EGC Corporate Governance Practices (May 2018)

A Survey and Related Resources PAGE D-5 Audit Committee Independence and Financial Literacy Requirements The committee must have at least three members, each of whom is or will become within a reasonable time period after appointment financially literate, as “interpreted by the listed company’s board in its business judgment.” In addition, at least one member must have accounting or related financial management expertise. Note, while the NYSE does not require such person to be an “audit committee financial expert,” a board may “presume that such a person has accounting or related financial management expertise.” Further, a listed company must disclose whether an audit committee member serves on more than three audit committees of public companies. The committee must have at least three members, each of whom is financially literate (unlike the NYSE where members need not be financially literate at the time they begin service). At least one of the members must have past employment experience in finance or accounting field or requisite professional certification in accounting. None of the members may have participated in preparing the listed company’s (or any current subsidiary of the company’s) financial statements at any time during the past three years. Audit Committee Charter The written charter must address: • The committee's purpose, which must be to: o assist the board with oversight of: the integrity of the financial statements; compliance with legal and regulatory requirements; the independent auditor's qualifications and independence; and the performance of the internal audit department and the independent auditors; and o prepare the disclosure required by Item 407(d)(3)(i) of Regulation S-K (the audit committee report). • Annual performance self-evaluation of the committee. • Committee duties and responsibilities, which must include those set out in Rules 10A-3(b)(2), (3), (4), and (5) of the Exchange Act as well as to: o at least annually obtain and review a report by the independent auditor regarding the auditor’s internal quality control procedures, any material issues raised by the auditor's most recent internal quality control review or any government investigation within the past five years regarding any audits carried out by the auditor and steps taken to deal with any issues, and all relationships between the auditor and the company; o review and discuss the company's annual audited financial statements and quarterly financial statements with management and the independent auditor; o discuss the company's earnings press releases and any financial information and earnings guidance provided to analysts and rating agencies; o discuss risk assessment and risk management policies; o meet periodically with each of management, The written charter must address: • Scope of the committee's responsibilities and how it carries out those responsibilities, including its structure, processes, and membership requirements. • Responsibility for receiving a formal written statement from the outside auditors regarding all relationships between the auditor and the company, discussing with the auditor any relationships or services that may affect the objectivity and independence of the auditor, and taking or recommending that the board take action to oversee the independence of the auditor. • Purpose of overseeing the accounting and financial reporting processes of the company and the audits of the financial statements. • Specific responsibilities and authority to comply with Rules 10A-3(b)(2), (3), (4), and (5) of the Exchange Act regarding: o oversight of registered public accounting firms; o complaints relating to accounting, internal accounting controls, or auditing matters; o authority to engage advisors; and o funding.