Audit Committee Charter
This charter governs the operations of the Audit Committee (the "Committee") of the Board of Directors of Neutral Tandem, Inc. (the "Company"). The Committee shall consist of at least three directors. The Committee shall review and reassess this charter at least annually and obtain the Board's approval of any changes to the charter. Members of the Committee shall be members of, and appointed by, the Board. In addition, all members of the Committee shall be "independent" within the meaning of the applicable listing rules of The Nasdaq Stock Market ("Nasdaq"), Section 10.A-3 of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission ("SEC"), as determined by the Board.
Each member of the Committee shall satisfy Nasdaq financial literacy requirements, as determined by the Board, or must become financially literate within a reasonable period of time after appointment, and at least one member of the Committee shall have accounting or related financial management expertise and be deemed an "audit committee financial expert," in compliance with the criteria established by the SEC. The existence of such member shall be disclosed in periodic filings as required by the SEC. No member of the Committee may serve on the audit committee of more than three public companies, including the Company, unless the Board determines that such concurrent service would not impair the ability of such member to effectively serve on the Committee and discloses such determination in the Company's annual proxy statement.
The Committee shall meet at least four times annually, or more frequently as circumstances dictate. To foster open communication, the Committee should meet at least annually with management, the independent auditor, and, if established, the internal audit staff, in separate sessions. All meetings shall be at the call of the Chairman of the Committee. A majority of the members of the Committee shall constitute a quorum for the transaction of business. The Committee may act only upon approval of a majority of its members. The action of the Committee at a meeting at which a quorum is present shall be the act of the Committee. The Committee may act in writing by the unanimous consent of its members.
Committee members will hold their offices until their successors are appointed and qualified, or until their earlier resignation or removal. All vacancies in the Committee will be filled by the Board. The Board will designate one of the members as Chairman of the Committee, and the Committee will keep a separate book of minutes of their proceedings and actions. The Committee may form one or more subcommittees, each of which may take such actions as may be delegated by the Committee; provided that the Committee may not delegate to a subcommittee any power or authority required by any law, regulation or stock exchange listing standard to be exercised by the Committee as a whole. The Committee will periodically report on its activities to the Board and make such recommendations and findings as it deems appropriate. Committee members may not accept any compensation from the Company either directly or indirectly other than compensation as a Board member or a member of any Board committee.
The Committee will provide assistance to the Board in fulfilling its oversight responsibility relating to:
- the integrity of the Company's financial statements and its financial reporting process;
- the systems of internal accounting and financial controls;
- the performance of the Company's independent auditor and, if established, the internal audit function;
- the independent auditor's qualifications and independence; and
- the Company's compliance with legal and regulatory requirements.
The Committee will also prepare the report that SEC rules require to be included in the Company's annual proxy statement. In so doing, it is the responsibility of the Committee to maintain free and open communication with the Board, the independent auditor and management of the Company.
In discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities, personnel of the Company and the independent auditor and, in its sole discretion and at the Company's expense, may retain and terminate independent counsel and other advisers as it determines necessary to carry out its duties. The Committee, in its discretion, may also require that any officer or employee of the Company, or the Company's outside counsel or independent auditor, attend a meeting of the Committee or meet with any members of, or advisors to, the Committee and provide pertinent information as necessary.
The primary responsibility of the Committee is to oversee the Company's financial reporting process on behalf of the Board and report the results of its activities to the Board. While the Committee has the responsibilities and powers set forth in this charter, it is not the duty of the 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. Management is responsible for the preparation, presentation and integrity of the Company's financial statements and for the appropriateness of the accounting principles and reporting policies that are used by the Company. The independent auditor is responsible for auditing the Company's financial statements and for reviewing the Company's unaudited interim financial statements.
The Committee, in carrying out its responsibilities, believes its policies and procedures should remain flexible, in order to best react to changing conditions and circumstances. The following shall be the principal duties and responsibilities of the Committee. These policies and procedures are set forth as a guide with the understanding that the Committee may supplement them as appropriate; they are not intended by themselves to establish any legally binding obligations.
- The Committee shall be directly responsible for the appointment, retention and termination (subject, if applicable, to stockholder ratification), compensation, and oversight of the independent auditor, including resolution of disagreements between management and the auditor regarding financial reporting, and receiving the report of the independent auditor.
- The Committee shall ensure the rotation of the lead audit partner as required by law.
- The Committee shall pre approve all audit and non audit services provided by the independent auditor and shall not engage the independent auditor to perform the specific non audit services prohibited by law or regulation. Alternatively, the Committee may adopt pre approval policies and procedures detailed as to particular services and delegate pre approval authority to a member of the Committee. The decisions of any Committee member to whom pre approval authority is delegated must be presented to the full Committee at its next scheduled meeting.
At least annually, the Committee shall obtain and review a report by the independent auditor 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.
- All relationships between the independent auditor and the Company (to assess the auditor's independence).
- The Committee shall ensure that hiring policies for employees or former employees of the independent auditor meet SEC regulations and stock exchange listing standards.
- The Committee shall review and concur with management's decisions regarding the establishment of an internal audit function, as well as any resulting appointment, termination or replacement of the director of internal audit.
- The Committee shall discuss with the independent auditor (and, if an internal audit function is established, the internal auditor) the overall scope and plans for their respective audits, including the adequacy of staffing and compensation. Also, the Committee shall discuss with management, the independent auditor and the internal auditors (if such function is established), the adequacy and effectiveness of the accounting and financial controls, including the Company's policies and procedures to assess, monitor, and manage business risk, and legal and ethical compliance programs.
- Periodically, the Committee shall meet separately with management, the independent auditor and any internal auditor to discuss issues and concerns warranting Committee attention, including significant risks to the Company and the steps management has taken to minimize such risks. The Committee shall provide sufficient opportunity for the internal auditors and the independent auditor to meet privately with the members of the Committee. The Committee shall review with the independent auditor any audit problems or difficulties and management's response.
- If established, the Committee shall review the internal audit function of the Company, including the independence and authority of its reporting obligations, the proposed audit plans for the coming year, and the coordination of such plans with the independent auditor. 10. The Committee shall receive regular reports from the independent auditor on the accounting and financial disclosure policies and practices of the Company, and all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management.
- The Committee shall review management's assertion on its assessment of the effectiveness of internal controls as of the end of the most recent fiscal year and the independent auditor's report on management's assertion (if the preparation of such report is required by applicable law).
- The Committee shall discuss with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, including any difficulties encountered in the course of the audit work, any restrictions on the scope of activities or access to requested information and any significant disagreements with management.
- The Committee shall discuss the types of information to be disclosed and types of presentations to be made in earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies, including the use of "pro forma" or "adjusted" non-GAAP information. The Committee need not discuss in advance each release or each instance of guidance.
- The Committee shall review and discuss policies with respect to risk assessment and risk management.
- The Committee shall discuss the interim financial statements and disclosures under Management's Discussion and Analysis of Financial Condition and Results of Operations with management and the independent auditor prior to the filing of the Company's Quarterly Report on Form 10 Q. Also, the Committee shall discuss the results of the quarterly review and any other matters required to be communicated to the Committee by the independent auditor under generally accepted auditing standards.
- The Committee shall discuss with management and the independent auditor the financial statements and disclosures under Management's Discussion and Analysis of Financial Condition and Results of Operations to be included in the Company's Annual Report on Form 10 K (or the annual report to stockholders if distributed prior to the filing of Form 10 K), including their judgment about the quality, not just the acceptability, of accounting principles, the reasonableness of significant judgments, and the clarity of the disclosures in the financial statements. Also, the Committee shall discuss the results of the annual audit and any other matters required to be communicated to the Committee by the independent auditor under generally accepted auditing standards.
- The Committee shall regularly report to the Board, including the results of the annual audit, and review with the full Board any issues that arise with respect to the quality or integrity of the Company's financial statements, the Company's compliance with legal or regulatory requirements and the performance and independence of any internal audit function established by the Company. If requested by the Board, the Committee shall invite the independent auditor to attend the full Board meeting to assist in reporting the results of the annual audit or to answer other directors' questions (alternatively, the other directors, particularly the other independent directors, may be invited to attend the Committee meeting during which the results of the annual audit are reviewed).
- The Committee shall establish procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
- The Committee shall receive and review reports of attorneys or others with respect to evidence of material violations of securities laws or breaches of fiduciary duty.
- The Committee shall submit the minutes of all meetings of the Committee to, or discuss the matters discussed at each Committee meeting with, the Board.
- The Committee shall prepare its report to be included in the Company's annual proxy statement, as required by SEC regulations.
- The Committee shall review the Company's disclosure in the proxy statement for its annual meeting of stockholders that describes whether the Committee has satisfied its responsibilities under this charter for the prior year.
- The Committee shall perform an evaluation of its performance at least annually to determine whether it is functioning effectively.
- The Committee shall carry out those responsibilities assigned to it under the Company's Policies and Procedures for Approving Related Party Transactions.
This charter does not change or augment the obligations of the Company or its directors or management under the federal securities laws, or rules and regulations of the applicable stock exchange on which the Company's securities are then listed, or create new standards for determining whether directors or management have fulfilled their duties, including fiduciary duties, under applicable law.
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