2003 Audit Charter: BENPurpose
The Audit Committee (the "Committee") is a committee of the Board of Directors of Franklin Resources, Inc. (the "Company"). The Committee's primary purpose is to assist the Board of Directors (the "Board") in fulfilling its responsibility to oversee (1) the Company's financial reporting and auditing activities, including the integrity of the Company's financial statements, (2) the Company's compliance with legal and regulatory requirements, (3) the independent auditor's qualifications and independence, and (4) the performance of the Company's internal audit function and independent auditors.
The Committee shall be comprised of not less than three members of the Board, all of whom shall be independent directors in accordance with the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"). The Committee's composition shall also meet the requirements of the rules relating to audit committees established from time to time by the New York Stock Exchange as well as the regulatory requirements of any other applicable governmental or self-regulatory organization. All members of the Committee shall, in the view of the Board of Directors, be financially literate or shall become financially literate within a reasonable period of time after appointment to the Committee. In addition, at least one member of the Committee shall be an "audit committee financial expert" as defined by the Securities and Exchange Commission pursuant to Section 407 of Sarbanes-Oxley. Each member of the Committee shall be selected by the Board of Directors and shall serve until such time as his or her successor has been duly appointed.
The Committee shall meet on a regular basis, and will hold special meetings as circumstances require. The timing of the meetings shall be determined by the Committee. At all Committee meetings, a majority of the total number of members shall constitute a quorum. A majority of the members of the Committee shall be empowered to act on behalf of the Committee. Minutes shall be kept of each meeting of the Committee.
Authority and Responsibilities
The Committee's function is one of oversight only and shall not relieve the Company's management of its responsibility for preparing financial statements, which accurately and fairly present the Company's financial results and condition, or the responsibilities of the independent auditors relating to the audit or review of financial statements. The Audit Committee shall have the authority and be responsible for:
The appointment, compensation, retention and oversight of the work of the independent auditor engaged by the Company for the purpose of preparing or issuing an audit report or related work or performing other audit or review services for the Company. The independent auditor shall report directly to and may only be terminated by the Committee.
Reviewing with management and the independent auditors (a) the audited financial statements, including the Company's disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A"), to be included in the Company's Annual Report on Form 10-K (or the Annual Report to Shareholders if distributed prior to the filing of Form 10-K), (b) the Company's interim financial results to be included in the Company's quarterly reports on Form 10-Q, including the disclosures under MD&A, and (c) the matters required to be discussed by Statement of Auditing Standards ("SAS") No. 61, as may be modified or supplemented from time to time; which review shall occur prior to the filing of Form 10-K or Form 10-Q, whichever is applicable.
Preparing the annual report of the Audit Committee, which is included in the Company's annual proxy statement.
Reviewing and generally discussing policies and procedures relating to earnings press releases as well as financial information and earnings guidance provided to analysts and rating agencies.
Reviewing with Company's management and the independent auditors (i) the accounting policies, practices and judgments which may be viewed as critical, (ii) all alternative treatments of financial information within generally accepted accounting principles that have been discussed by management and independent auditors, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditors, and (iii) other written communications between independent auditors and management, such as any management letter comments or the schedule of unadjusted differences.
Reviewing with management and the independent auditors the quality and adequacy of the Company's internal controls, disclosure controls and procedures, and accounting procedures, including reports of material weaknesses or deficiencies in the design or operation of internal controls and/or any fraud that involves personnel having a significant role in internal controls, as disclosed by the CEO and/or CFO in connection with their certifications for the annual or quarterly reports of the Company and/or presented in the independent auditor's written report, a report of management or internal audit, or otherwise.
Providing oversight with respect to Company risk assessment and risk management policies and processes.
Requesting from the independent auditors and reviewing annually, a formal written statement delineating all relationships between the auditor and the Company consistent with Independence Standards Board Standard Number 1 and reviewing disclosed relationships and their impact on the outside auditor's independence.
Pre-approving the retention of the independent auditor for any audit and permitted non-audit services, which does not include the following prohibited non-audit activities: (a) bookkeeping or other services related to accounting records or financial statements of the Company; (b) financial information systems design and implementation; (c) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (d) actuarial services; (e) internal audit outsourcing services; management functions; (f) or human resources; (g) broker or dealer, investment adviser or investment banking services; (h) legal services; (i) expert services unrelated to the audit; and (j) any other service that the Public Company Accounting Oversight Board determines, by regulation, is impermissible. The audit committee of the Company may delegate to one or more designated members of the audit committee who are independent directors of the Board of Directors, the authority to grant pre-approvals. The decisions of any member (to whom authority is delegated) to pre-approve any such non-audit service shall be presented to the full audit committee at each of its scheduled meetings.
Approving non-audit services provided by the independent auditor to the Company where pre-approval may be waived for non-audit services that are deemed de minimus under the Sarbanes-Oxley Act of 2002. Non-Audit services shall be considered de minimus if: (a) the aggregate amount of such non-audit services constitutes not more than 5% of the total amount of revenues paid by the Company to its independent auditor during the fiscal year in which the non-audit services are provided; (b) the non-audit services were not recognized by the issuer at the time of the engagement to be non-audit services; and (c) the non-audit services are promptly brought to the attention of the audit committee and approved prior to the completion of the audit by the audit committee or by one or more members of the audit committee whom authority to grant such approvals has been delegated by the audit committee.
Establishing hiring policies for employees or former employees of independent auditors.
Conducting a review of the independent auditor's report with respect to the independent auditor's quality control procedures.
Reviewing with the independent auditor any audit problems and/or difficulties and resolving any disagreements regarding financial reporting arising between the Company's management and any independent auditor employed by the Company.
Engaging independent professional advisers and counsel as the Committee determines are appropriate to carry out its functions and reviewing funding needs as appropriate.
Meeting separately and periodically, with management, internal auditors and independent auditors.
Overseeing the Company's internal audit function and meeting separately with internal auditors to review any audit related issues, including:
Reviewing internal audit plans, staffing and budget and the adequacy of funding to carry out the proposed work scope.
Reviewing and concurring in the appointment, replacement or dismissal of the internal audit director and ensuring internal audit's continued objectivity.
Discussing significant internal audit findings in appropriate detail as well as the status of past audit recommendations.
Meeting regularly in private sessions with both the internal audit director and external auditors, to allow a full and frank discussion of potentially sensitive issues.
Establishing procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal controls, or auditing matters, which procedures shall include a process for the confidential, anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters.
Reporting regularly to the Board of Directors.
Reviewing annually the Audit Committee Charter for adequacy and recommending any changes to the Board.
Conducting an annual performance evaluation of the Committee.
Performing any other activities consistent with this Charter.