I. AUDIT COMMITTEE PURPOSE
The audit committee (the “Committee”) is appointed by the board of directors (the “Board”) of the Corporation to assist the Board in fulfilling its oversight responsibilities of the Corporation. In so doing the Committee provides an avenue of communication among the independent auditor, management and the Board. The Committee’s primary duties and responsibilities are to gain reasonable assurance of the following:
• that the Corporation complies with the applicable laws, regulations, rules, policies and other requirements of governments, regulatory agencies and stock exchanges relating to financial reporting and disclosure;
• that management of the Corporation has assessed areas of potential significant financial risk to the Corporation and taken appropriate measures to manage such risk;
• the independence and satisfactory performance of duties by the Corporation’s independent auditor;
• that the accounting principles, significant judgments and disclosures that underlie or are incorporated in the Corporation’s financial statements are the most appropriate in the prevailing circumstances;
• that the Corporation’s quarterly and annual financial statements present fairly the Corporation’s financial position and performance in accordance with generally accepted accounting principles; and
• that appropriate information concerning the financial position and performance of the Corporation is disseminated to the public in a timely manner.
II. AUDIT COMMITTEE COMPOSITION
Audit Committee members shall meet the requirements of all applicable stock exchanges and securities commissions and any other agencies having jurisdiction, including at the present time the TSX Venture Exchange and the various Canadian Securities Regulators. The Committee shall be comprised of three or more directors as determined by the Board, each of whom shall be independent non-executive directors, free from any relationship that would interfere with the exercise of his or her independent judgment. All members of the Committee shall be financially literate, which entails a basic understanding of finance and accounting and be able to read and understand fundamental financial statements. At least one member of the Committee shall be designated to have financial expertise. Financial expertise means that such director has accounting or related financial management expertise through (i) education and experience as principal financial accounting officer, controller or auditor, (ii) experience actively supervising a principal financial accounting officer, controller or auditor, or (iii) experience overseeing or assessing the financial performance of companies or public accountants.
The Committee members shall be appointed by the Board. The Committee shall designate the Chair of the Committee annually from amongst its members.
III. RELIANCE ON EXPERTS
The Committee shall have the authority to engage independent counsel and other advisors as it determines necessary to carry out its duties and to set and pay the compensation for any advisors engaged by it. In so doing, each member of the Committee shall be entitled to rely in good faith upon:
(a) financial statements of the Corporation represented to him or her by an officer of the Corporation or in a written report of the independent auditor to present fairly the financial position of the Corporation in accordance with generally accepted accounting principles; and
(b) any report of a lawyer, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by any such person.
The Committee shall also have the authority to communicate directly with the independent auditor.
IV. REMUNERATION OF COMMITTEE MEMBERS
No member of the Committee may earn fees from the Corporation or any of its subsidiaries other than directors’ fees (which fees may include cash, options or other in-kind consideration ordinarily available to directors). For greater certainty, no member of the Committee shall accept any consulting, advisory or other compensatory fee from the Corporation.
V. LIMITATIONS ON COMMITTEE’S DUTIES
In contributing to the Committee’s discharging of its duties under this Charter, each member of the Committee shall be obliged only to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Nothing in this Charter is intended, or may be construed, to impose on any member of the Committee a standard of care or diligence that is in any way more onerous or extensive than the standard to which all Board members are subject.
VI. MEETINGS & OPERATING PROCEDURES
• The Committee shall meet at least four times annually, or more frequently as circumstances dictate.
• A quorum shall be a majority of the members.
• In the absence of the Chair of the Committee, the members shall appoint an acting Chair.
• A copy of the minutes of each meeting of the Committee shall be provided to each member of the Committee and to each director of the Corporation in a timely fashion.
• The Chair of the Committee shall prepare and/or approve an agenda in advance of each meeting.
• The Committee, in consultation with management and the independent auditor, shall develop and participate in a process for review of important financial topics that have the potential to impact the Corporation’s financial policies and disclosures.
• The Committee shall communicate its expectations to management and the independent auditor with respect to the nature, timing and extent of its information needs. The Committee expects that written materials will be received from management and the independent auditor in advance of meeting dates.
• The Committee should meet privately in executive session at least quarterly with (i) management, (ii) the independent auditor and (iii) as a committee to discuss any matters that the Committee or each of these groups believe should be discussed.
• In addition, the Committee should communicate with management and the independent auditor quarterly to review the Corporation’s financial statements and significant findings.
• The Committee shall annually review, discuss and assess its own performance. In addition, the Committee shall periodically review its role and responsibilities.
• The Committee expects that, in discharging its responsibilities to the shareholders, the independent auditor shall be accountable to the Board through the Committee. The independent auditor shall report all material issues or potentially material issues to the Committee.
VII. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
The Committee shall:
• Review and reassess the adequacy of this Charter at least annually, submit it to the Board for approval and ensure that it is in compliance with applicable regulations.
• Review the Corporation’s annual audited financial statements and the accompanying Management Discussion and Analysis prior to filing or distribution, and report its findings for approval to the Board. Review should include discussion with management and the independent auditor of significant issues regarding accounting principles, practices and judgments.
• Review the Corporation’s quarterly unaudited financial statements and the accompanying Management Discussion and Analysis prior to filing or distribution, and approve such documents for distribution. Review should include discussion with management and the independent auditor of significant issues regarding accounting principles, practices and judgments.
• Review and approve, or, in the case of annual financial statements, recommend approval to the Board of news releases and reports to shareholders issued by the Corporation with respect to the Corporation’s annual and quarterly financial statements and any other relevant financial matters.
• Ensure that adequate procedures are in place for the review of the Corporation’s disclosure of financial information extracted or derived from the Corporation’s financial statements, other than the disclosure stated above, and periodically assess the adequacy of the those procedures.
• In consultation with management and the independent auditor, consider the integrity of the Corporation’s financial reporting processes and controls. Discuss with them significant financial risk exposures and the steps management has taken to monitor, control, and report such exposures. Review significant findings prepared by the independent auditor together with management’s responses.
• Review with management and the independent auditor the management certifications of the financial statements as required by Multilateral Instrument 52-109 – Certification of Disclosure In Companies’ Annual and Interim Filings.
• Review with management and the independent auditor the appropriateness of the Corporation’s accounting policies, disclosures, reserves, key estimates and judgments, including changes or alternatives thereto and to obtain reasonable assurance from each that they are in compliance with GAAP, and report thereon to the Board.
• Review the following with management with the objective of obtaining reasonable assurance that financial risk is being effectively managed and controlled:
i. management’s tolerance for financial risks;
ii. management’s assessment of significant financial risks facing the Corporation;
iii. the Corporation’s policies, plans, processes and any proposed changes to those policies for controlling significant financial risks;
• On at least an annual basis, review with the Corporation’s counsel, (i) any legal matters that could have a significant impact on the organization’s financial statements, the Corporation’s compliance with applicable laws and regulations, and (ii) any inquiries received from regulators or governmental agencies.
The independent auditor is ultimately accountable to the Committee and the Board. The Committee shall:
• Review the independence and performance of the auditor and annually recommend to the Board the appointment of the independent auditor or approve any discharge of auditor when circumstances warrant.
• Assume direct responsibility for overseeing the work of the independent auditor engaged to prepare or issue an audit report or perform other audit, review or attest services for the Corporation, including the resolution of disagreements between management and the independent auditor regarding financial reporting.
• Evaluate and recommend to the Board the independent auditor to be nominated to prepare or issue an audit report or perform other audit, review or attest services for the Corporation, and the compensation of the independent auditor.
• Pre-approve all non-audit services to be provided to the Corporation or its subsidiary entities by its independent auditor. Authority to pre-approve non-audit services may be delegated to the Chair of the Committee, provided that the pre-approval is presented to the full Committee at its first scheduled meeting following such pre-approval.
• On an annual basis, review and discuss with the independent auditor all significant relationships they have with the Corporation that could impair the auditor’s independence.
• Review the independent auditor’s audit plan, discuss scope, staffing, locations, reliance upon management and internal audit and general audit approach.
• Prior to releasing the year-end earnings, discuss the results of the audit with the independent auditor. Discuss certain matters required to be communicated to audit committees.
• Consider the independent auditor’s judgments about the quality and appropriateness of the Corporation’s accounting principles as applied in its financial reporting.
• Review the results of independent audits and any change in accounting practices or policies and their impact on the financial statements.
• Where there are unsettled issues raised by the independent auditor that do not have a material effect on the annual audited financial statements, require that there be a written response identifying a course of action that would lead to their resolution.
The Committee shall:
• Establish procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters.
• Review and approve the Corporation’s hiring policies regarding employees and former employees of the present and former independent auditor of the Corporation.
• Review, through its Chair, the travel and entertainment expenses of the President and Chief Executive Officer.
• If management solicits proxies from the Corporation’s security holders for the purpose of electing directors to the Corporation’s Board, ensure that the management information circular contains the prescribed disclosure regarding the Committee, and if the Corporation prepares an annual information form, that such annual information form contains the prescribed disclosure regarding the Committee.
• Review and recommend to the Board for approval all non-arm’s length transactions involving the Corporation and any director, officer, employee, representative or significant security holder.