Audit Committee Charter
I. Purpose and Scope
The Audit Committee will assist the Board of Directors (the "Board") of Torotel Inc. in the oversight of the quality and integrity of the accounting, auditing, financial reporting and internal control practices of Torotel Inc. and its subsidiaries. The Committee's role includes, without limitation, assisting the Board in overseeing:
- the integrity of the accounting and financial reporting processes and systems of internal accounting and financial controls of Torotel Inc.;
- the performance of the internal audits and integrity of the financial statements of Torotel Inc.;
- the annual independent audit of Torotel Inc. financial statements, the engagement of the independent auditor and the annual evaluation of the independent auditor's function, qualifications, services, performance and independence;
- the performance of Torotel Inc. internal and independent audit functions;
- the compliance by Torotel Inc. with legal and regulatory requirements related to this Charter, including Torotel Inc. disclosure controls and procedures; and
- the evaluation of Torotel Inc. risk issues.
In carrying out its responsibilities, the Audit Committee believes that the policies and procedures delineated in this Charter should remain flexible, in order to react best to changing business and regulatory requirements.
II. Membership and Meetings
- Members. The Audit Committee will be composed of at least two directors who are not officers or employees of Torotel Inc. and are independent of management. The members of the Audit Committee must each be financially literate. In addition, Torotel Inc. must disclose, as required by the Securities and Exchange Commission, whether the Board has determined that there is at least one Audit Committee financial expert serving on the Audit Committee. The Board will judge the qualification and independence of directors for service on the Audit Committee and will appoint the members of the Audit Committee.
- Term of Members and Selection of Chair. The Board will appoint the members of the Audit Committee annually. The Committee members will also select the Chairman of the Audit Committee.
- Meetings. The Audit Committee will meet regularly to perform its duties, and is scheduled to meet four times a year. Such meetings may be held in person or telephonically and may be held at such times and places as the Audit Committee determines. The Audit Committee is to maintain free and open communication with the independent auditor, the internal auditors and management of Torotel Inc. In discharging this oversight role, the Audit Committee shall endeavor to investigate any matter brought to its attention, and shall have full access to all books, records, facilities and personnel of Torotel Inc. Torotel Inc. will provide appropriate funding, as determined by the Audit Committee, to pay the independent accountants, any outside advisors or experts hired by the Audit Committee, and any administration expenses of the Audit Committee. The Audit Committee may form and delegate authority to subcommittees when appropriate.
All meetings of and other actions by the Audit Committee shall be held or otherwise taken pursuant to Torotel Inc.'s bylaws. The chairman of the Audit Committee, in consultation with other Audit Committee members, shall determine the frequency and length of Audit Committee meetings and shall set meeting agendas consistent with this Charter.
- Performance and Evaluation. The Committee shall evaluate its performance on an annual basis based on criteria established by the Board.
III. Audit Committee Authority and Responsibility
- Discuss as appropriate with senior financial management and as necessary with the independent accountants, significant assumptions, estimates and judgment used in the preparation of consolidated financial statements.
- Review and discuss with management Torotel Inc.'s quarterly financial statement submission on Form 10-QSB, including the "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A"), prior to its release to the SEC. Review the financial section of the Torotel Inc. annual report on Form 10-KSB, including the MD&A, prior to its release to shareholders and filing with the SEC. Recommend to the Board of Directors that the audited financial statements be included in Torotel Inc.'s annual report on Form 10-KSB. As part of this review, discuss with senior financial management and the independent accountants the accounting principles as applied, their quality, and significant assumptions, estimates, and judgments used in the preparation of the consolidated financial statements. At least annually, discuss with management their approach to earnings press releases and the type of financial information and earnings guidance provided to analysts and rating agencies.
- Review any significant changes in accounting principles or developments in accounting practices and the effects of these changes upon Torotel Inc.'s financial reporting.
- On an annual basis (or more frequently, if necessary in the judgment of the Audit Committee), review a summary of the transactions between Torotel Inc. and any related parties, including but not limited to directors, officers or employees of Torotel Inc. or their affiliates.
- Prepare the Audit Committee report to be included in Torotel Inc.'s annual proxy statement.
Internal Audit Function and Process.
- Select the independent accountants and approve all related fees and compensation. Review that selection with the Board. Oversee the work of the independent accountant, including resolution of any disagreements between Torotel Inc. and the independent accountant regarding financial reporting.
- On an annual basis, review the audit and non-audit fees and services provided by the independent accountant. Approve Torotel Inc.'s proxy disclosure with respect to such fees and approve for the coming year the fees to be paid to the independent accountant including non-audit services.
- Review (at least annually and more often as necessary in the judgement of the Audit Committee) the independent accountant's independence, performance and qualifications, including review of the lead partner. Annually review the independent accountant's report of the relationships between the independent accountant and Torotel Inc. Discuss any relationships or services that may impact their objectivity and independence. Review the firm's internal quality control procedures and any material issues. Also review any inquiry by regulatory authorities regarding independent accounting by the firm. Recommend to the Board any appropriate actions in response to these reports.
- Review with the independent accountant any audit problems or difficulties and management's response. Conduct private review sessions at least annually with the independent accountant.
- Assess the effectiveness of the independent accountant audit. Review the scope of the independent accountant's proposed audit for the current year and review the annual audit report which is subsequently produced.
- Assess the effectiveness of the internal audit effort through regular meetings conducted separately with the independent accountant and internal auditors. Review the performance of Torotel Inc.'s internal auditors. Conduct private review sessions at least annually with the internal auditors.
- Review the scope of the internal audit plan for the current year and review the summary of the results. Discuss financial and accounting personnel succession planning within Torotel Inc., including the appointment and replacement of internal auditing resources.
- Review with the internal auditors the adequacy of the system of internal controls and the responsiveness of management in correcting audit-related deficiencies. Discuss policies regarding risk assessment and risk management.
Other Audit Committee Responsibilities.
- Review the Torotel Inc. Code of Conduct and management's system to monitor compliance with the Code of Conduct.
- Ensure compliance with the process for hiring employees of the independent accountant into significant Company positions.
- Oversee the adequacy of internal controls and procedures related to officers' expense accounts.
- Review litigation issues and any other risks or exposures as deemed appropriate by the Audit Committee.
- Report on the proceedings of the Audit Committee to the full Board promptly or at the next regularly scheduled meeting of the full Board.
- Reassess the adequacy of the Audit Committee Charter annually.
- Meet periodically in executive session to discuss Torotel Inc.'s financial results as reported in the quarterly and annual reports and hold other executive sessions as necessary, including a session for the annual evaluation of the Audit Committee's own performance.
- Obtain advice and assistance from outside legal, accounting or other advisors as required to assist in the execution of Audit Committee responsibilities. As necessary, conduct or authorize independent reviews.
- Maintain procedures for the receipt, retention, and treatment of complaints received by Torotel Inc. regarding accounting, internal accounting controls, or auditing matters; and for the confidential, anonymous submission by employees of Torotel Inc. of concerns regarding questionable accounting or auditing matters.