This Audit Committee Charter (“Charter”) was
adopted by the Board of Directors (the “Board”)
of Encision Inc. (the “Company”) effective as
of May 22, 2006.
PURPOSE
The purpose of the Audit Committee (the “Committee”)
is to assist the Board with its oversight responsibilities
regarding:
- the accounting and financial reporting processes of the
Company,
- the integrity of the Company’s
financial statements,
- the Company’s compliance with
legal and regulatory requirements,
- the registered independent accountant’s
qualifications and independence, and
- the performance of the independent
accountant in its audits of the Company’s financial
statements.
The Committee shall prepare the audit
committee report required by the rules of the Securities
and Exchange Commission (the “Commission”)
to be included in the Company’s annual proxy statement.
In addition to the powers and responsibilities
expressly delegated to the Committee in this Charter, the
Committee may exercise any other powers and carry out any
other responsibilities as are assigned by law, the Company’s certificate of
incorporation or bylaws or as may be delegated to it by the
Board from time to time. The powers and responsibilities
delegated by the Board to the Committee in this Charter or
otherwise shall be exercised and carried out by the Committee
as it deems appropriate without requirement of Board approval,
and any decision made by the Committee (including any decision
to exercise or refrain from exercising any of the powers
delegated to the Committee hereunder) shall be at the Committee’s
sole discretion.
While acting within the scope of the
powers and responsibilities delegated to it, the Committee
shall have and may exercise all the powers and authority
of the Board. To the fullest extent permitted by law, the
Committee shall have the power to determine which matters
are within the scope of the powers and responsibilities
delegated to it. Notwithstanding the foregoing, the Committee’s responsibilities are limited
to oversight. Management of the Company is responsible for
the preparation, presentation and integrity of the Company’s
financial statements as well as the Company’s financial
reporting process, accounting policies, internal accounting
controls and disclosure controls and procedures. The registered
independent accountant is responsible for performing an audit
of the Company’s annual financial statements, expressing
an opinion as to the conformity of such annual financial
statements with the standards of the Public Company Accounting
Oversight Board (the “PCAOB”) and generally accepted
accounting principles, and reviewing the Company’s
quarterly financial statements. It is not the responsibility
of the Committee to plan or conduct audits or reviews or
to determine that the Company’s financial statements
and disclosure are complete and accurate and in accordance
with generally accepted accounting principles and applicable
laws, rules and regulations. Each member of the Committee
shall be entitled to rely on the integrity of those persons
within the Company and of the professionals and experts (including
the Company’s registered independent accountant) from
which the Committee receives information and, absent actual
knowledge to the contrary, the accuracy of the financial
and other information provided to the Committee by such persons,
professionals or experts.
Auditing literature, particularly Statement
of Accounting Standards No. 100, defines the term “review” to
include a particular set of required procedures to be undertaken
by registered independent auditors. The members of the Committee
are not independent auditors, and the term “review” as
used in this Charter is not intended to have that meaning
and should not be interpreted to suggest that the Committee
members can or should follow the procedures required of auditors
performing reviews of financial statements.
MEMBERSHIP
The Committee shall consist of at least
two (2) members of the Board, both of whom shall be independent
Board members. All committee members must be able to read
and understand fundamental financial statements, including
the Company’s
balance sheets, statements of operations and cash flow. No
member of the Committee may have participated in the preparation
of the financial statements of the Company at any time during
the past three (3) years. Members of the Committee are not
required to be engaged in the accounting and auditing profession
and, consequently, some members may not be expert in financial
matters, or in matters involving auditing and accounting.
Members of the Committee shall satisfy
the independence and other requirements of any national
stock exchange or automated quotation system (hereinafter,
an “Exchange” or
the “Exchange”) on which the Company’s
stock is listed, traded or quoted, and Rule 10A-3(b)(1) under
the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).
At least one (1) member of the Committee
shall be an “audit
committee financial expert” within the definition adopted
by the Commission or the Company shall disclose in its annual
report on Form 10-KSB the reasons why at least one member
of the Committee is not an “audit committee financial
expert”. In addition, at least one (1) member of the
Committee, which may also be an audit committee financial
expert, shall have had past employment experience in finance
or accounting, as well as requisite professional certification
in accounting or any 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 in accordance with the rules adopted
by the Exchange. The members of the Committee, including
the Chair of the Committee, shall be appointed by the Board.
Committee members may be removed from the Committee, with
or without cause, by the Board.
General Responsibilities
1. The
Committee will provide its reasonable efforts to facilitate
open avenues of communication with the independent accountant
and the Board, provided, however, that the independent
accountant will report directly to the Committee.
2. The Committee Chair (or in his
or her absence, a member designated by the Chair) shall
preside at each meeting of the Committee and set the
agenda for each Committee meeting. The Committee shall
have the authority to establish its own rules and procedures
for notice and conduct of its meetings so long as they
are not inconsistent with any provisions of the Company’s
Bylaws or Guidelines that are applicable to the Committee.
3. The Committee must report committee actions to the
full Board and may make appropriate recommendations.
4. The Committee has the power to conduct or authorize
investigations into matters within the Committee's scope
of responsibilities. The Committee is authorized to retain
independent counsel, accountants or others it needs to
assist in an investigation. The Company shall provide for
appropriate funding, as determined by the Committee, for
payment of compensation to the independent accountant for
the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the
Company, to any advisors employed by the Committee, and
or ordinary administrative expenses of the Committee that
are necessary or appropriate for carrying out its duties.
5. The Committee will
meet at least four times each year, more frequently if
circumstances make that preferable. The
Committee Chair has the power to call a meeting of the
Committee whenever he or she thinks there is a need.
A member of the Committee should not
vote on any matter in which he or she is not independent. The
Committee may ask members of management or others to attend
the meeting and is authorized to receive all pertinent information
from management.
6. The Committee will do whatever else the
law, the Company's charter or bylaws or the Board require.
Responsibilities for Engaging Independent Accountants
1. The Committee will
select the independent accountants for Company audits. The
Committee's selection is subject to approval by the full
Board. The Committee also will review and set any fees
paid to the independent accountants, provide oversight
of their work and review and approve dismissal of the independent
accountants.
2. The Committee shall request and evaluate
a formal written statement from the independent accountants
delineating all relationships between the independent accountants
and the Company that could bear on their independence as
required by the Independence Standards Board Statement
No. 1, discuss such report with the independent accountant,
oversee the independence of the accountants and, if so
determined by the Committee, take appropriate action to
address issues raised by such evaluation. The Committee
shall pre-approve, pursuant to policies and procedures
deemed by the Committee to be desirable and appropriate,
audit services and permitted non-audit services (including
the fees and terms thereof) to be performed for the Company
by its independent accountant. The
Committee may, when appropriate, form and delegate authority
to subcommittees consisting of one or more members
of the Committee, including the authority to grant pre-approvals
of audit and permitted non-audit services, provided that
decisions of such subcommittee to grant pre-approvals shall
be presented to the full Committee at its next scheduled
meeting. The Committee shall discuss with management and
the registered independent accountants any correspondence
from or with regulators or governmental agencies, any employee
complaints or any published reports that raise material issues
regarding the Company’s financial statements, financial
reporting process, accounting policies or audit function.
3. The Committee will consider, in consultation with the
independent accountant, the audit scope and procedural plans
made by the independent accountant.
4. The Committee will
listen to management and the primary independent accountant
if either thinks there might be a need to engage additional
accountants. The
Committee will decide whether to engage an additional firm
and, if so, which one.
Responsibilities for Reviewing Internal Audits,
the Annual External Audit and the Review
of Quarterly and Annual Financial Statements
1. The Committee will ascertain that the independent accountant
views the Board as its client, that it will be available
to the full Board at least annually and that it will provide
the Committee with a timely analysis of significant financial
reporting issues.
2. The Committee will ask management and the independent
accountant about significant risks and exposures and will
assess management's steps to minimize them.
3. The Committee will review the following with the independent
accountant:
a. The adequacy of the Company's internal controls, including
computerized information system controls and security.
b. Any significant findings and recommendations made by
the independent accountant, together with management's responses
to them.
4. Shortly after the annual examination is completed, the
Committee will review the following with management and the
independent accountant:
a. The company's annual financial statements and related
footnotes.
b. The independent accountant's audit of and report on the
financial statements.
c. The independent accountant’s
qualitative judgments about the appropriateness, not
just the acceptability, of accounting principles and
financial disclosures and how aggressive (or conservative)
the accounting principles and underlying estimates are.
d. Any serious difficulties or disputes with management
encountered during the course of the audit.
e. Anything else about the audit procedures
or findings that Generally Accepted Auditing Standards
requires the independent accountants to discuss with
the Committee.
5. The Committee will review annual filings
with the Commission and other published documents containing
the Company’s
financial statements and will consider whether the information
in the filings appears consistent with the information in
the financial statements.
6. The Committee will review the interim financial reports
with management and the independent accountant before those
interim reports are released to the public or filed with
the Commission or other regulators.
7. Concerning earnings releases
and other matters
(i) The Committee shall discuss with management and
the registered independent accountant the type of financial
information and the type of presentation of that information
to generally be disclosed in the Company’s earnings
press releases (with particular focus on any “pro forma” or “adjusted” information
or any non-GAAP financial information and compliance with
the provisions of Regulation G in this regard). The Committee’s
discussion in this regard need not take place in advance
of each earnings release or each instance in which the
Company may provide earnings guidance.
(ii) The Committee shall establish procedures
for (a) receipt, retention, and treatment of complaints
received by the Company with respect to accounting, internal
auditing controls, or auditing matters; and (b) the confidential,
anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters. The Committee shall
discuss with management and the registered independent accountant
any correspondence from or with regulators or governmental
agencies, any employee complaints or any published reports
that raise material issues regarding the Company’s
financial statements, financial reporting process, accounting
policies or audit function.
8. The Committee shall, in accordance
with the Company’s
Bylaws or Guidelines, review all related-party transactions
and potential conflict of interest situations on an ongoing
basis and all such transactions must be approved by the Committee.
9. The Committee shall discuss with the
Company’s
general counsel or outside counsel any legal and regulatory
matters brought to the Committee’s attention that could
reasonably be expected to have a material impact on the Company’s
financial statements.
10. The Committee shall provide the Company
with the report of the Committee with respect to the audited
financial statements for inclusion in the Company’s
annual proxy statement.
Periodic Responsibilities
1. Review and update the Committee's Charter
annually and submit any recommended changes to the Board
for its consideration.
2. Review, with the independent accountant,
the results of the Committee’s review of compliance with the Company’s
Code of Ethics.
3. Meet with the independent accountant and management in
separate executive sessions to discuss any matters the Committee
or these groups believe should be discussed privately with
the Committee.
4. Review legal and regulatory matters
that may have a material effect on the Company’s
financial statements, compliance policies and programs
and reports from regulators.
5. The Committee shall at least annually
perform an evaluation of the performance of the Committee
and its members, including a review of the Committee’s
compliance with this Charter.
