CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF MEDIAMORPH, INC.
The primary function of the Audit Committee is to assist the Board of Directors of MediaMorph, Inc. (the "Company") in fulfilling its oversight responsibilities by: (a) reviewing and monitoring the integrity of the financial reports and other financial information provided by the Company to any governmental body or the public; (b) reviewing the Company's systems of internal controls regarding finance, accounting, legal compliance and ethics that management and the Board have established; (c) reviewing and monitoring the Company's internal auditing, accounting and financial reporting processes generally; and (d) overseeing the independent auditor’s qualifications and independence. Consistent with this function, the Audit Committee should encourage improvement of, and foster adherence to, the Company's policies, procedures and practices at all levels. Similarly, the Audit Committee shall provide an open avenue of communication among the independent accountants, financial and senior management, the internal auditing department, and the Board of Directors. The Audit Committee will primarily fulfill these responsibilities by carrying out the activities enumerated in Section IV of this Charter.
The Audit Committee shall be comprised of two or more directors, as determined by the Board, each of whom shall be independent directors as defined in Section 10A(M)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the regulations promulgated thereunder by the U.S. Securities and Exchange Commission (the “Commission”) and by the rules of any exchange on which the Company's securities may be listed for trading. Each member of the Audit Committee shall be free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Audit Committee. At least one member of the Audit Committee shall be an “Audit Committee Financial Expert” as that term is defined by the Commission in regulations it has promulgated under the Exchange Act. All members of the Audit Committee shall have a working familiarity with basic finance and accounting practices. The members of the Audit Committee shall be elected by the Board at the annual organizational meeting of the Board or until their successors shall be duly elected and qualified. Unless a Chair is elected by the full Board, the members of the Audit Committee may designate a Chair by majority vote of the full Audit Committee membership. All members of the Audit Committee may be replaced by the Board.
The Audit Committee shall meet at least once quarterly and more frequently as circumstances dictate. In addition, the Audit Committee shall meet with the independent auditors and management quarterly to review the Company's financial statements. The Audit Committee shall meet periodically with management and the Company's independent auditors in separate executive sessions to discuss any matters that the Audit Committee or each of these groups believe should be discussed privately. The Audit Committee may request any officer or employee of the Company or the Company's outside counsel or independent auditor to attend a meeting of the Audit Committee or to meet with any members of or consultants to the Audit Committee.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall undertake the following:
A. Independent Auditors
- The Audit Committee shall have the sole authority to appoint or replace the independent auditor (subject, if applicable, to shareholder ratification). The Audit Committee shall be directly responsible for the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent auditor shall report directly to the Audit Committee.
- The Audit Committee shall preapprove all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditor, in accordance with Section 10A of the Exchange Act which are approved by the Audit Committee prior to the completion of the audit. The Audit Committee shall adopt policies and procedures governing its preapproval of all audit and permitted non-audit services to be performed by the Company's independent auditor. Subject to applicable law and the requirements of any exchange upon which the Company's common stock is traded, the Audit Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant preapprovals of audit and permitted non-audit services, provided that decisions of such delegatee to grant preapprovals shall be presented to the full Audit Committee at its next scheduled meeting.
- Review and discuss with the independent auditor (and separately with management) the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit. This review shall include:
- The adequacy of the Company's internal controls and the fullness and accuracy of the Company's financial statements;
- Whether there have been (and if so, the nature of) any audit problems or difficulties and any related responses by management;
- Confirmation that management is not placing any restrictions on the scope of the independent auditors’ work or their access to information;
- Any significant disagreements with management and management’s response;
- Inquiry as to any accounting adjustments noted or proposed by the independent auditors but “passed” (as immaterial or otherwise) and any communications between the audit team and the audit firm’s national office regarding auditing or accounting issues raised in connection with the Company's audit;
- Discussion of any “management” or “internal control” letters issued or proposed to be issued by the independent auditors to the Company, as well any other material written communications between the independent auditors and management; and
- Discussion of the responsibilities, budget and staffing of the Company's internal accounting function and the adequacy and appropriateness thereof.
B. Financial Statement and Disclosure Matters
- Review and discuss with management and the independent auditor the annual audited financial statements, including disclosures made in management’s discussion and analysis (“MD&A”), the critical accounting estimates employed in the MD&A and inquire whether such financial statements and any related notes are prepared in accordance with U.S. generally accepted accounting principles and, together with such MD&A, are consistent with the information known to Audit Committee members, and recommend to the Board whether the audited financial statements should be included in the Company's annual report on Form 10-K.
- Review and discuss with management and the independent auditor the Company's quarterly financial statements, related notes, the MD&A and the critical accounting estimates employed in the MD&A prior to the filing of its Form 10-Q, including the results of the independent auditor’s review of the quarterly financial statements and inquire whether such financial statements and any related notes are prepared in accordance with U.S. generally accepted accounting principles and, together with such MD&A, are consistent with the information known to Audit Committee members.
- In consultation with the independent auditors, the Audit Committee shall review the adequacy and integrity of the organization’s financial reporting and business control processes, both internal and external. Discuss with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of the Company's financial statements, including any significant changes in the selection or application of accounting principles, any major issues as to the adequacy of the Company's internal controls and any special steps adopted in light of material control deficiencies or significant changes thereto.
- Review the independent auditors’ judgments about the quality and appropriateness of the Company's accounting principles and approve significant changes to the Company's auditing and accounting principles and practices as suggested by the independent auditors or management. Evaluate with management and the independent auditors, on an independent basis, the implementation of changes or improvements in financial or accounting practices as approved by the Audit Committee.
- Review and discuss periodic reports from the independent auditors on: (a) all critical accounting policies and practices to be used; (b) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor; and (c) other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences.
- Discuss with management (on a pre-issuance basis) (a) the Company's earnings press releases, financial information and earnings guidance provided to analysts and rating agencies; (b) significant financial reporting matters to be disclosed in any Commission filings, such as a change in accounting principles or extraordinary and non-recurring items and transactions; and (c) significant matters to be disclosed in Form 8-K filings with the Commission.
- Discuss with management and the independent auditor the effect of regulatory and accounting initiatives including the Company's use, if any, of "pro forma" or "adjusted" non-GAAP financial information and off-balance sheet structures on the Company's financial statements.
- Review and evaluate the Company's policies and practices with respect to risk assessment and risk management, including the Company's major financial risk exposures and litigation and insurance management processes and review steps taken by management to monitor and control such exposures. If appropriate, initiate special investigations into matters within the Audit Committee’s scope of responsibilities or as delegated by the Board of Directors.
- If applicable, review the appointment and replacement of the senior internal accounting personnel and the organizational structure, and qualifications of the internal accounting department.