AUDIT COMMITTEE CHARTERI.Purpose
The Audit Committee shall provide assistance to the board of directors of NN, Inc. (the “Corporation”) in fulfilling their responsibility to the shareholders, potential shareholders, and investment community relating to corporate accounting, reporting practices, and the quality and integrity of the financial reports of the Corporation. The Audit Committee’s primary duties and responsibilities include:
- Providing oversight of the accounting and financial reporting processes of the Corporation and the audits of the financial statements of the Corporation.
- Overseeing that management has maintained the reliability and integrity of the accounting policies and financial reporting and disclosure practices of the Corporation.
- Overseeing that management has adequate resources and has established and maintains processes to ensure that an adequate system of internal control is functioning within the Corporation, including the formation and oversight of the internal audit function and internal controls regarding information security.
- Overseeing that management has established and maintains processes to assure compliance by the Corporation with all applicable laws, regulations and corporate policies including the Corporation’s Code of Conduct and Ethics.
- The appointment, compensation, retention and oversight of the work of the Corporation’s independent auditors engaged for the purpose of preparing and issuing an audit report and performing any other audit, review or attest services for the Corporation.
- Monitoring the independence and evaluating the performance of the Corporation’s independent auditors.
- Providing a communication link between the independent auditors, management and the Board.
- Overseeing that management has designed, implemented and maintains processes to assess and manage enterprise and event risk.
- Overseeing that management has established and maintains proper information system controls and security.
The Audit Committee will fulfill these responsibilities primarily by carrying out the activities enumerated in Section V of this Charter.
The Audit Committee shall be comprised of three or more directors as determined by the Board, each of whom shall be independent as defined under the applicable rules of the Nasdaq Stock Market and the Sarbanes-Oxley Act of 2002 (the “Act”). All members 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. The members of the Audit Committee shall be elected by the Board at the annual organizational meeting of the Board and shall serve until their successors shall be duly elected and qualified. Unless a Chairperson is elected by the full Board, the members of the Audit Committee may designate a Chairperson by majority vote of the full Audit Committee membership.
All members of the Audit Committee shall have a working familiarity with basic finance and accounting practices in order to be able to read and understand fundamental financial statements (including the Corporation’s balance sheet, income statement and cash flow statement). At least one member of the Committee shall have past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background resulting in financial sophistication, as the Corporation’s board interprets such qualification in its business judgement. The Chairperson of the Audit Committee will meet the definition of an “Audit Committee financial expert” as set forth in the Act. Audit Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by the Corporation or an outside consultant.
The Audit Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, 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 Audit Committee at its next scheduled meeting.
The Audit Committee shall meet at least four times annually, or more frequently as circumstances dictate. As part of its job to foster open communication, the Audit Committee should meet with management as often as it deems necessary to discuss any matters that the Audit Committee or management believes should be discussed. In addition, the Audit Committee should meet with the independent auditors and management quarterly to review the Corporation’s financial statements and significant findings based upon the independent auditors’ review and auditing procedures. The Audit Committee will meet separately from management with each of the independent auditors and the Corporation’s Director of Internal Audit during or after each regularly scheduled Audit Committee meeting.
The Audit Committee should maintain minutes of its meetings and periodically report to the Board on significant matters relating to the Audit Committee.
- The independent auditors report directly to the Audit Committee.
- The Audit Committee has authority to engage outside advisers and counsel, as it determines necessary to carry out its duties.
- The Corporation must provide for appropriate funding, as determined by the Audit Committee, for payment of: (i) Compensation to any independent auditors for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Corporation; (ii) Compensation to any advisers employed by the Audit Committee; and (iii) ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.
V.Responsibilities and Duties
To fulfill its responsibilities and duties the Audit Committee shall:
- Review and reassess, at least annually, the adequacy of this Charter and make recommendations to the Board, as conditions dictate, to update this Charter.
- Prior to releasing year-end earnings, review with management and the independent auditors the financial results. It will also review the results of the audit with the independent auditors and will discuss certain matters as required to be communicated to Audit Committees in accordance with applicable accounting and auditing standards including those of the Public Company Accounting Oversight Board (PCAOB).
- Review the Corporation’s annual audited financial statements and the disclosure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” prior to filing with the SEC as part of Form 10-K. This review should include a discussion with management and the independent auditors of significant issues regarding accounting principles, practices and judgments and the effect of regulatory and accounting pronouncements and off-balance sheet structures on the Corporation’s financial statements.
- In consultation with management and the independent auditors, the Audit Committee shall consider the integrity of the Corporation’s financial reporting processes and controls and discuss significant risk exposures and the steps management has taken to monitor, control, and report such exposures. The Audit Committee shall review significant findings by the independent auditors together with management’s response.
- Confirm that the Corporation has implemented an internal policy that provides guidelines for determining how non-GAAP financial measures are generated, calculated, and disclosed.
- Prior to the public release of earnings, review with management and the independent auditors the Corporation’s quarterly financial results and earnings press releases, including the use of “pro forma” or “adjusted” non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies. Such discussions may be general (consisting of discussing the types of information to be disclosed and the types of presentations to be made), and each instance in which the Corporation provides earnings guidance need not be discussed in advance.
- Review the Corporation’s quarterly financial statements and the disclosure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” prior to filing with the SEC as part of Form 10-Q. This review and discussion will include any significant issues regarding accounting principles, practices and judgments and any items required to be communicated by the independent auditors in accordance with applicable accounting and auditing standards.
- Review disclosures by the Corporation’s principal executive officer and principal financial officer during the certification process for the SEC Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls over financial reporting or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Corporation’s internal controls. The Audit Committee annually reviews and discusses management’s evaluation of the adequacy of disclosure controls and procedures and internal control over financial reporting, including any attestation of the same by the independent auditors.
- Once per year the Audit Committee will perform a self-evaluation and report the results to the Board of Directors.
- Review the performance of the independent auditors and make all decisions regarding the appointment or termination of the independent auditors. Review and evaluate the lead partner of the independent auditor team and review the appointment and replacement of the senior internal auditing executive. The Audit Committee has the ultimate authority and responsibility to select, evaluate and, where appropriate, replace the independent auditors. The independent auditors are ultimately accountable to the Audit Committee for their audit of the financial statements of the Corporation. On an annual basis, the Audit Committee should review and discuss with the independent auditors all significant relationships with the Corporation to determine the auditor’s independence.
- Pre-approve all audit and allowable non-audit services and fees to be performed by the independent auditors. Meet with the independent auditor prior to the audit to discuss the planning and staffing of the audit.
- Oversee independence of the accountants by:
- The Audit Committee receives from the independent auditors a formal written statement delineating all relationships between the auditor and the Corporation, consistent with the applicable rules of the PCAOB. The Audit Committee actively engages in a dialogue with the auditor with respect to any disclosed relationships or services that may impact the objectivity and takes, or recommends that the full Board take, appropriate action to oversee the independence of the independent auditor.
- Reviewing, and actively discussing with the Board, if necessary, and the independent auditors, on a periodic basis, any disclosed relationships or services between the independent auditors and the Corporation or any other disclosed relationships or services that may impact the objectivity and independence of the independent auditors;
- At least annually, obtaining and reviewing a report by the Corporation’s independent auditors that describes (1) the accounting firm’s internal quality control procedures, and (2) any material issues raised by the most recent internal quality control review, peer review or Public Company Accounting Oversight Board review or inspection of the firm or by any other inquiry or investigation by governmental or professional authorities in the past five years regarding audits carried out by the firm and any steps taken to address any such issues raised during the reviews;
- Recommending, if necessary, that the Board take certain actions to satisfy itself of the auditor’s independence;
- Ensure the rotation of the audit partners as required by law. Consider whether, in order to ensure continuing auditor independence, it is appropriate to adopt a policy of rotating the independent auditing firm on a regular basis
- Reviewing and assessing policies relating to the Corporation’s employment of current or former employees of the Corporation’s independent auditors; and
- Confirming that the independent auditors are independent pursuant to Rule 2 01 of Regulation S-X and any requirements of the Act and reporting its conclusion to the Board.
- Based on the review and discussions referred to in section V.2 and V.5, determine whether to recommend to the Board that the Corporation’s audited financial statements be included in the Corporation’s Annual Report on Form 10-K for the latest fiscal year for filing with the Securities and Exchange Commission.
- Consider whether the engagement of the independent auditors for non-audit services is compatible with maintaining the independent auditor’s independence and review the fees for such services. The Audit Committee shall approve, in advance, the engagement and the payment of fees to the auditor for non-audit services. Such services will only be those permissible by the Act and any Nasdaq Stock Market requirements.
- In conjunction with the independent auditors and the internal auditors, review the integrity of the Corporation’s financial reporting processes, both internal and external.
- Review the Corporation’s internal audit department, including its budget, performance, audit plans, coordination of work with external auditors, quality of the internal audit team and any reports to management and management’s response to such reports.
- Consider and approve, if appropriate, major changes to the Corporation’s accounting principles and practices proposed by management. Discuss with the independent auditors any significant changes in auditing standards or their audit scope. Discuss with the independent auditor material issues on which the national office of the independent auditor was consulted by the Corporation’s audit team.
- Establish regular systems of reporting to the Audit Committee by each of management and the independent auditors regarding any significant judgments made in management’s preparation of the financial statements. Discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 114 relating to any significant difficulties encountered during the course of the review or audit, including any restrictions on the scope of the work or access to required information.
- Review any significant disagreement among management and the independent accountants in connection with the preparation of the financial statements.
- As appropriate, obtain advice and assistance from independent legal, accounting or other advisors or consultants selected and retained by the Audit Committee.
- Ensure that management has established confidential, anonymous procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls and auditing matters.
- Review with the Corporation’s general counsel legal matters that may have a material impact on the financial statements, the Corporation’s related compliance programs and internal controls, and any material reports or inquiries received from regulators or governmental agencies that raise material issues regarding the Corporation’s financial statements or accounting policies.
- Review with management and advise the board with respect to the Corporation’s policies and procedures regarding compliance with applicable laws and regulations and with the Corporation’s Code of Ethics, and obtain reports concerning the monitoring of compliance with such policies.
- Approve the report of the Audit Committee required by the rules of the SEC to be included in the Corporation’s annual proxy statement.
- Review and approve in advance or ratify all related party transactions.
- Discuss with management and the internal audit department the adequacy of controls over information systems and security.
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 Corporation’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the independent auditors. Nor is it the duty of the Audit Committee to conduct investigations, or to assure compliance with laws and regulations.