McDonald’s Corporation Policy for Pre-Approval of Audit and Non-Audit Services Provided by External Audit Firm, January 2006 Update

 

Purpose and Applicability of Policy
Under the Sarbanes-Oxley Act of 2002, the Audit Committee of the Board of Directors is responsible for the appointment, compensation and oversight of the work performed by the independent auditor engaged by McDonald’s Corporation (the Company). As part of this responsibility, the Audit Committee is required to pre-approve all audit and non-audit services performed by the independent auditor to assure that they do not impair the auditor’s independence from the Company. Examples of these services are set out in Exhibit A. Accordingly, the Audit Committee has adopted the following policy that sets forth the procedures and conditions for pre-approving audit and permitted non-audit services to be performed by the independent auditor responsible for auditing the Company’s consolidated financial statements or any separate financial statements that will be filed with the SEC.

The Audit Committee shall review this policy annually for purposes of assuring its continued appropriateness and compliance with applicable law and listing standards, including regulations of the SEC and the Public Company Accounting Oversight Board (PCAOB).

The SEC’s rules establish two different approaches to pre-approving services, both of which the SEC considers to be equally valid. Proposed services may either be pre-approved by the Audit Committee on a categorical basis, without consideration of specific services (“general pre-approval”), or may be subject to case-by-case pre-approval by the Audit Committee (“specific pre-approval”). The Audit Committee believes that the combination of these two approaches will result in an effective and efficient procedure for purposes of addressing the Company’s auditing and non-auditing services and when evaluating the potential impact of non-audit services on the independence of the external auditor.

Regardless of whether a class of or individual service is proposed for general or specific pre-approval, the Audit Committee shall consider whether such service is consistent with applicable SEC and PCAOB rules and guidance with respect to auditor independence. The Audit Committee shall also consider whether the independent auditor is best positioned to provide the most effective and efficient service, for reasons such as familiarity with the Company’s business, people, culture, accounting systems, risk profile and other factors, and whether the service may enhance the Company’s ability to manage or control risk or improve audit quality. All such factors will be considered as a whole, and no one factor should necessarily be determinative.

The Audit Committee shall also be mindful of the relationship between fees for audit and non-audit services in determining whether to pre-approve any class of or individual service and may determine, for each fiscal year, the appropriate ratio between the total amount of fees for “Audit”, “Audit-related” and “Tax” services and the total amount of fees for permissible non-audit services classified as “All Other” services.

Pre-Approval Requirement and Disclosure
All audit and permitted non-audit services to be provided by the independent auditor shall be pre-approved by the Audit Committee. Pre-approval fee levels for all services to be provided by the independent auditor shall generally be established annually by the Audit Committee, subject to the following limitations:

 

 

  • When considering whether to grant an approval, the Audit Committee should consider the nature, scope and fees of the service to be provided to the Company as well as the principles and guidance established by the SEC and PCAOB with respect to auditor independence, including the fact that an auditor cannot (i) function in the role of management; (ii) audit his or her own work; or (iii) serve in an advocacy role for the Company.
  • In general, classes of predictable and recurring audit and permitted non-audit services shall be considered for general pre-approval by the full Audit Committee on an annual basis at the beginning of each fiscal year.

 

Unless a class of or individual audit or non-audit service shall have received a general pre-approval, it will require specific pre-approval by the Audit Committee or its delegate. Also, any proposed service for which the fees would cause the total fees for that class of service to exceed the applicable pre-approval threshold shall require specific pre-approval by the Audit Committee or its delegate.

Schedule 1 lists services that are expected to be the subject of general pre-approval on an annual basis and an indication of the historical amount of fees paid for each class of service, the time frame and process for approval, and the pre-approval fee threshold.

Services as to which a general pre-approval shall have been granted on an annual basis shall be effective for the applicable fiscal year. Any specific pre-approval of an audit or permitted non-audit service may be provided up to one year prior to commencement of the service. In any case in which a service is to be provided over a period of years, the approval shall be reviewed for renewal on an annual basis.

Delegation of Pre-Approval
The Audit Committee elects to delegate pre-approval authority to the Chairman of the Audit Committee to approve any one or more individual audit or permitted non-audit services for which estimated fees do not exceed $250,000 as well as adjustments to any pre-approval fee thresholds up to $100,000 for any individual service. Any services that would exceed such limits should be pre-approved by the full Audit Committee. The Chairman shall report any pre-approval granted at the next scheduled meeting of the Audit Committee.

Prohibited Services
The Company may not under any circumstances engage the independent auditor to provide any service that is prohibited by applicable law. The Audit Committee should consult with General Counsel if any question arises as to whether a proposed audit or non-audit service is permissible under applicable law. The Audit Committee may determine to prohibit other services that in its view may compromise, or appear to compromise, the independence and objectivity of the independent auditor. See Exhibit B for a list of prohibited services.

Monitoring Procedures
The Audit Committee has designated the Corporate Controller to monitor the performance of all services provided by the independent auditor and to determine whether such services are in compliance with this policy. The Corporate Controller shall report to the Audit Committee on a periodic basis with respect to compliance with the policy. The Corporate Controller shall promptly report to the Chairman of the Audit Committee any non-compliance (or attempted non-compliance) with this policy of which he or she becomes aware. On a periodic basis, the nature of actual services provided by the independent auditor as well as the associated fees shall be reported to the Audit Committee.

Additional Requirements
The Audit Committee shall take additional measures on an annual basis as may be appropriate to meet its responsibility to oversee the work of the independent auditor and to assure the auditor’s independence. Such measures shall include the review of a written statement from the independent auditor describing all relationships between the independent auditor and the Company, consistent with Independence Standards Board Standard No. 1; a discussion with the independent auditor with respect to its methods and procedures for ensuring independence; and an annual review of the Company’s hiring policy for employees of the external audit firm.

De Minimis Exception
Applicable law provides for an exception to the pre-approval requirements for permissible non-audit services provided that (1) all such services do not, in the aggregate, amount to more than 5 percent of the total fees paid by the Company to the independent auditor, (2) such services were not recognized as non-audit services at the time of the relevant engagement, and (3) such services were promptly brought to the attention of and approved by the Audit Committee (or its delegate) prior to the completion of the annual audit.

Disclosure of Pre-Approval Policies and Procedures
Beginning with its 2004 Proxy Statement, the Company shall publicly disclose the Audit Committee’s pre-approval policies and procedures.