The Audit Committee (the "Committee") is a standing committee appointed by the Board. The Committee is established to fulfill applicable public company obligations respecting audit committees and to assist the Board in fulfilling its oversight responsibilities to the shareholders, potential shareholders, the investment community and others, with respect to financial reporting. Its oversight duties include:
In addition, if required, the Committee shall prepare, an audit committee report concerning its activities and determinations for inclusion in the Company's annual management proxy circular, in accordance with applicable rules and regulations.
The function of the Committee is oversight. It is not the duty or responsibility of the Committee or its members (i) to plan or conduct audits, (ii) to determine that the Company's financial statements are complete and accurate and are in accordance with generally accepted accounting principles or (iii) to conduct other types of auditing or accounting reviews or similar procedures or investigations. The Committee, its Chair and its audit committee financial expert member(s) are members of the Board of the Company, appointed to the Committee to provide broad oversight of the financial reporting, and financial risk and control related activities of the Company, and are specifically not accountable or responsible for the day-to-day operation or performance of such activities. In particular, the member or members identified as audit committee financial experts shall not be accountable for giving professional opinions on financial controls or the internal or external audit of the Company's financial information.
Management is responsible for the preparation, presentation and integrity of the Company's financial statements. Management is also responsible for (i) maintaining appropriate accounting and financial reporting principles and policies, (ii) maintaining systems of risk assessment and internal controls and procedures designed to provide reasonable assurance that assets are safeguarded and transactions are properly authorized, recorded and reported and (iii) assuring the reliability of financial reporting and compliance with accounting standards and applicable laws and regulations. Management is also responsible for documenting, evaluating and reporting on internal controls. The internal auditor is responsible for monitoring and reporting on the adequacy and effectiveness of the system of internal controls. The external auditors are responsible for planning and carrying out an audit of the Company's annual financial statements in accordance with generally accepted auditing standards in order to provide reasonable assurance that, among other things, such financial statements are in accordance with generally accepted accounting principles.
Procedures, Powers And Duties
In addition to the procedures and powers set out in the resolution of the Board establishing this Committee, the Committee shall have the following procedures, powers and duties:
1. Composition - None of the members of the Committee shall be an
officer or employee of the Company or any of its subsidiaries and each member
of the Committee shall be both an "unrelated" director and
"independent" director (as such terms are defined from time to time
under the requirements or guidelines for audit committee service under applicable
securities laws and the rules of any stock exchange on which the Company's
securities are listed for trading). None of the members shall have participated
in the preparation of the financial statements of the Company or any current
subsidiaries of the Company at any time over the past three years.
All members of the Committee must be "financially literate" (as that term is defined from time to time under the requirements or guidelines for audit committee service under securities laws and the rules of any stock exchange on which the Company's securities are listed for trading or, if it is not so defined, as such term may be interpreted by the Board in its reasonable business judgement) or must become financially literate within a reasonable period of time after appointment to the Committee. At least one member of the Committee must also be an audit committee financial expert (as that term is defined from time to time under the requirements or guidelines for audit committee service under securities laws and the rules of any stock exchange on which the Company's securities are listed for trading).
2. Service on Multiple Audit Committees - If a Committee member serves on the audit committees of more than three public corporations, including the Company, the Board must determine that such service would not impair the ability of the member to serve effectively on the Committee and disclose such determination in the annual proxy circular.
3. Separate Executive Meetings - The Committee shall meet periodically with the Chief Financial Officer, the head of the internal audit function (if other than the Chief Financial Officer) and the external auditors in separate executive sessions to discuss any matters that the Committee or each of these persons or groups believes should be discussed privately. Further, such persons shall have access at any time to the Committee or any of its members to bring forward matters requiring its attention. The Committee shall also meet periodically without management present.
4. Professional Assistance -The Committee may (i) require the external auditors and internal auditors to perform such supplemental reviews or audits as the Committee may deem desirable and (ii) retain such special legal, accounting, financial or other consultants as the Committee may determine to be necessary to carry out the Committee's duties, all such decisions to be in the sole determination of the Committee and at the Company's expense.
5. Reliance - Absent actual knowledge to the contrary (which shall be promptly reported to the Board), each member of the Committee shall be entitled to rely on (i) the integrity of those persons or organizations within and outside the Company from which it receives information, (ii) the accuracy of the financial and other information provided to the Committee by such persons or organizations and (iii) representations made by management and the external auditors as to any information technology, internal audit and other non-audit services provided by the external auditors to the Company and its subsidiaries.
6. Reporting to the Board - The Committee will report through the Committee Chair to the Board following meetings of the Committee on matters considered by the Committee.
Audit Related Responsibilities Of The Committee
Selection and Oversight of the External Auditors
1. Selection and Appointment - The external auditors are accountable to the Committee and the Board as the representatives of the shareholders of the Company and shall report directly to the Committee. The Committee shall so instruct the external auditors. The Committee shall, at least annually, evaluate the performance of the external auditors and make recommendations to the Board on the reappointment or appointment of the external auditors of the Company. The appointment or reappointment of external auditors will be proposed in the Company's proxy circular for shareholder approval. The Committee shall have authority to terminate at any time the external auditors. If a change in external auditors is proposed, the Committee shall review the reasons for the change and any other significant issues related to the change, including the response of the incumbent auditors, and investigate the qualifications of the proposed auditors before making its recommendation to the Board.
2. Terms of Engagement - The Committee shall approve in advance the terms of engagement of the external auditors with respect to the conduct of the annual audit. The Committee may approve policies and procedures for the pre-approval of any additional services to be rendered by the external auditors between annual engagements, which policies and procedures shall include obtaining reasonable detail with respect to the services covered. All non-audit services to be provided to the Company or any of its affiliates by the external auditors or any of their affiliates which are not covered by pre-approval policies and procedures approved by the Committee shall be subject to pre-approval by the Committee. Between meetings, the Committee's pre-approval may be delegated to the Chair of the Committee who will report any decisions promptly to the Committee, not later than its next meeting. The Committee shall approve all compensation paid to the external auditors with respect to the conduct of the annual audit.
3. Independence - The Committee shall review the independence of the external auditors and shall make recommendations to the Board on any appropriate actions to be taken which the Committee deems necessary to maintain the independence of the external auditors. In connection with such review, the Committee shall:
(a) regularly discuss with the external auditors all relationships or
services that may impact the objectivity and independence of the external
(b) require that the external auditors submit to it on a periodic basis, and at least annually, a formal written statement delineating all relationships between the Company and its subsidiaries, on the one hand, and the external auditors and their affiliates on the other hand;
(c) require that (i) both the lead audit partner and the partner responsible for performing a second review respecting the audit be rotated at least every five years and be subject to a five year time out and (ii) all other partners on the audit engagement team who provide more than 10 hours of audit, review or attest services with respect to the Company's consolidated financial statements or who serve as the lead partner in connection with any audit or review related to financial statements of a subsidiary whose assets or revenues constitute at least 20% of the consolidated assets or revenues of the Company be rotated at least every seven years and be subject to a two year time out;
(d) consider whether there should be a regular rotation of the external audit firm itself; and
(e) consider the auditor independence standards promulgated by applicable auditing regulatory and professional bodies.
4. Prohibit Certain Non-Audit Services - The Committee shall not approve the external auditor and its affiliates providing certain non-audit services to the Company and its affiliates as may be proscribed by any applicable law, rule, regulation, listing requirement or Board policy.
5. Employment of Certain Persons - The Committee shall establish and monitor clear policies for the hiring by the Company of employees or former employees of the external auditors.
6. Submission and Review of Reports - The Committee shall require the external auditors to provide to the Committee, and the Committee shall review and discuss with the external auditors, all reports which the external auditors are required to provide to the Committee or the Board under rules, policies or practices of professional or regulatory bodies applicable to the external auditors, as well as any other reports which the Committee may require. Such reports shall include:
(a) a description of the external auditors' internal quality-control
procedures, any material issues raised by the most recent internal
quality-control review, or peer review, of the external auditors, or by any
inquiry or investigation by governmental or professional authorities, within
the preceding five years, respecting other independent audits carried out by
the external auditors, and any steps taken to deal with any such issues; and
(b) a report describing (i) all critical accounting policies and practices to be used by the Company in the preparation of its annual financial statements, (ii) all alternative treatments of financial information within generally accepted accounting principles related to material items that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the external auditors and (iii) other material written communication between the external auditors and management, such as any management letter or schedule of unadjusted differences.
Oversight of Internal Auditors
1. Review of Reports - The Committee shall obtain from the internal auditors and shall review summaries of the significant reports to management prepared by the internal auditors, or the actual reports if requested by the Committee, and management's responses to such reports.
2. Discussion - The Committee shall, as it deems necessary, discuss with the internal auditors with respect to their reports and recommendations, the extent to which prior recommendations have been implemented and any other matters that the internal auditor brings to the attention of the Committee. The head of the internal audit function shall have unrestricted access to the Committee or any of its members.
3. Evaluation - The Committee shall, annually or more frequently as it deems necessary, evaluate the internal auditors including their activities, organizational structure and qualifications and effectiveness.
Oversight and Monitoring of Audits
1. Audit Plans - The Committee shall review at least annually with the external auditors, the internal auditors and management the audit function generally. Such review will include, without limitation, the objectives, staffing, locations, co-ordination, reliance upon management and internal audit, general audit approach and scope of proposed audits of the financial statements of the Company and its subsidiaries. Such review will also include, the overall audit plans, the responsibilities of management, the internal auditors and the external auditors, the audit procedures to be used and the timing and estimated budgets of the audits.
2. Internal Audit Discussions - The Committee shall meet periodically alone with the internal auditors to discuss the progress of their activities and any significant findings stemming from internal audits. Such discussion shall include any difficulties or disputes that arise with management and the adequacy of management's responses in correcting audit-related deficiencies.
3. External Audit Discussions - The Committee shall discuss alone with the external auditors any difficulties or disputes that arise with management or the internal auditors during the course of the audit and the adequacy of management's responses in correcting audit-related deficiencies, difficulties or disputes.
4. Management Discussions - The Committee shall discuss alone with management the results of internal and external audits.
5. No Limitations - The Committee shall take all such other steps as it may deem reasonably necessary to satisfy itself that the audit was conducted in a manner consistent with applicable legal requirements and auditing standards of applicable professional or regulatory bodies.
Review of Accounting Principles and Practices
1. Accounting Principles and Review - The Committee shall, as it deems necessary, review and discuss with management, the external auditors and the internal auditors:
(a) the quality, appropriateness and acceptability of the Company's
accounting principles and practices used in its financial reporting, any
changes in the Company's accounting principles or practices and the application
of particular accounting principles and disclosure practices by management to
new transactions or events;
(b) all significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including the effects of alternative methods within generally accepted accounting principles on the financial statements and any "second opinions" sought by management from an independent auditor with respect to the accounting treatment of a particular item;
(c) disagreements between management and the external auditors or the internal auditors regarding the application of any accounting principles or practices;
(d) any material change to the Company's auditing and accounting principles and practices as recommended by management, the external auditors or the internal auditors or which may result from proposed changes to applicable generally accepted accounting principles;
(e) the effect of regulatory and accounting initiatives on the Company's financial statements and other financial disclosures;
(f) any reserving, accruals, provisions, estimates or business programs and policies, including factors that affect asset and liability carrying values and the timing of revenue and expense recognition, that may have a material effect upon the financial statements of the Company;
(g) the use of special purpose entities and the business purpose and economic effect of transactions, contracts, arrangements, obligations, guarantees and other relationships of the Company that are "off balance sheet" and their impact on the reported financial results and condition of the Company;
(h) the manner in which the Company's financial statements disclose (i) any legal matter, claim or contingency that could have a significant impact on the financial statements, and (ii) the Company's compliance with and policies concerning any material reports, inquiries or other correspondence received from regulators or governmental agencies;
(i) the treatment for financial reporting purposes of any significant
transactions which are not a normal part of the Company's operations; and
(j) the use of any "pro forma" or "adjusted" information not in accordance with generally accepted accounting principles.
2. Resolution of Differences - The Committee will review and resolve disagreements between management and the external auditors regarding financial reporting or the application of any accounting principles or practices.
Oversight and Monitoring of Internal Controls
The Committee shall, as it deems necessary, exercise oversight of, review and discuss with management, the external auditors and the internal auditors:
(a) the adequacy and effectiveness of the Company's internal accounting and financial controls and the recommendations of management, the external auditors and the internal auditors for the improvement of accounting practices and internal controls;
(b) any material weaknesses in the internal control environment, including computerized information system controls and security; and
(c) management's compliance with the Company's processes, procedures and internal controls.
Communications with Others
The Committee shall establish and monitor procedures for the receipt of and response to (i) complaints received by the Company, or by the Committee regarding accounting, internal accounting controls or audit matters and (ii) the anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The Committee shall also review periodically with management and the internal auditors such procedures for receiving such complaints and any significant complaints received.
Oversight and Monitoring of the Company's Financial Disclosures
1. Review of Statements - The Committee shall:
(a) review with the external auditors and management and recommend to the
Board for approval the audited financial statements and the notes and
Managements' Discussion and Analysis accompanying such financial statements,
the Company's annual report and any financial information of the Company
contained in any prospectus or information circular of the Company, and any
earnings press release to be issued in conjunction with the annual results; and
(b) review with the external auditors and management (and, if required by applicable securities laws or rules, recommend to the Board for approval) each set of interim financial statements and the notes and Managements' Discussion and Analysis accompanying such financial statements and any other disclosure documents or regulatory filings of the Company containing or accompanying financial information of the Company, and any earnings press release to be issued in conjunction with the interim results.
Such reviews shall be conducted prior to the release of any summary of the financial results or the filing of such reports with applicable regulators.
2. Rating Agency Material - Annually or more frequently as required, the Committee shall discuss with management the types of financial and operational information and earnings guidance or projections to be disclosed to credit rating agencies that are subject to confidentiality agreements. The Committee need not discuss in advance with management each instance in which the Company gives earnings guidance or projections to credit rating agencies, unless the substance of a presentation to any credit rating agency constitutes a material shift in Company strategy not previously approved by the Board.
3. Analyst Material - Annually or more frequently as required, the Committee shall discuss with management the types of financial and operational information, and earnings guidance if any, to be disclosed to analysts or shareholders (in groups or one-on-one) and the processes for ensuring that new material information is at least simultaneously disseminated in the public domain and subsequently included on the Company's website. The Committee need not discuss in advance with management each instance in which the Company gives any earnings guidance to analysts, unless the substance of a presentation to any analyst constitutes a material shift in Company strategy not previously approved by the Board.
4. External Auditor Disclosure - The Committee shall review the external disclosure with respect to its pre-approval of audit and non-audit services provided by the external auditors.
1. Review of Certain Risks - The Committee shall meet periodically with management to review and discuss the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures, including the use of any financial derivatives, such as hedging contracts or transactions.
2. Review of Disclosure Process - The Committee shall meet with management to review the process and systems in place for ensuring the reliability of public disclosure documents that contain audited and unaudited financial information and their effectiveness.
3. Up-the-Ladder Reporting - The Committee shall receive reports, if any, from corporate legal representatives of evidence of material violation of securities laws or breaches of fiduciary duty.
4. Other Responsibilities - The Committee shall review and/or approve any other matter specifically delegated to the Committee by the Board and undertake on behalf of the Board such other activities as may be necessary or desirable to assist the Board in fulfilling its oversight responsibilities with respect to financial reporting.
The Committee shall review and reassess this Charter at least annually or otherwise as it deems appropriate and recommend changes to the Board. Each year the Committee shall review its performance with reference to this Charter.
The Committee shall ensure that this Charter is disclosed on the Company's website and that this Charter, or a summary of it which has been approved by the Committee, is disclosed in accordance with applicable securities laws or regulatory requirements in the annual proxy circular or annual report of the Company.
Dated December 2003