Statement of Purpose
The Audit Committee (the “Committee”) shall assist the Board of Directors Whiting Petroleum Corporation (the “Company”) in oversight of (a) the integrity of the Company’s financial statements, (b) the independent auditors’ qualifications, independence and performance, (c) the performance of the Company’s internal audit function and (d) the Company’s compliance with legal and regulatory requirements.
The Committee is also responsible for preparing the audit committee report required by the rules of the Securities and Exchange Commission (the “SEC”) to be included in the Company’s proxy statement for its annual meeting of stockholders.
Committee Membership and Qualifications
Subject to applicable transition periods, the Committee shall consist of at least three members of the Board of Directors. The members of the Committee shall meet the independence and experience requirements of the New York Stock Exchange and the SEC. The Company will endeavor to have at least one member of the Committee that qualifies as an “audit committee financial expert” as defined by the SEC. Members of the Committee shall not simultaneously serve on audit committees of more than two other public companies without the prior consent of the Board of Directors.
Appointment and Removal of Committee Members
The members of the Committee shall be appointed by the Board of Directors annually or as necessary to fill vacancies upon the recommendation of the Nominating and Governance Committee. Each member shall serve until his or her successor is duly elected and qualified or until such member’s earlier resignation or removal. Any member of the Committee may be removed, with or without cause, by a majority vote of the Board of Directors.
The Chairperson of the Committee shall be appointed by the Board of Directors upon recommendation of the Nominating and Governance Committee and in consultation with the Chairman of the Board of Directors. The Chairperson will chair all regular sessions of the Committee and, in consultation with the Chief Financial Officer, set the agenda for Committee meetings.
The Committee shall meet at least four times per year, or more frequently as circumstances dictate. Any member of the Committee may call meetings of the Committee.
The Committee shall meet regularly in executive session, without Company management present. The Committee shall also meet separately, periodically, with management, the internal auditor and the independent auditors. The Committee may invite to its meetings any officer, employee or director of the Company and such other persons as it deems appropriate in order to carry out its responsibilities.
Responsibilities and Duties
The Committee shall be directly responsible for the appointment, retention, compensation, evaluation and termination of the Company’s independent auditors. The Committee shall have the sole authority to approve all audit and permitted non-audit engagement fees and terms. The Committee shall be directly responsible for oversight of the work of the independent auditors (including resolution of disagreements between management and the independent auditors) for the purpose of preparing or issuing an audit report or related work. The independent auditors shall report directly to the Committee.
The Committee shall preapprove all auditing services and permitted non-audit services to be performed for the Company by its independent auditors, subject to the de minimus exceptions for non-audit services. The Committee may delegate authority to grant preapprovals of audit and permitted non-audit services to one or more of its members, provided that decisions of such member or members to grant preapprovals shall be presented to the full Committee at its next scheduled meeting.
The Committee shall obtain, to the extent it deems necessary or appropriate, advice and assistance from outside legal, accounting or other advisors. The Committee shall have the authority to retain and compensate independent legal, accounting or other advisors without seeking approval of the Board of Directors. The Company shall provide for appropriate funding, as determined by the Committee, for payment of compensation to the independent auditors for the purpose of rendering or issuing an audit report and any advisors employed by the Committee and for administrative expenses of the Committee that are necessary in carrying out its duties.
In carrying out these responsibilities and duties, the Committee will:
- Review and reassess the adequacy of this Charter at least annually in consultation with the Nominating and Governance Committee. Submit the Charter to the Board of Directors for approval and have the Charter published in accordance with applicable rules and regulations.
- Review and discuss with management and the independent auditors the Company’s annual audited financial statements and the independent auditors’ report thereon, including disclosures made in management’s discussion and analysis, contained in the Company’s Form 10-K and annual report to stockholders prior to the filing or distribution thereof. As part of the review process, the Committee will recommend to the Board of Directors whether the audited financial statements should be included in the Company’s Form 10-K.
- Review and discuss with management quarterly and annual earnings news releases, including a review of non-GAAP information and guidance.
- Review and discuss with management and the independent auditors the Company’s Form 10-Qs, including disclosures made in management’s discussion and analysis as well as the results of the independent auditors’ review of the quarterly financial statements. As part of the review process, the Committee will recommend to the Board of Directors whether the unaudited financial statements should be included in the Company’s Form 10-Q.
- In consultation with the management, the independent auditors and the internal auditors, consider the integrity of the Company’s financial reporting processes and internal controls. Discuss significant financial risk exposures and the steps management has taken to monitor, control and report such exposures, including the Company’s risk assessment and risk management policies. Review significant findings prepared by the independent auditors and the internal auditor together with management’s responses.
- Review and discuss with management and the independent auditors (a) major issues regarding accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles, any major issues as to the adequacy of the Company’s internal controls and any special steps adopted in light of material control deficiencies; and (b) analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including analyses of the effects of alternative generally accepted accounting principles methods on the financial statements.
- Review and discuss quarterly reports from the independent auditors on:
- All critical accounting policies and practices to be used.
- All alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditors.
- Other material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences.
- Review and discuss with management and the independent auditors the effect of accounting and regulatory initiatives as well as off-balance sheet arrangements, if any, on the Company’s financial statements.
- Discuss with the independent auditors matters related to requirements of the Public Company Accounting Oversight Board and the SEC regarding conduct of the audit, including difficulties or problems encountered in the course of the audit work and management’s response thereto, any restrictions on the scope of activities or access to requested information, and any significant disagreements with management.
- Review disclosures made to the Committee by the Company’s Chief Executive Officer and Chief Financial Officer during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting or any fraud, whether or not material, involving management or other employees who have a significant role in the Company’s internal control over financial reporting.
- At least annually, review management’s processes for ensuring adequacy of the Company’s disclosure controls and procedures and internal control over financial reporting.
- Obtain and review the independent auditors’ annual attestation report on management’s assessment of the Company’s internal control over financial reporting.
- Hold discussions with management regarding the Company’s information systems and cybersecurity risks, including steps taken to identify, monitor and control such risks.
- Review the performance of the independent auditors, including an evaluation of the lead audit partner.
- Approve all audit engagement fees and terms and other significant compensation to be paid to the independent auditors.
- On an annual basis, review and discuss with the independent auditors all significant relationships they have with the Company that could impair the auditors’ independence.
- Review the independent auditors’ audit plan prior to the commencement of the audit and discuss audit scope, staffing, locations, reliance upon management, and internal audit and general audit approach.
- Consider the independent auditors’ judgments about the quality and appropriateness of the Company’s accounting principles as applied in its financial reporting.
- Obtain and review a report from the independent auditors at least annually regarding (a) the independent auditors’ internal quality-control procedures, (b) 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, (c) any steps taken to deal with any such issues, and (d) all relationships between the independent auditors and the Company. Evaluate the qualifications, performance and independence of the independent auditors, including considering whether the auditors’ quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditors’ independence, and taking into account the opinions of management and the internal auditors.
- Ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law.
- Set clear policies for the hiring by the Company of employees or former employees of the independent auditors who participated in any capacity in the audit of the Company.
Internal Audit Function
- Review and approve the internal audit function of the Company, including independence and the proposed audit plans for the coming year.
- Review the annual budget, any changes in plan, activities, organizational structure, and qualifications of the internal audit function.
- Review the appointment, performance, replacement, reassignment or dismissal of the internal audit manager.
- Review significant reports prepared by the internal audit function together with management’s response and follow up to these reports.
- Review with the Company’s General Counsel any legal matters that could have a material impact on the Company’s financial statements and the Company’s compliance with applicable laws and regulations, risks related to litigation, and inquiries received from regulators or governmental agencies.
- Advise the Board of Directors with respect to the Company’s policies and procedures regarding compliance with applicable laws and regulations and the Company’s codes of business conduct and ethics.
- Establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
- In connection with the audit of the Company’s annual financial statements, obtain from the independent auditors assurance that the independent auditors have not detected or otherwise become aware of information indicating that an illegal act has or may have occurred in accordance with Section 10A(b) of the Securities Exchange Act of 1934.
Other Committee Responsibilities
- Report regularly to the Board of Directors (i) following meetings of the Committee, (ii) other matters relevant to the Committee’s discharge of its responsibilities and (iii) recommendations the Committee may deem appropriate. The report to the Board of Directors may take the form of an oral report by the Committee’s Chairperson or any other member of the Committee designated by the Committee to make such report.
- Maintain minutes or other records of meetings and activities of the Committee.
Annual Performance Evaluation
The Committee shall perform a review and evaluation, at least annually, of the performance of the Committee and compliance of the Committee with this Charter.
Limitation of Committee’s Role
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 and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable laws and regulations.