- Michael Alexander
- W. Greg Dunlevy
- Graham Morris
Audit Committee Charter VANGUARD NATURAL RESOURCES, INC. AUDIT COMMITTEE CHARTER This Audit Committee Charter (this “Charter”) was adopted by the Board of Directors (the “Board”) of Vanguard Natural Resources, Inc. (the “Company”) on August 9, 2017. I. PURPOSE The Audit Committee (the “Committee”) shall assist the Board in fulfilling its responsibility to oversee management regarding: (i) the conduct and integrity of the Company’s financial reporting to any governmental or regulatory body, the public or other users thereof; (ii) the Company’s systems of internal accounting and financial and disclosure controls; (iii) the qualifications, engagement, compensation, independence and performance of the Company’s independent auditors, their conduct of the annual audit, and their engagement for any other services; (iv) the Company’s legal and regulatory compliance; and (v) the Company’s codes of ethics as established by management and the Board. In discharging its oversight role, the Committee is authorized: (i) to investigate any matter that the Committee deems appropriate, with access to all books, records, facilities and personnel of the Company; and (ii) to retain independent counsel, auditors or other experts, with adequate funding provided by the Company. II. COMMITTEE MEMBERSHIP The Committee shall consist of three or more members of the Board. To the extent applicable as determined by the Company’s position as a private or publicly held entity, its registrant status with the Securities and Exchange Commission (the “SEC”) or other regulatory body, or its listing status on any securities exchange, the membership of the Committee shall satisfy any and all independence and experience requirements, applicable pursuant to law, SEC rules, the requirements of any stock exchange on which securities of the Company are listed, or otherwise. At least one member shall have accounting or related financial management expertise as determined by the Board. At least one member of the Committee shall be an “audit committee financial expert” as such term is defined under applicable SEC rules. A person who satisfies this definition of audit committee financial expert will also be presumed to have accounting or related financial management expertise. The members of the Committee shall be appointed by the Board based on recommendations from the nominating and corporate governance committee of the Board or, if no such committee exists, the Board itself. The members of the Committee shall serve for such term or terms as the Board may determine or until such member’s earlier resignation or death. The Board may remove any member from the Committee at any time with or without cause, by resolution of the Board. It is not the intent of this Charter to subject individual members of this Committee to any increased exposure to liabilities in excess of those generally imposed on members of the Board under applicable laws. III. COMMITTEE MEETINGS The Board shall designate a member of the Committee as chairperson. The Committee shall meet on a regularly-scheduled basis at least four times per year or more frequently as circumstances dictate. The Committee shall meet at least quarterly with the internal auditor (who may be an outside provider of such services) and the independent auditor in separate executive sessions to provide the opportunity for full and frank discussion without members of senior management present. Unless the Committee or the Board adopts other procedures, the provisions of the Company’s Bylaws, as amended, applicable to meetings of Board committees (or if no such provisions exist, the provisions thereof applicable to meetings of the Board) will govern meetings of the Committee. IV. KEY RESPONSIBILITIES The Committee’s role is one of oversight. The Company’s management is responsible for preparing the Company’s financial statements and the independent auditors are responsible for auditing those financial statements. The Committee recognizes that Company management including the internal audit staff, or outside provider of such services, and the independent auditors have more time, knowledge and detailed information about the Company than do Committee members. Consequently, in carrying out its oversight responsibilities, the Committee is not providing any expert or special assurance as to the Company’s financial statements or any professional certification as to the independent auditor’s work. The following responsibilities are set forth as a guide with the understanding that the Committee may diverge as appropriate given the circumstances. The Committee is authorized to carry out these and such other responsibilities assigned by the Board from time to time, and take any actions reasonably related to the mandate of this Charter. To fulfill its purpose, the Committee shall:
A. Independent Auditor
1. Appoint (and if appropriate dismiss), evaluate, compensate and oversee (taking into account the opinions of management and the Company’s internal auditor where appropriate) the work of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company (the “independent auditors”), who shall report directly to the Committee, and resolve any disagreements between management and any such firm regarding financial reporting.
2. Review and pre-approve any audit and permitted non-audit and tax services (including the fees and terms thereof) provided by the independent auditors or other registered public accounting firms (with pre-approvals disclosed as appropriate in the Company’s periodic public filings, if applicable), and establish policies and procedures for the Committee’s pre-approval of permitted services by the independent auditors or other registered public accounting firms on an on-going basis.
3. Review and discuss with management, including the Chief Financial Officer or Controller, the independent auditors and the internal auditor: (i) any significant findings during the year, including the status of previous audit recommendations; (ii) any audit problems or difficulties encountered in the course of audit work, including any restrictions on the scope of activities or access to required information; (iii) any changes required in the scope of the audit plan; (iv) the audit budget and staffing; (v) the coordination of audit efforts in order to monitor completeness of coverage, reduction of redundant efforts, and the effective use of audit resources; (vi) any significant disagreements between the independent auditors or the internal auditor and management; and (vii) management’s response to any such disagreements; and resolve any such disagreements.
4. Review and discuss with the independent auditors: (i) the auditors’ responsibilities under generally accepted auditing standards (“GAAP”) and the responsibilities of management in the audit process, (ii) the overall audit strategy, (iii) the scope and timing of the annual audit, (iv) any significant risks identified during the auditors’ risk assessment procedures and (v) when completed, the results, including significant findings, of the annual audit.
B. Internal Controls
1. Review and discuss with management and the independent auditors: (i) the adequacy of the Company’s internal and disclosure controls and procedures; (ii) any significant deficiencies in the design or operation of the Company’s internal controls; (iii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls; and (iv) related findings and recommendations of the independent auditors together with management’s responses.
2. At least annually, review a report by the independent auditors describing: (i) the firm’s internal quality-control procedures; (ii) 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, regarding one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and (iii) all relationships between the independent auditor and the Company (to be set out in the formal written statement described below).
1. Inquire as to independent auditors’ view of the accounting treatment related to significant new transactions or other significant matters or events not in the ordinary course of business.
2. Review and discuss with management and the independent auditor (i) all critical accounting policies and practices used by the Company; (ii) any significant changes in the Company’s accounting policies; (iii) any material alternative accounting treatments within GAAP that have been discussed with management, including the ramifications of the use of the alternative treatments and the treatment preferred by the accounting firm; (iv) any accounting and financial reporting proposals that may have a significant impact on the Company’s financial reports and (v) other material written communications between the auditors and management.
3. Review and discuss with management and the independent auditors any material financial or non-financial arrangements that do not appear on the financial statements of the Company.
4. Review with management and the Company’s independent auditors: (i) any major issues regarding accounting principles and financial statement presentation, including any significant changes in the Company’s selection or application of accounting principles; (ii) any significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including the effects of alternative GAAP methods; and (iii) the effect of regulatory and accounting initiatives and off-balance sheet structures on the Company’s financial statements.
5. Review and discuss with the independent auditors: (i) any accounting adjustments that were noted or proposed by the independent auditors but were “passed” (as immaterial or otherwise), (ii) any communications between the audit team and the audit firm’s national office respecting auditing or accounting issues presented by the engagement and (iii) any “management” or “internal control” letter issued, or proposed to be issued, by the independent auditors to the Company or any other material written communications between the accounting firm and management, such as any management letter or schedule of “unadjusted differences”.
1. Review and discuss with management, including the Chief Financial Officer or Controller, and the independent auditors any significant risks or exposures and assess the steps management has taken to minimize such risks; discuss with management, including the Chief Financial Officer or Controller and the independent auditor, and oversee the Company’s underlying policies with respect to risk assessment and risk management.
E. Internal Auditor
1. Review, discuss with the Company’s independent auditors, and approve the functions of, the Company’s internal auditor, including the internal auditor’s purpose, organization, responsibilities, budget and performance; and review the scope, performance and results of the internal audit plans, including any reports to management and management’s response to those reports.
F. Key Financial Staff
1. Review and make recommendations in the appointment, reassignment, replacement, compensation or dismissal of the Chief Financial Officer, Controller and head of internal audit.
G. Public Disclosure
1. Review the “Report of Management” in the Annual Report to Shareholders, if one is published.
2. Oversee the process of filing or distributing each Form 10-K and Form 10- Q (if any such filing is required) or similar document or report.
3. Review and discuss the Company’s financial statements, including: (i) disclosures made in management’s discussion and analysis, (ii) with respect to the independent auditors’ annual audit report and certification, before release of the annual audited financial statements, meeting separately with the independent auditors (including a meeting or meetings without any management member present) and discussing the adequacy of the Company’s system of internal accounting and financial controls and the appropriateness of the accounting principles used in and the judgments made in the preparation of the Company’s audited financial statements and the quality of the Company’s financial reports; (iii) meeting separately, periodically, with management, with the internal auditor (or other personnel responsible for the internal audit function) and with the independent auditors; (iv) recommending to the Board whether such audited financial statements should be distributed to the shareholders, bondholders and lenders, and included in the Company’s Form 10-K, if applicable or similar document or report, and (v) to the extent applicable, prior to submission to any governmental authority of any financial statements of the Company that differ from the financial statements filed by the Company with the SEC, reviewing such financial statements and any report, certification or opinion thereon provided by the independent auditor.
4. Prepare, review and approve the “Report of the Audit Committee” and its inclusion in any applicable document, including in the Annual Report to Shareholders and in the annual Proxy Statement (if any).
5. Discuss with management and the independent auditors, as appropriate (but not necessarily in advance), earnings press releases and financial information and earnings guidance (including non-GAAP financial measures) provided to analysts and to rating agencies.
H. Compliance and Ethics
1. Establish and maintain procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
2. Review periodically with the Company’s legal counsel: (i) legal and regulatory matters that may have a material impact on the Company’s financial statements; and (ii) the scope and effectiveness of compliance policies and programs.
3. Review periodically with management the provisions of any code of business conduct and ethics (including the Company’s policies and procedures concerning trading in Company securities and use in connection therewith of proprietary or confidential information) applicable to directors and senior officers (including financial officers), including any waivers sought under such code; any waiver granted by the Committee shall be reported by the Committee to the Board.
4. Review and approve, where appropriate, any transactions or courses of dealing with related parties (including, without limitation, significant shareholders, directors, executive officers or other members of senior management or their family members) that are significant in size or involve terms or other aspects that differ from those that would likely be negotiated with independent parties, and keep the Company’s independent auditors informed of the Committee’s understanding of the Company’s relationships and transactions with related parties that are significant to the Company.
5. Review and address conflicts of interest of directors and executive officers.
I. Audit Committee Process
1. Conduct an annual self-evaluation of the performance of the Committee, including its effectiveness and compliance with this Charter.
2. Review and reassess the adequacy of this Charter annually, and amend as the Committee deems appropriate.
3. Report regularly to the Board on Committee findings and recommendations (including on 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, the performance and independence of the independent auditors or the performance of the internal audit function) and any other matters the Committee deems appropriate or the Board requests, and maintain minutes or other records of Committee meetings and activities.