CHARTER OF THE FINANCE AND AUDIT COMMITTEE

OF THE

BOARD OF DIRECTORS

OF

VALEANT PHARMACEUTICALS INTERNATIONAL

(a Delaware corporation)

Function

        The primary function of the Finance and Audit Committee (the “Committee”) is to assist the Board of Directors in monitoring (1) the integrity of the Company’s financial statements, (2) the independent auditor’s qualifications and independence, (3) the performance of the Company’s internal audit function and independent auditors, and (4) the Company’s compliance with legal and regulatory requirements.

        The Committee’s mandate includes free and open communication between it and the Company’s independent auditors, internal auditors (including those providing internal audit services on an out-sourced basis) and financial management. The Company’s independent auditors are ultimately accountable to the Board of Directors and the Committee, and the Committee shall have the authority to approve, change, retain and otherwise control the relationship between the Company and the independent auditors.

Composition

        The Board of Directors shall designate annually three or more directors to serve as the Committee, with one member appointed as Chair of the Committee. Members of the Committee shall meet the independence requirements and other qualifications prescribed by the New York Stock Exchange, the Securities Exchange Act of 1934, and the Securities and Exchange Commission. At least one member of the Committee shall be an Audit Committee financial expert.

Authority

        In carrying out its responsibilities, the Committee may conduct whatever investigations relating to the Company’s financial affairs, records, accounts, reports, controls or activities as the Committee, in its discretion, deems desirable or as the Board of Directors may, from time to time, request.

        The Committee will have free (and, if requested by the Committee, private) access to the Company’s independent auditors and its internal auditing, financial management and legal counsel staffs, and any other personnel requested by the Committee, in order for the Committee to perform its duties and satisfy its responsibilities. The Committee may also employ any outside experts, legal counsel or other personnel deemed by the Committee in its collective judgment to be reasonably necessary, and in the best interest of the Company, to enable the Committee to ably perform its duties and satisfy its responsibilities. It is understood that any such outside experts, legal counsel or other personnel shall act for and on behalf of, and shall be responsible to the Company, and not any individual Committee member or director as an individual. Fees and expenses of any such personnel shall be paid by the Company in accordance with such arrangements as the Committee may make.

Responsibilities

        The Finance and Audit Committee has the following responsibilities:

        1.     Select Independent Auditors

 

 

 

 

    (A)

Appoint and replace the Company’s independent auditors who shall report directly to the Committee. Review and evaluate the lead partner of the independent auditor team. Ensure rotation of the lead and concurring audit partners every five years.

 

    (B)

Review and discuss with the independent auditors the scope and timing of their audit, including the coordination of procedures and locations to be visited by the independent auditors and internal auditors. In conducting this review, the Committee will review with the independent auditors, internal auditors and Company financial management the risk assessments used in determining scope.

 

    (C)

Review with management and the independent auditors the annual fees charged for the external audit and for any other permitted services performed by the independent auditors. The Committee shall be directly responsible for approving the fees and compensation to be paid to the independent accountants.

 

 

 

 

    (D)

Except as otherwise permitted under the Sarbanes-Oxley Act of 2002 or other applicable laws or regulations, preapprove all audit and permitted non-audit services (including the fees and terms thereof) by the independent auditors, and establish policies and procedures to govern management’s engagement of the independent auditors for any permitted non-audit services.

 

 

 

 

 

    (E)

Discuss with the independent auditors the matters included in the annual written communication that the independent auditors are required to submit to the Company by the Independence Standards Board. Such discussions should include relationships between the independent auditors and the Company that may impact the objectivity and independence of the independent auditors and compatibility of non-audit services with the auditors’ independence. Recommend that the Board of Directors take action, if appropriate, in response to the independent auditors’ statement to satisfy itself of the independent auditors’ independence.

 

    (F)

At least annually, obtain and review a report by the independent auditors. In carrying out this assessment, the Committee, with the assistance of independent expertise, will consider, among other matters, the following:

 

 

 

 

 

         •

the competency and qualifications of the individuals involved in the audit,

 

         •

the quality of the audit process,

 

         •

responsiveness and service levels,

 

         •

appropriate audit firm executive involvement in the audit,

 

         •

the firm’s and the engagement team’s independence with respect to all relationships between the independent auditor and the Company and management (to assess the auditor’s independence),

 

         •

the independent auditors’ quality control procedures, and

 

         •

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 government or professional authorities, within the preceding five years, with respect to one or more independent audits carried out by the independent auditors, and any steps taken to deal with any such issues,

        2.     Review of Annual Financial Statements and Audit Results

 

 

 

 

    (A)

After completion of each annual audit, review the Company’s accounting policies and practices and the annual financial statements to be included in the Company’s annual report on Form 10-K and the related Management’s Discussion and Analysis of Results of Operations and Financial Condition with the Company’s financial management and independent auditors, and recommend to the Board of Directors whether the audited financial statements should be included in the company’s Form 10-K.

 

    (B)

After completion of each annual audit, meet with the independent auditors to review the results of their examination, including their opinion and any related comments. Discuss with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 and 90 relating to the conduct of the audit.

 

    (C)

Secure the independent auditors’ views about the appropriateness, not just the acceptability, of the Company’s accounting policies and practices and the clarity of the financial disclosures used by management.

 

    (D)

Secure the independent auditors’ views about whether management’s choices of accounting policies are conservative, moderate or aggressive and as to whether alternative choices of policies would present a materially different financial position and results of operations. Resolve any disagreements between the independent accountants and management.

 

 

 

 

 

    (E)

After completion of each annual audit, review with the independent auditors any audit problems or difficulties and management’s response, and determine that no restrictions were placed by management on the scope of their examination or its implementation and that there was a free exchange of information.

 

 

 

 

 

3.

Review of Quarterly Financial Statements and Press Releases. Review with the Company’s financial management and independent auditors the quarterly financial statements to be included in the Company’s quarterly reports on Form 10-Q and the related Management Discussion and Analysis of Results of Operations and Financial Condition. Discuss with management earnings press releases, and financial information and earnings guidance provided to securities analysts and ratings 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). Review quarterly reports from the independent auditors required by applicable laws, regulations, or accounting standards.

 

 

 

 

4.

Review Internal Controls

 

 

 

 

 

    (A)

Review with the independent auditors, internal auditors and the Company’s financial management the adequacy and effectiveness of the Company’s internal controls and elicit any recommendations they may have for improvement.

 

 

 

 

    (B)

Review on a continuing basis the Company’s compliance with the Foreign Corrupt Practices Act of 1977.

 

    (C)

Review the adequacy of the internal audit function, including a review of the scope and results of its program, and the organizational structure, budget, staffing and qualifications of the internal audit department.

 

    (D)

Analyze any internal control deficiencies, disclosure policy deficiencies and management or employee fraud identified in connection with the Chief Executive Officer and Chief Financial Officer certifications provided to the Securities and Exchange Commission.

 

 

 

 

 

    (E)

Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

 

 

 

 

 

  5.

Compliance. Review the processes and procedures established by the Company from time to time to ensure compliance by the Company with legal and regulatory requirements applicable to it; and monitor, as it determines to be appropriate under the circumstances (but not to any lesser degree than is or may be required under the provisions of any law or any agreement binding upon the Company) the Company’s adherence to legal and regulatory requirements applicable to its businesses.

 

 

 

 

  6.

Conflicts of Interest. Conduct a review of transactions or proposed transactions in which a member of the Board of Directors, an executive officer or a senior financial officer of the Company has an interest that conflicts with the interests of the Company and make recommendations to the Board of Directors regarding any such transaction.

 

 

 

 

  7.

Reporting. Report regularly to the Board of Directors with respect to the Committee’s activities. Prepare the Finance and Audit Committee report that is required by federal securities laws to be included in the Company’s proxy statement for its annual shareholders’ meeting.

 

 

 

 

  8.

Review Charter. Annually review the adequacy of the Committee charter, and report any proposed modifications to the Board of Directors.

 

 

 

 

  9.

Risk Management. 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.

 

 

 

 

 

10.

Separate Meeting Sessions. Periodically, meet separately with management, with the internal auditors and with the independent auditors privately.

 

 

 

 

11.

Hiring Policies. Set clear hiring policies for employees or former employees of the independent auditors.

 

 

 

 

12.

Annual Evaluation. Annually review the performance of the Finance and Audit Committee.