2.3 Audit Committee Terms of Reference

1.
PURPOSE
1.1
The primary audit function of the Audit Committee (the “Committee”) is to assist the Board in fulfilling its oversight responsibilities by reviewing:
i)
the financial plan for the Company;
ii)
the financial information that will be provided to the shareholders;
iii)
the systems of internal controls that management and the Board have established;
iv)
all audit processes;
v)
compliance with laws, regulations and policies that may apply; and
vi)
areas of significant risk and management’s mitigation plan.
1.2
Primary responsibility for the financial reporting, information systems, risk management and internal controls of the Company is vested in management and is overseen by the Board.
2.
COMPOSITION AND OPERATIONS
2.1
The Committee shall be composed of not fewer than three directors.
2.2
All Committee members shall be financially literate.1
2.3
The Company’s auditors shall be advised of the names of the committee members and will receive notice of and be invited to attend Committee meetings, and to be heard at those meetings on matters relating to the auditor’s duties.
2.4
The Committee shall meet with the external auditors as it deems appropriate to consider any matter that the Committee or the auditors determine should be brought to the attention of the Board.
2.5
The Committee shall meet at least once per year, and at the call of the Chair. (Audit Committees at some companies meet quarterly to review the financial performance of the company in depth to provide a summary report to the Board.)
2.6
The Committee has access to the Company’s senior management and documents as required to fulfill its responsibilities and is provided with the resources necessary to carry out its responsibilities.
2.7
The CEO and CFO will ensure full support of the Company for the Committee’s activities.
3.

DUTIES AND RESPONSIBLITIES

Subject to the powers and duties of the Board, the Committee will perform the following duties:

3.1

Financial Statements and other Financial Information

i)
The Committee will review and recommend for approval to the Board financial information that will be made available to shareholders. This includes:
a)
review and approve the Company’s annual audited financial statements and report to the Board before the statements are approved by the Board; and
b)
review and recommend for approval of audited financial statements annually.
ii)
The Committee will review and discuss:
a)
the appropriateness of accounting policies and financial reporting practices;
b)
any significant proposed changes in financial reporting and accounting policies and practices to be adopted by the Company;
c)
any new or pending developments in accounting and reporting standards that may affect the Company; and
d)
management’s key estimates and judgments that may be material to financial reporting.
3.2

Internal Control and Information Systems

The Committee will review and obtain reasonable assurance that the internal control and information systems are operating effectively to produce accurate, appropriate and timely management and financial information. This includes:

i)
obtain reasonable assurance that the information systems are reliable and the systems of internal controls are properly designed and effectively implemented through discussions with and reports from management and the external auditor;
ii)
review management’s steps to implement and maintain appropriate internal control procedures including a review of significant financial policies;
iii)
review adequacy of security of information, information systems and recovery plans;
iv)
monitor compliance with statutory obligations; and
v)
review the adequacy of accounting and finance resources.
3.3

Risk

The Committee will review Management’s assessment of the material risks confronting the Company and their plan for mitigation. See related document Risk Assessment.

3.4

External Audit

The external auditor is ultimately responsible to the Committee and the Board of Directors as representatives of the shareholders. If the Board has approved the performance of an external audit, the Committee will review the planning and results of external audit activities and the ongoing relationship with the external auditor. This includes:

i)
review and recommend to the Board the engagement of the external auditor;
ii)
review the annual external audit plan, including but not limited to the following:
a)
engagement letter;
b)
objectives and scope of the external audit work;
c)
changes in independent accounting and auditing standards;
d)
materiality limit;
e)
areas of audit risk;
f)
staffing;
g)
timetable; and
h)
proposed fees.
iii)
meet with the external auditor to discuss the Company’s annual financial statements and the auditor’s report including the appropriateness of accounting policies and underlying estimates;
iv)
the auditor’s evaluation of the Company’s system of internal controls, procedures and documentation;
v)
the management letter containing any material findings or recommendation of the external auditor, including management’s response thereto and the subsequent follow-up to any identified internal control weaknesses;
vi)
any other matters the external auditor brings to the Committee’s attention;
vii)
assess the performance and consider the annual appointment of external auditors for recommendation to the Board;
viii)
review the non-audit services to be provided by the external auditor’s firm or its affiliates (including estimated fees), and consider the impact on the independence of the external audit; and
ix)
meet periodically, and at least annually, with the external auditor without management present.
3.5

Other

i)
review material litigation and its impact on financial reporting;
ii)
meet as required with the Company’s General Counsel to review outstanding legal issues relating to the Company;
iii)
retain the opportunity to undertake exit interviews with senior financial staff;
iv)
review expenses of the Board Chair and Company Officers annually; and
v)
review the terms of reference for the Committee annually and make recommendations to the Board as required.
4.

ACCOUNTABILITY

The Committee shall report its discussions to the Board by oral or written report at the next Board meeting.

5.

TIMETABLE

Q1 Q2 Q3 Q4
3.1 Financial Statements and other Financial Information
1. review and recommend:
a) annual audited financial statements checkmark
b) review and recommend approval of content of Annual Report checkmark
c) review and discuss current accounting policies and financial reporting practices checkmark
2. review and discuss management’s key estimates and judgments that may be material to the financial reporting. checkmark
3.2 – 3.3 Risk Management, Internal Control and Information Systems
1. review company risks and mitigation strategies checkmark
2. review internal control systems checkmark
3. review adequacy of accounting and finance resources. checkmark
3.4 External Audit
1. review & recommend engagement of external auditor checkmark
2. review external audit plan checkmark
3. meet with auditor to discuss:
a) annual financial statements checkmark
b) auditor’s report checkmark
4. review planning, conduct & reporting of annual audit and advise Board checkmark
5. review auditor’s evaluation of internal controls, procedures and documentation checkmark
6. review post audit or management letter and management’s response checkmark
7. assess external auditor performance and make recommendation to Board checkmark
8. meet with the external auditor without management present. checkmark
3.5 Other
i) review insurance coverage of significant business risks and uncertainties checkmark
ii) review material litigation and its impact on financial reporting checkmark
iii) review complaint procedures checkmark
iv) review policies and procedures for review and approval of officers’ expenses and perquisites checkmark
v) review expenses of Board Chair and CEO checkmark checkmark checkmark checkmark
vi) review Committee terms of reference and make recommendations to the Board. checkmark

1 “financial literacy” is the ability to read and understand a balance sheet, income statement and a cash flow statement in accordance with Canadian GAAP. “Accounting or financial experience” means the director shall have the ability to analyze and understand a full set of financial statements, including the notes attached thereto in accordance with Canadian GAAP.