CHARTER FOR THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF KINDRED HEALTHCARE, INC.
Mission Statement
The Audit Committee (the "Committee") is appointed to assist the Board of Directors in monitoring (1) the adequacy of the Company’s system of internal controls, accounting policies, financial reporting practices, and the quality and integrity of the Company’s financial reporting; (2) the independent auditor’s qualifications and independence; and (3) the performance of the Company’s internal audit function and independent auditors.
Organization
The Audit Committee of the Board of Directors shall be comprised of at least three directors. Each member of the Committee shall meet the independence, experience and expertise requirements under applicable laws and regulations and the rules of the New York Stock Exchange or such other exchange upon which the Company’s securities are principally traded. The members of the Committee shall be appointed and removed by the Board.
The Board of Directors shall designate a Committee Chairperson. The Board of Directors also shall designate a financial expert for the Committee, which may or may not be the Committee Chairperson. The financial expert shall satisfy the independence, experience and expertise requirements under applicable laws and regulations and the rules of the New York Stock Exchange or such other exchange upon which the Company’s securities are principally traded.
The Committee shall meet at least four times annually and shall regularly report to the Board of Directors on its findings and matters within the scope of its responsibility. A quorum at any Committee meeting shall be at least two members. All determinations of the Committee shall be made by a majority of its members present at a meeting duly called and held, except as specifically provided herein (or where only two members are present, by unanimous vote). Any decision or determination of the Committee reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made at a meeting duly called and held. The Chairperson of the Committee shall be responsible for establishing the agendas for meetings of the Committee. An agenda, together with materials relating to the subject matter of each meeting, shall be sent to the members of the Committee prior to the meeting. The Committee shall maintain minutes of all its meetings to document its activities and recommendations. The Committee shall review and reassess this Charter at least annually or more frequently as conditions dictate and recommend changes it considers appropriate to the Board for approval. A copy of the current version of this Charter shall be posted on the Company's website. The Committee shall annually review its own performance.
Committee Authority and Responsibilities
- The Committee shall have the authority to retain and terminate any outside consultant, advisor or counsel it deems necessary to discharge its responsibilities and shall have sole authority to approve the fees and other retention terms of such consultant, advisor or counsel. In discharging its responsibilities, the Committee shall have full access to any relevant records of the Company. The Committee also may request that any officer or other employee of the Company, the Company’s outside counsel or any other person meet with any members of, or consultants, advisors or counsel to, the Committee.
Engagement and Relationships with Auditors
- The Committee shall have the sole authority to appoint, evaluate and
replace the independent auditors of the Company and its subsidiaries.
The Committee shall have the sole authority to pre-approve all audit engagement
fees and terms and pre-approve all permissible non-audit engagements with
the independent auditors. The Committee shall consult with management
but shall not delegate these responsibilities, except that the Committee
may delegate to one or more members of the Committee who are independent
directors the pre-approval of audit engagements and permissible non-audit
services, and any pre-approval by such member or members shall be presented
to the Committee at each of its scheduled meetings.
- Communicate to the independent auditors that they are ultimately accountable
to the Audit Committee, as the shareholders’ representatives, who
have the ultimate authority in deciding to engage, evaluate, and if appropriate,
terminate their services.
- Meet with the independent auditors and financial management of the Company
to review the scope of the proposed audit and timely quarterly reviews
for the current year and the procedures to be utilized and review such
audit or review, including any comments or recommendations of the independent
auditors.
- Review any known significant disputes between management and the independent
auditors concerning financial reporting matters, as well as management’s
responses to those disputes. The Committee shall have the authority to
resolve any such disputes.
- On an annual basis, obtain from the independent auditors a written communication
delineating all of their relationships and professional services as required
by Independence Standards Board Standard No. 1, “Independence Discussions
with Audit Committees.” In addition, review with the independent
auditors the nature and scope of any disclosed relationships or professional
services and take, or recommend that the Board of Directors take, appropriate
action to ensure the continuing independence of the auditors.
- At least annually, obtain and review a report by the independent auditors
describing the independent auditors’ quality control procedures,
issues raised by their most recent internal quality control reviews, or
peer review, or by any inquiry or investigation by governmental or professional
authorities, within the preceding five years, in respect of one or more
independent audits performed by the independent auditors and any steps
taken to deal with any such issues, and review and evaluate the lead partner
of the independent auditor.
- Ensure that the independent audit firm’s primary or reviewing
partner on the Company’s audit engagement is rotated every five
years as required by the Sarbanes-Oxley Act.
- Recommend to the Board policies for the Company’s hiring of
employees and former employees of the independent auditors who were
engaged on the Company’s account. The Committee must ensure that
these practices are within the rules established by the Sarbanes-Oxley
Act.
- Review and, concur with or reject, management’s appointment, termination,
or replacement of the Vice President of Internal Audit.
- Review the internal audit function of the Company including the experience
and qualification of the senior members of the internal audit department,
the quality control procedures of the internal auditors, the independence
and authority of the internal audit function’s reporting obligations,
the proposed internal audit plans for the coming year, and the coordination
of such plans with the independent auditors.
- Review the significant reports from completed internal audits as well
as management’s responses.
- Receive prior to each meeting, a progress report on the proposed internal
audit plan, with explanations for any deviations from the original plan.
- Review and approve annually, the internal audit plan and the budget for the internal audit department, providing input or recommendations regarding areas of risk, internal controls or other concerns. The internal audit plan should address fraud risk and a mechanism to ensure that internal audit can express concerns about management’s commitment to appropriate internal controls, or to report suspicions or allegations of fraud as required by Statement of Auditing Standards No. 99.
Financial Reporting
- Review the quarterly financial statements with financial management
and the independent auditors, including disclosures made in the management’s
discussion and analysis section, prior to the filing of the Form 10-Q
(or prior to the press release of results, if possible) to determine that
the independent auditors do not take exception to the disclosure and content
of the financial statements, and discuss any other matters required to
be communicated to the Committee by the independent auditors. The Committee
also shall discuss the results of the independent auditors’ review
of the Company’s quarterly financial information conducted in accordance
with Statement of Auditing Standards No. 71.
- Review the audited financial statements to be contained in the annual
report to shareholders with management and the independent auditors, including
disclosures made in the management’s discussion and analysis section,
to determine that the independent auditors are satisfied with the disclosure
and content of the financial statements to be presented to the shareholders.
Any changes in accounting principles should be reviewed. The Committee
shall recommend to the Board whether the audited financial statements
should be included in the Company’s Form 10-K.
- Discuss with financial management and the independent auditors the quality
of the accounting principles and judgments used in preparing the financial
statements, including the Company’s selection or application of,
or changes in, accounting principles, any major issues as to the adequacy
of the Company’s internal controls, the development, selection and
disclosure of critical accounting estimates, and analysis of the effect
of alternative assumptions, estimates or GAAP methods on the Company’s
financial statements, and material written communications between the
management and independent auditors such as management letters and schedule
of unadjusted differences.
- Assess the risk of financial fraud by management and ensure that controls
are in place to prevent, deter and detect fraud by management as required
by Statement of Auditing Standards No. 99. The assessment should include
a periodic and systematic review of internal controls over financial reporting
established by management. The assessment should include, but is not limited
to, management’s antifraud programs and controls, potential for
management override of those controls, and mechanisms for employees to
report concerns.
- Discuss with management the Company’s earnings press releases,
including the use of “pro forma” or “adjusted”
non-GAAP information, as well as financial information and earnings guidance
provided to analysts and rating agencies.
- Review in separate meetings with the Company’s independent auditors,
internal auditors, and management, the adequacy and effectiveness of the
accounting and financial controls of the Company, and elicit any recommendations
for the improvement of such internal control procedures or particular
areas where new or more detailed controls or procedures are desirable.
The Committee should review whether recommendations made have been implemented
by management. The Committee also shall review any fraud involving persons
having a significant role in the internal controls.
- Establish and maintain procedures for (i) the receipt, retention and
treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters; and (ii) the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
- Review with the Compliance Officer or Vice President of Internal Audit,
the types of issues regarding accounting, internal controls or auditing
matters, reported to the Company through its compliance hotline and the
results of any internal investigations initiated by the Company in response
to compliance issues reported through the hotline or otherwise brought
to the Company’s attention.
- Inquire of management, the Compliance Officer, the internal auditor,
and the independent auditors about significant risks or exposures (whether
financial, operational or otherwise) and assess the steps management has
taken to control such risks or exposure.
- Discuss with the independent auditors the matters required to be discussed
by Statement of Auditing Standards No. 61, as amended from time to time,
relating to the conduct of the audit.
- Obtain from the independent auditors their report on compliance under
Section 10A of the Securities Exchange Act of 1934, as amended.
- At least twice each year, the members of the Committee should meet with
the Compliance Officer and internal and independent auditors without members
of management present. Among the items to be discussed in these meetings
are the independent auditors’ evaluation of the Company’s
financial, accounting, and auditing personnel, the cooperation that the
independent and internal auditors received during the course of their
audits, any audit problems or difficulties and management’s response,
including any restrictions placed on the scope of audit work or access
to requested information, and any accounting adjustments that were noted
or proposed by the auditors but were not made due to immateriality or
otherwise.
- Prepare a report of the Audit Committee as required to be included in
the Company’s proxy statement.
- Report the results of the annual audit to the Board of Directors. If the Committee considers it advisable or if requested by the Board of Directors, invite the independent auditors to attend the full Board of Directors 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).
Other Responsibilities
- Review and approve on an on-going basis the Company’s transactions
with directors and officers of the Company and with firms that employ
directors, as well as any other related party transactions required to
be disclosed under applicable SEC rules. The Committee generally evaluates
each related person transaction involving a director or officer for the
purpose of determining whether to recommend to the disinterested members
of the Board of Directors that the transactions are fair, reasonable and
within Company policy, and whether they should be ratified and approved
by the Board of Directors. The Committee generally considers each related
person transaction in light of all relevant factors and the controls implemented
to protect the interests of the Company and its shareholders, including
the benefits of the transaction to the Company, the terms of the transaction
and whether the terms have been negotiated at arm’s-length and in
the ordinary course of the Company’s business, the direct or indirect
nature of the related person’s interest in the transaction, the
amount involved and the expected term of the transaction, and other facts
and circumstances that bear on the materiality of the related person transaction
under applicable law and listing standards.
- Review with the Company’s General Counsel legal matters that may
have a material impact on the Company’s financial statements and
any material inquiries or reports from regulators or governmental agencies.
- Review the adequacy of the Company’s system of internal controls,
accounting policies, financial reporting practices, and the quality and
integrity of financial reporting to Federal health care programs.
- Review any known significant disputes between management and the Company’s
internal or independent auditors concerning matters of regulatory or
corporate compliance, as well as management’s responses to those
disputes.
- Carry out such other duties that may be delegated to it by the Board of Directors from time to time or as may be required by law.
Limitation on Committee’s Responsibilities
While the Committee has the responsibility 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 and disclosures
are complete and accurate and are in accordance with generally accepted
accounting principles and applicable rules and regulations. These are
the responsibilities of management and the independent auditors. Management
is responsible for the financial statements and the underlying financial
reporting processes, including the system of internal controls. The independent
auditor is responsible for auditing the Company's financial statements,
expressing an opinion on the conformity of such audited consolidated financial
statements with generally accepted accounting principles and expressing
an opinion on the effectiveness of the Company's internal control over
financial reporting. In addition, the Committee has the responsibility
to interact with the independent auditors but it is not responsible for
the audits performed by the independent auditors.
