General Functions, Authority and Role
The Audit Committee (the “Audit Committee”) is a committee of the Board of Directors (the “Board”) of Ascent Solar Technologies, Inc. (the “Company”). The Audit Committee’s primary function shall be to assist the Board in fulfilling its oversight responsibilities by reviewing the financial information to be provided to the stockholders and others, the systems of internal controls that management and the Board have established, and the Company’s audit process.
The Audit Committee shall have the power to conduct or authorize investigations into any matters within the Audit Committee’s scope of responsibilities. In connection with such investigations or otherwise in the course of fulfilling its responsibilities under this Charter, the Audit Committee shall have the authority to engage and compensate special legal, accounting, or other consultants to advise it as it deems necessary, and may request any officer or employee of the Company, its outside legal counsel or outside auditor to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit Committee. The Audit Committee may also meet with the Company’s investment bankers or financial analysts who follow the Company.
The Company’s outside auditor shall ultimately be accountable to the Board and to the Audit Committee, as representative of the stockholders, and the Audit Committee shall have direct responsibility to appoint, evaluate, compensate, retain, oversee (including resolving disagreements between management and the outside auditor regarding financial reporting) and, where appropriate, replace the outside auditor, or to nominate the outside auditor to be proposed for stockholder ratification. In the course of fulfilling its specific responsibilities hereunder, the Audit Committee shall strive to maintain an open avenue of communication between the Company’s outside auditor and the Board.
The responsibilities of a member of the Audit Committee shall be in addition to such member’s duties as a member of the Board.
The membership of the Audit Committee shall consist of at least three independent outside members of the Board who shall serve at the pleasure of the Board. The membership of the Audit Committee shall meet the independence and financial literacy and experience requirements of The NASDAQ Stock Market, Inc. or similar requirements of such other securities exchange or quotation system as may from time to time apply to the Company (taking into account applicable exceptions therefrom). At least one member of the Audit Committee must be an “audit committee financial expert” as defined by the rules and regulations of the Securities and Exchange Commission and relevant securities exchanges or quotation systems.
In addition, no member shall have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years.
Audit Committee members and the Audit Committee Chairperson shall be designated by the full Board.
Meetings, Quorum, Informal Actions, Minutes
The Audit Committee shall meet on a regular basis. Special meetings may be called by the Chairman of the Audit Committee. A majority of the members of the Audit Committee shall constitute a quorum. Concurrence of a majority of the quorum (or, in case a quorum at the time consists of two members of the Committee, both members present) shall be required to take formal action of the Audit Committee. Written minutes shall be kept for all informal meetings of the Audit Committee.
The Audit Committee may act by unanimous written consent, and may conduct meetings via conference telephone or similar communication equipment. Members of the Audit Committee may meet informally with officers or employees of the Company and its subsidiaries and with the Company’s independent auditors, and may conduct informal inquiries and studies without the necessity of holding a formal meeting. The Audit Committee may delegate to its Chairman or to one or more of its members the responsibility for performing routine functions as, for example, review of press releases announcing results of Company operations.
Duties and Responsibilities
In addition to any duties and responsibilities assigned to the Audit Committee from time to time by the Board, the Audit Committee shall:
- Meet at least quarterly, or more frequently as circumstances or the obligations of the Audit Committee require, with the chief financial officer, the senior internal auditing executive and the outside auditor in separate executive sessions.
- Make regular reports to the Board, including reports of any Audit Committee actions and such recommendations as the Audit Committee may deem appropriate.
- Annually review and reassess the adequacy of this Charter and, if appropriate, propose changes to the Board for approval.
- Perform such functions as may be assigned by law, the Company’s Articles of Incorporation or Bylaws, or the Board.
- At least annually, conduct a self-evaluation of the performance of the Audit Committee.
- The Committee’s specific responsibilities in fulfilling its oversight role are set forth in the Audit Committee Responsibilities Calendar, which is an addendum and an integral part of this Charter. The Committee will periodically review and update the calendar to reflect changes in regulatory requirements and authoritative guidance.
- Review the experience and qualifications of the senior members of the outside auditor team and the quality control procedures of the outside auditor.
- At least annually, obtain and review a report by the outside auditor describing the firm’s internal quality control procedures; 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, and any steps taken to deal with any such issues; and (to assess the auditor’s independence) all relationships between the outside auditor and the listed company.
- As necessary, consider with management and the outside auditor the rationale for employing audit firms other than the principal outside auditor. Evaluate together with the Board whether it is appropriate to adopt a policy of rotating outside auditors on a regular basis.
- Appoint, evaluate, compensate, retain, oversee (including resolve disagreements between management and the outside auditor regarding financial reporting) and, where appropriate, replace the outside auditor, or nominate the outside auditor to be proposed for stockholder ratification.
- Pre-approve the retention of the outside auditor for all audit, review and attestation engagements and such non-audit services as the outside auditor is permitted to provide the Company and approve the fees for such services pursuant to procedures that may be adopted by the Committee from time to time. Preâ€‘approval of audit and non-audit services shall not be delegated to management, but may be delegated to one or more independent members of the Committee so long as that member or members report their decisions to the Committee at all regularly scheduled meetings. In considering whether to pre-approve any non-audit services, the Committee or its delegees shall consider whether the provision of such services is compatible with maintaining the independence of the outside auditor.
- Approve the scope and fees to be paid to the outside auditor for audit services and approve the partner, manager and technical review partner on the audit engagement.
- Take reasonable steps to confirm the independence of the outside auditor, which shall include:
– ensuring receipt from the outside auditor of a formal written statement delineating all relationships between the outside auditor and the Company, consistent with Independence Standards Board Standard No. 1;
– discussing with the outside auditor any disclosed relationships or services that may impact the objectivity and independence of the outside auditor, and
– as necessary, taking, or recommending that the Board take, appropriate action to oversee the independence of the outside auditor.In performing this duty, the Audit Committee shall consider whether the outside auditor’s provision of financial systems design and implementation services and any other non-audit services is compatible with the independence of the outside auditor.
- Recommend to the Board guidelines for the Company’s hiring of employees of the outside auditor who were engaged on the Company’s account, ensuring, at a minimum, the compliance with applicable legal and regulatory requirements.
- Review earnings press releases (paying particular attention to any use of “pro forma,” or “adjusted” non-GAAP, information), as well as financial information and earnings guidance provided to analysts and rating agencies.
Audit Process and Results
- Consider, in consultation with the outside auditor and internal auditor prior to the audit, the audit’s scope, planning, and staffing.
- Review with the outside auditor the coordination of the audit effort to assure completeness of coverage, reduction of redundant efforts, and the effective use of audit resources.
- Consider and review with the outside auditor:
– The adequacy of the Company’s internal controls including computerized information system controls and security, ensuring compliance with applicable legal and regulatory requirements.
– Any related significant findings and recommendations of the outside auditor together with management’s responses thereto.
– The matters required to be discussed by Statement on Auditing Standards No. 61, as the same may be modified and supplemented from time to time.
– An analysis prepared by management and the outside auditor of significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including an analysis of the effect of alternative GAAP methods on the Company’s financial statements and a description of any transactions as to which management obtained Statement on Auditing Standards No. 50 letters.
- Review and discuss with management and with the outside auditor at the completion of the annual examination, or earlier, if circumstances require:
– The Company’s audited financial statements and related footnotes.
– The outside auditor’s audit of the financial statements and their report thereon.
– Any significant changes required in the outside auditor’s audit plan.
– Any changes required in the planned scope of the internal audit.
– Any major issues regarding accounting or auditing principles and practices as well as the adequacy of internal controls that could significantly affect the Company’s financial statements.
– Any difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to required information, or disagreements with management encountered during the course of the audit.
– Any management letter provided by the outside auditor and the Company’s response to that letter.
– Significant findings during the year and management’s responses thereto.
Other matters related to the conduct of the audit which are to be communicated to the Audit Committee under generally accepted auditing standards.
- Meet periodically with management and the outside auditor to review the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures.
- Review with management and the outside auditor the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Company’s financial statements.
- Review major changes to the Company’s auditing and accounting principles and practices as suggested by the outside auditor, internal auditors or management.
- Obtain from the outside auditor assurance that Section 10A of the Securities Exchange Act of 1934 has not been implicated.
- Meet with the outside auditor and management in separate executive sessions to discuss any matters that the Audit Committee or these groups believe should be discussed privately with the Audit Committee.
- Review with management and the outside auditor any correspondence with regulators or governmental agencies and any employee complaints or published reports which raise material issues regarding the Company’s financial statements or accounting policies.
- Review management reports, providing assurance of compliance with regulatory requirements.
Securities and Exchange Commission Filings
- Review filings with the Securities and Exchange Commission and other published documents containing the Company’s financial statements.
- Review with management and the outside auditor the draft of the quarterly earnings release, interim financial statements and results of the outside auditor’s reviews thereof before they are released to the public or filed with the Securities and Exchange Commission.
- Discuss with the national office of the outside auditor issues on which it was consulted by the Company’s audit team and matters of audit quality and consistency.
- Prepare the report required by the rules of the Securities and Exchange Commission to be included in the Company’s annual proxy statement.
Internal Controls and Legal Matters
- Review the Company’s policies and procedures with respect to officer expense accounts and perquisites, including their use of corporate assets, and consider the results of any review of these areas by the outside auditor.
- Review with the Company’s general counsel legal and regulatory matters that may have a material impact on the financial statements and review related Company compliance policies and any material reports or inquiries received from regulators or governmental agencies
- Review the Company’s policies and procedures to assure that they preclude loans to officers and directors. Confirm periodically that no such loans have been made.
- Review the Company’s policies and procedures to assure that any transactions with directors, officers or members of their immediate families are reviewed and approved in advance by the Audit Committee. Confirm periodically that no unapproved transactions have occurred.
- Review the Company’s policies and procedures to assure that all non-audit services provided by the Company’s auditors are reviewed and approved in advance by the Audit Committee. Confirm periodically that no unapproved transactions have occurred.
- Obtain reports from management, the Company’s senior internal auditor and the outside auditor that the Company’s subsidiaries and foreign affiliated entities are in conformity with applicable legal requirements and the Company’s own policies, including disclosures of insider and affiliated party transactions.
- Advise the Board with respect to the Company’s policies and procedures regarding compliance with applicable laws and regulations and compliance with the Company’s policies or code of conduct.
- Review quarterly reports provided by management, relating to pending, threatened or likely litigation.
- Review the appointment and replacement of the senior internal auditing executive.
- Review the internal audit department responsibilities, budget and staffing.
- Review significant reports to management prepared by the internal auditing department and management’s responses.
- Assure that the Company has adequate procedures in place for the receipt, retention and treatment of complaints received by the Company regarding allegations of suspected acts that are illegal or in violation of specific public regulations or policies, or regarding accounting, internal accounting controls or auditing matters.
- Assure that the Company has adequate procedures in place for the confidential, anonymous submission by employees of the Company regarding questionable accounting or auditing matters.
- Consult with the Nominating and Governance Committee regarding the development and monitoring of compliance with a code of ethics for senior financial officers pursuant to and to the extent required by regulations applicable to the Company from time to time.
- Consult with the Nominating and Governance Committee regarding the development and monitoring of compliance with a code of conduct for all Company employees, officers and directors pursuant to and to the extent required by regulations applicable to the Company from time to time.
- Review and approve all related-party transactions, including transactions between the Company and its officers or directors or affiliates of officers or directors.
Note on Related Management and Outside Auditor Roles
While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements are complete, accurate, and in accordance with generally accepted accounting principles. These are the responsibilities of management and the outside auditor.