|
July11, 2005 AMENDED AND RESTATED CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF EMRISE CORPORATION Purpose and Scope The primary function of the Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of EMRISE Corporation (the “Company”) is to (a) assist the Board in fulfilling its responsibilities by reviewing: (i) the financial reports provided by the Company to the Securities and Exchange Commission (“SEC”), the Company’s shareholders or to the general public, (ii) the Company’s internal financial and accounting controls, including the performance of the Company’s internal audit function, (iii) the qualifications and independence of the independent public accountants engaged by the Company, and (iv) the Company’s compliance with legal and regulatory requirements, (b) oversee the appointment, compensation, retention and oversight of the work performed by any independent public accountants engaged by the Company, (c) recommend, establish and monitor procedures designed to improve the quality and reliability of the disclosure of the Company’s financial condition and results of operations, and (d) prepare the report that Securities and Exchange Commission rules require be included in the Company’s annual Proxy Statement. Composition The Committee shall be comprised of a minimum of one director as appointed by the Board of Directors, who shall meet the independence, audit committee composition requirements promulgated by the SEC, the National Association of Securities Dealers, any exchange upon which securities of the Company are traded, or any governmental or regulatory body exercising authority over the Company (each a “Regulatory Body” and collectively, the “Regulatory Bodies”), as in effect from time to time, and each member of the Committee shall be free from any relationship that, in the opinion of the Board of Directors, would interfere with the exercise of his or her independent judgment as a member of the Committee. At the time of his or her appointment to the Committee, each member of the Committee shall be able to read and understand fundamental financial statements, including a balance sheet, cash flow statement and income statement. At least one member of the Committee shall have employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. Further, at least one member of the Committee shall qualify as an “audit committee financial expert” as such term is defined by Item 401(h) of Regulation S K of the Securities Act of 1933, as amended. The members of the Committee shall be elected by the Board of Directors at the meeting of the Board of Directors following each annual meeting of stockholders and shall serve until their successors shall be duly elected and qualified or until their earlier resignation or removal. Unless a Chair is elected by the full Board of Directors, the members of the Committee may designate a Chair by majority vote of the full Committee membership. Responsibilities and Duties To fulfill its responsibilities and duties, the Committee shall carry out the following specific activities: A. Document Review 1. Review and reassess the adequacy of this Charter periodically as conditions dictate, but at least annually, and recommend any proposed changes to the Board of Directors for approval. 2. Review with representatives of management and representatives of the independent accounting firm the Company’s audited annual financial statements prior to their filing as part of the Annual Report on Form 10-K, as well as the Company’s specific disclosure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” After such review and discussion, the Committee shall recommend to the Board of Directors whether such audited financial statements should be published in the Company’s annual report on Form 10-K. The Committee shall also review the Company’s quarterly financial statements prior to their inclusion in the Company’s quarterly SEC filings on Form 10-Q, as well as the Company’s specific disclosure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 3. Take steps designed to insure that the independent accounting firm reviews the Company’s interim financial statements prior to their inclusion in the Company’s quarterly reports on Form 10-Q. B. Independent Accounting Firm 1. The Committee shall be directly responsible for the appointment, compensation, retention and oversight of the work of any independent accounting firm engaged by the Company for the purpose of preparing or issuing an audit report or related work. The Committee shall have the ultimate authority and responsibility to appoint, evaluate and, when warranted, replace such independent accounting firm (or to recommend such replacement for shareholder ratification in any proxy statement). 2. At least annually, obtain and review a report by the independent accounting firm describing the firm’s internal quality control procedures; 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 governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and, in order to assess the auditor’s independence, all relationships between the independent auditor and the company. 3. Resolve any disagreements between management and the independent accounting firm as to financial reporting matters. 4. Review with the independent accounting firm any audit problems or difficulties and management’s response. 5. Instruct the independent accounting firm that it should report directly to the Committee on matters pertaining to the work performed during its engagement and on matters required by applicable Regulatory Body rules and regulations. 6. On an annual basis, receive from the independent accounting firm a formal written statement identifying all relationships between the independent accounting firm and the Company consistent with Independence Standards Board Standard 1. The Committee shall actively engage in a dialogue with the independent accounting firm as to any disclosed relationships or services that may impact its independence. The Committee shall take appropriate action to oversee the independence of the independent accounting firm. 7. On an annual basis, discuss with representatives of the independent accounting firm the matters required to be discussed by Statement on Auditing Standards 61, as it may be modified or supplemented. 8. Meet with the independent accounting firm prior to the audit to review the planning and staffing of the audit and consider whether or not to approve the auditing services proposed to be provided. In addition, meet separately, periodically, with management, with internal auditors (or other personnel responsible for the internal audit function) and with the independent accounting firm. 9. Evaluate the performance of the independent accounting firm and consider the discharge of the independent accounting firm when circumstances warrant. The independent accounting firm shall be ultimately accountable to the Board of Directors and the Committee. 10. Consider in advance whether or not to approve any non-audit services to be performed by the independent accounting firm required to be approved by the Committee pursuant to the rules and regulations of any applicable Regulatory Body. 11. The Committee shall have the authority to oversee and determine the compensation of any independent accounting firm engaged by the Company. 12. Ensure the rotation of the audit partners as required by Section 10A(j) of the Securities Exchange Act of 1934, as amended, and consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the independent auditing firm on a regular basis. 13. Set clear policies for the Company’s hiring of employees or former employees of the independent auditor consistent with Section 10A(l) of the Securities Exchange Act of 1934. C. Financial Reporting Processes 1. In consultation with the independent accounting firm and management, review annually the adequacy of the Company’s internal financial and accounting controls. In addition, review major issues regarding accounting principles and financial statement presentations; including any significant changes in the Company’s selection or application of accounting principles, and major issues as to the adequacy of the Company’s internal controls and any special audit steps adopted in light of material control deficiencies. 2. Review disclosures made to the Committee by the Company’s chief executive officer and chief financial officer in connection with their certifications of the Company’s reports on Form 10-K and Form 10-Q, including disclosures concerning (a) evaluations of the design and operation of the Company’s internal financial and accounting controls, (b) any significant deficiencies discovered in the design and operation of the Company’s internal controls which could adversely affect the Company’s ability to record, process, summarize, and report financial data, and (c) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls. The Committee shall direct the actions to be taken and/or make recommendations to the Board of Directors of actions to be taken to the extent such disclosures indicate the finding of any significant deficiencies in internal controls or fraud. 3. Regularly review the Company’s critical accounting policies and accounting estimates resulting from the application of these policies and inquire at least annually of both the Company’s internal auditors and the independent accounting firm as to whether either has any concerns relative to the quality or aggressiveness of management’s accounting policies. In addition, review analyses prepared by management and/or the independent accounting firm setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements. 4. Review the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company. 5. Discuss earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies. In addition, review earnings press releases (paying particular attention to any use of “pro forma,” or “adjusted” non-GAAP, information), as well as financial information and earnings guidance provided to analysts and rating agencies. 6. Discuss policies with respect to risk assessment and risk management. D. Compliance 1. Obtain from the independent auditor assurance that Section 10A(b) of the Securities Exchange Act of 1934, as amended, has not been implicated. 2. Obtain reports from management and the independent auditor that the Company and its subsidiaries and affiliated entities are in conformity with applicable legal requirements and the Company’s Code of Business Conduct and Ethics. 3. To the extent deemed necessary by the Committee, it shall have the authority to engage outside counsel, independent accounting consultants and/or other experts at the Company’s expense to review any matter under its responsibility. 4. Establish written procedures for (a) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and (b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting, internal accounting controls or auditing matters. 5. Investigate any allegations that any officer or director of the Company, or any other person acting under the direction of any such person, took any action to fraudulently influence, coerce, manipulate, or mislead any independent public or certified accountant engaged in the performance of an audit of the financial statements of the Company for the purpose of rendering such financial statements materially misleading and, if such allegations prove to be correct, take or recommend to the Board of Directors appropriate disciplinary action. 6. Discuss with the Company’s legal counsel matters that may have a material impact on the financial statements or the compliance policies. 7. Review and approve in advance any proposed related party transactions. E. Reporting 1. Prepare, in accordance with the rules of the SEC as modified or supplemented from time to time, a written report of the audit committee to be included in the Company’s annual proxy statement for each annual meeting of stockholders. 2. To the extent required by any Regulatory Body, instruct the Company’s management to disclose in its Form 10-K and Form 10-Q’s the approval by the Committee of any nonaudit services performed by the independent accounting firm, and review the substance of any such disclosure. The Audit Committee shall review and evaluate its own performance on an annual basis. While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles.
|
