AUDIT COMMITTEE CHARTER
This charter sets forth the authority and responsibility of the Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of Virco Mfg. Corporation. (the “Company”).
- Purpose and Authority
- Responsibilities and Duties
PURPOSE AND AUTHORITY
The primary purposes of the Committee are to prepare the report of the audit committee that Securities and Exchange Commission (“SEC”) rules require to be included in the Company’s annual proxy statement and to assist the Board in fulfilling its oversight responsibilities to the stockholders of the Company relating to:
- the accounting and financial reporting processes of the Company and its subsidiaries, including the audits of the Company’s financial statements and the integrity of the financial statements;
- the Company’s compliance with legal and regulatory requirements;
- the independent auditor’s qualifications and independence; and
- the performance of the Company’s internal audit function and internal controls and the Company’s independent auditors
The Committee will primarily fulfill these responsibilities by carrying out the activities listed in this charter. Subject to any restrictions or limitations on the delegation of power and authority imposed by the rules or regulations promulgated by the SEC, the NASDAQ Stock Market LLC (“NASDAQ”) or other regulatory authority, or by applicable law, the Committee shall have and may exercise all the powers and authority of the Board of Directors reasonably necessary or advisable for the Committee to effectuate its purposes and perform its responsibilities as set forth in this charter.
The Committee will be appointed annually to serve at the pleasure of the Board and will be comprised of not less than three Directors. The Board shall designate one member of the Committee to be Chair or, in the absence of such a designation, by a majority of the members of the Committee. Vacancies in the Committee may be filled at any meeting of the Board.
Each member of the Committee shall be independent and free from any relationship that in the opinion of the Board would interfere with the exercise of independent judgment as a member of the Committee. In addition, each member must be an "Independent Director" as defined in NASDAQ Marketplace Rule 5605(a)(2) and meet the criteria for independence set forth in Rule 10A-3(b)(1) promulgated under the Securities and Exchange Act of 1934, as amended (the “Act”), subject to the exemptions provided in Rule 10A-3(c) under the Act. No member of the Committee can have participated in the preparation of the financial statements of the Company or any of its subsidiaries at any time during the past three years.
All members of the Committee shall have a working familiarity with basic finance and accounting practices, be able to read and understand fundamental financial statements, including the Company’s consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income, consolidated statements of stockholders’ equity, and consolidated statements of cash flow, and at least one member of the Committee shall be an “audit committee financial expert,” as determined by the Board in accordance with rules promulgated by the SEC. Committee members are encouraged to enhance their familiarity with finance and accounting by participating in educational programs conducted by the Company and by outside services.
No member of the Committee shall serve simultaneously on the audit committee of more than three public companies (including the Company).
The Committee shall meet at least four times annually, or more frequently as circumstances dictate. Regular meetings of the Committee may be held without call or notice at such times and places as the Committee from time to time may fix. Special meetings of the Committee may be called by the Chairman of the Committee or by the Secretary of the Company when requested to do so by any two members of the Committee or by the Company’s independent or internal auditors. Notice shall be given in the same manner as notice of special meetings of the Board.
Any action required or permitted to be taken at any meeting of the Committee may be taken without a meeting if consent in writing is given thereto by all members of the Committee and such consent is filed with the minutes.
Minutes of the meetings of the Committee will be prepared and kept in the minute books of the Company, together with minutes of meetings of other committees of the Board. These minutes shall be made available to the members of the Board from time to time for their information.
A majority of the members of the Committee, but no fewer than two persons, shall constitute a quorum for the transaction of business at any meeting of the Committee. Any action of the Committee to be effective must be authorized by the affirmative vote of a majority of the members thereof present and in any event shall require not less than two affirmative votes.
RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Committee shall be responsible for the following:
1) Meet and Review Documents/Reports
- Review and, as appropriate, update this Charter at least annually.
- Review and discuss with management and the independent auditors the Company’s annual and quarterly financial statements and annual and quarterly reports on Forms 10-K and 10-Q, respectively, prior to filing each such report, and the Company’s public earnings releases (including any pro forma or adjusted non-GAAP information), including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
- Confirm that the Company’s principal executive officer and principal financial officer are satisfying the certification requirements of Sections 302 and 906 of the Sarbanes-Oxley Act.
- Discuss the general types of information to be disclosed, and the type of presentation to be made, in the Company’s earnings press releases and in the financial information and earnings guidance, if any, provided to analysts and rating agencies.
- Meet separately, periodically, with management, the outsourced internal auditors and with independent auditors.
- Report to the Board of Directors following meetings of the Committee.
- If deemed appropriate, recommend to the Board that the Company’s audited financial statements be included in its annual report on Form 10-K for the last fiscal year and related disclosures required to be included in the annual proxy statement.
- The Committee shall annually review and assess the adequacy of this charter and recommend any proposed changes to the Board for approval. The Committee shall also perform an annual evaluation of its own performance, which shall compare the performance of the Committee with the requirements of this charter. The performance evaluation by the Committee shall be conducted in such manner as the Committee deems appropriate, and may take the form of an oral report by the chairperson of the Committee or any other member of the Committee designated by the Committee to make this report.
2) Independent Auditors
- Obtain and review at least annually a report by the independent auditors describing: (a) the firm’s internal quality control procedures; (b) 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 (c) all relationships between the independent auditors and the Company, including services performed for the Company and fees charged to the Company, and all other relationships that may adversely affect the independence of the auditors.
- Consider, at least annually, the independence of the independent auditors, including all relationships between the Company and the independent auditors and whether such auditors’ performance of permissible non-audit services is compatible with the auditors’ independence.
- Pre-approve all audit engagement fees and terms and all non-audit engagements with the independent auditors. The Committee shall have sole authority to carry out the responsibilities set forth in this paragraph.
- Approve the hiring by the Company of any current employee of the independent auditors or any former employee of the independent auditors employed by the independent auditors within the prior one-year period; provided that, in no event shall the Committee approve the hiring by the Company of a chief executive officer, controller, chief financial officer, chief accounting officer or any person that would serve in an equivalent position for the Company if such person was employed by the independent auditors and participated in the audit of the Company during the one-year period preceding the date of the initiation of the most recent audit.
- Review with the independent auditors any problems or difficulties encountered during the course of the audit work, including any restrictions on the scope of work or access to requested information, any significant disagreements between the independent auditors and management, and management’s response to such problems or difficulties.
- Review with the independent auditors and management the extent to which changes or improvements in financial or accounting practices, as approved by the Committee, have been implemented.
- Discuss with the independent auditors the matters required to be discussed by Item 407(d)(3)(i)(B) of Regulation S-K promulgated by the SEC as may be modified or supplemented (relating to Auditing Standards No. 61, as amended).
3) Financial Reporting Process
- In consultation with the independent auditors, management and the internal auditors, review the integrity of the Company’s financial reporting processes, both internal and external, and the fullness and accuracy of the Company’s financial statements.
- Review the adequacy of the Company’s internal controls.
- Consider the risk of management’s ability to override the Company’s internal controls.
- Review disclosures made to the Committee about significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting and any fraud involving management or other employees who have a role in the Company's internal control over financial reporting.
- Consider the independent auditors’ judgments about the quality and appropriateness of the Company’s accounting principles as applied to financial reporting.
- Consider and approve, if appropriate, major changes to the Company’s internal auditing and accounting principles and practices as suggested by the independent auditors or management.
- Establish regular and separate systems of reporting to the Committee by management and the independent auditors regarding any significant judgments made in management’s preparation of the financial statements and the view of each as to the appropriateness of such judgments.
- Establish procedures, pursuant to rules or regulations that may be issued from time to time by the SEC and/or NASDAQ, for handling complaints regarding accounting, internal accounting controls and auditing matters, including procedures for confidential, anonymous submission of legitimate concerns by employees regarding accounting and auditing matters.
- Prepare the report of the audit committee that SEC rules require to be included in the Company’s annual proxy statement.
- Review and discuss the Company’s guidelines and policies with respect to risk assessment, oversight and management.
4) Ethical and Legal Compliance
- Establish, review and update periodically a Code of Ethical Conduct and ensure that management has established a system to enforce this Code.
- Review with the Company’s counsel, legal compliance matters including securities laws compliance and any legal matter that could have a significant impact on the Company’s financial statements.
- Review and approve related person transactions, as defined in applicable SEC rules, and establish policies and procedures for the review, approval and ratification of related person transactions.
- Obtain such advice and assistance from outside legal, accounting or other advisors as deemed appropriate by the Committee in its sole discretion. The Committee is specifically empowered to retain these advisors without seeking approval from the Board.
- Review and discuss the adequacy of the Company’s disclosure controls and procedures.
- Conduct an annual performance evaluation of the Committee in accordance with, and as required by, rules that may be issued by NASDAQ from time to time.
- Perform any other activities consistent with this charter, the Company’s Certificate of Incorporation and Bylaws, and governing law as the Committee or the Board deems necessary or appropriate.
- Obtain from the independent auditors assurance that they have informed the Committee of any illegal acts, in compliance with Section 10A of the Act.