These are the responsibilities of management and the independent auditor.
A copy of this charter is posted on the Company's website. Go to www.firstmerit.com
and click on Investor Relations.