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Audit Committee Charter Allegheny Bancshares, Inc. Audit Committee Charter
I. Role
The committee’s role is to act on behalf of the board of directors and oversee all material aspects of the company’s financial reporting, control and audit functions, except those specifically related to the responsibilities of another standing committee of the board. The audit committee’s role includes a particular focus on the qualitative aspects of financial reporting to shareholders and on company processes for the management of business/financial risk and for compliance with significant applicable legal, ethical and regulatory requirements.
The role also includes coordination with other board committees and maintenance of strong, positive working relationships with management, external and internal auditors, counsel and other committee advisors.
II. Membership
The committee shall consist of at least three, and no more than six, independent, non-executive board members. Committee members shall have: (1) knowledge of the primary industries in which the company operates; (2) the ability to read and understand fundamental financial statements, including a company’s balance sheet, income statement, statement of cash flows and key performance indicators; and (3) the ability to understand key business and financial risks and related controls and control processes. The committee shall have access to its own counsel and other advisors at the committee’s sole discretion.
At least one member, preferably the chair, should be literate in business and financial reporting and control, including knowledge of the regulatory requirements, and should have past employment experience in finance or accounting or other comparable experience or background. Committee appointments shall be approved annually by the full board. The committee chairperson shall be selected by the committee members.
III. Operating Principles
The committee shall fulfill its responsibilities within the context of the following overriding principles:
1. Communications: The chair and others on the committee shall, to the extent appropriate, maintain an open avenue of contact throughout the year with senior management, other committee chairs and other key committee advisors (external and internal auditors, etc.), as applicable, to strengthen the committee’s knowledge of relevant current and prospective business issues.
2. Education/Orientation: The committee, with management, shall develop and participate in a process for review of important financial and operating topics that present potential significant risk to the company. Additionally, individual committee members are encouraged to participate in relevant and appropriate self-study education to ensure understanding of the business and environment in which the company operates.
3. Annual Plan: The committee, with input from management and other key committee advisors, shall develop an annual plan responsive to the “primary committee responsibilities” detailed herein. The annual plan shall be reviewed and approved by the full board.
4. Meeting Agenda: Committee meeting agendas shall be the responsibility of the committee chair, with input from committee members. It is expected that the chair would also ask for management and key committee advisors, and perhaps others, to participate in this process.
5. Expectations and Information Needs: The committee shall communicate committee expectations and the nature, timing and extent of committee information needs to management, internal auditors and external parties, including external auditors. Written materials, including key performance indicators and measures related to key business and financial risks, shall be received from management, auditors and others materials in sufficient depth to participate in committee/board dialogue.
6. External Resources: The committee shall be authorized to access internal and external resources, as the committee requires, to carry out its responsibilities.
7. Meeting Attendees: The committee shall request members of management, counsel, internal and external auditors, as applicable, to participate in committee meetings, as necessary, to carry out the committee’s responsibilities. Periodically and at least annually, the committee shall meet in private session with only the committee members. It shall be understood that either internal or external auditors, or counsel, may, at any time, request a meeting with the audit committee or committee chair with or without management’s attendance. In any case, the committee shall meet in executive session separately with internal and external auditors, at least annually.
8. Meeting Frequency: The committee shall meet at least quarterly. Additional meetings shall be scheduled as considered necessary by the committee or chair.
9. Reporting to the Board of Directors: The committee, through the committee chair, shall report periodically, as deemed necessary, but at least annually, to the full board. In addition, summarized minutes from committee meetings, separately identifying monitoring activities from approvals, shall be available to each board member .
10. Self-Assessment: The committee shall review, discuss and assess its own performance as well as its role and responsibilities, seeking input from senior management, the full board and others. Changes in role and/or responsibilities, if any, shall be recommended to the full board for approval.
IV. Responsibilities
Financial Reporting:
1. Review and assess the annual and interim financial statements before they are released to the public or filed with the SEC.
2. Review and assess the key financial statement issues and risks, their impact or potential effect on reported financial information, the processes used by management to address such matters, related auditors’ views, and the basis for audit conclusions.
3. Approve changes in important accounting principles and the
application thereof in both interim and annual financial reports.
4. Advise financial management and the external auditors that they are expected to provide a timely analysis of significant current financial reporting issues and practices.
Risks and Controls:
1. Review and assess the company’s business and financial risk management process, including the adequacy of the overall control environment and controls in selected areas representing significant risk.
2. Review and assess the company’s system of internal controls for detecting accounting and financial reporting errors, fraud and defalcations, and legal violations. In that regard, review the related findings and recommendations of the external and internal auditors, together with management’s responses.
3. Review with legal counsel any regulatory matters that may have a material impact on the financial statements.
4. Review the results of the annual audits of directors’ and officers’ expense accounts and management perquisites prepared by the internal auditors.
External and Internal Audits:
1. Recommend the selection of the external auditors for approval by the board of directors.
2. Instruct the external auditors that they are responsible to the board of directors and the audit committee as representatives of the shareholders. In that regard, confirm that the external auditors will report all relevant issues to the committee in response to agreed-upon expectations.
3. Review the performance of the external and internal auditors.
4. Obtain a formal written statement from the external auditors consistent with standards set by the Independence Standards Board. Additionally, discuss with the auditors any relationships or non-audit services that may affect their objectivity or independence.
5. Consider, in consultation with the external and internal auditors, their audit scopes and plans to ensure completeness of coverage, reduction of redundant efforts and the effective use of audit resources.
6. Review and approve requests for any consulting services to be performed by the external auditors, and be advised of any other study undertaken at the request of management that is beyond the scope of the audit engagement letter.
7. Review with management and the external auditors the results of the annual audits and related comments in consultation with other committees as deemed appropriate, including any difficulties or disputes with management, any significant changes in the audit plans, the rationale behind adoptions and changes in accounting principles, and accounting estimates requiring significant judgments.
8. Provide a medium for the external auditors to discuss with the audit committee their judgments about the quality, not just the acceptability, of accounting principles and financial disclosure practices used or proposed to be adopted by the company.
9. Approve changes in the directors of the internal audit function.
10. Instruct the internal auditors that they are responsible to the board of directors through the committee.
11. Review with the internal auditors any changes in the scope of their plans.
12. Review with the internal auditors the results of their monitoring of compliance with the code of conduct.
Other:
1. Review and update the committee’s charter.
2. Review and approve significant conflicts of interest and related party transactions.
3. Conduct and authorize investigations into any matters within the committee’s scope of responsibilities. The committee will be empowered to retain independent counsel and other professionals to assist in conducting any investigation.
4. Oversee Compliance Department. (See Statement of Policy for Compliance Department).
V. Documentation of Meetings
Minutes of all meetings of the Audit & Compliance Review Committee will fully document topics of discussion. Such minutes are considered official only when they bear the signature of the chairman of the Committee. Due to the nature of such meetings, minutes of Audit & Compliance Review Committee meetings are retained by the Corporate Secretary. These minutes are available upon request to external auditors, regulatory agencies and any outside member of the Board of Directors. All records, reports or such documents created by this Committee are confidential. The minutes of the Audit & Compliance Review Committee will be reviewed with the Board of Directors.
