I. |
Statement of Principles |
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Under the Sarbanes-Oxley Act of 2002 (the "Act"), the Audit Committee of the Board of Directors is responsible for the appointment, compensation and oversight of the work of the independent auditor. As part of this responsibility, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent auditor in order to assure that such services do not impair the auditor’s independence from the Company. To implement these provisions of the Act, the Securities and Exchange Commission (the "SEC") has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the Audit Committee's administration of the engagement of the independent auditor. Accordingly, the Audit Committee has adopted, and the Board of Directors has ratified, this Audit and Non-Audit Services Pre-Approval Policy (the "Policy"), which sets forth the procedures and the conditions pursuant to which services proposed to be performed by the independent auditor may be pre-approved.
In approving all services performed by the independent auditor, the Audit Committee will consider whether such services are consistent with the SEC's rules on auditor independence. The Audit Committee will also consider whether the independent auditor is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with the Company's business, people, culture, accounting systems, risk profile and other factors. All such factors will be considered as a whole, and no one factor should necessarily be determinative.
The appendices to this Policy describe the Audit, Audit-related and Tax services that have general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the independent auditor. The Audit Committee may add or subtract to the list of general pre-approved services from time to time, based on subsequent determinations.
The purpose of this Policy is to set forth the procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee's responsibilities to pre-approve services performed by the independent auditor to management.
The independent auditor has reviewed this Policy and believes that implementation of the policy will not adversely affect the auditor’s independence.
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II. |
Delegation |
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As provided in the Act and the SEC's rules, the Audit Committee may delegate pre-approval authority to the chair or his or her designee. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.
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III. |
Audit Services |
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The annual Audit Services engagement terms and fees will be subject to the specific pre-approval of the Audit Committee. Audit Services include the annual financial statement audit (including required quarterly reviews), subsidiary audits, and other procedures to be performed by the independent auditor to be able to form an opinion on the Company’s consolidated financial statements. Audit Services also include the attestation engagement for the independent auditor's report on management's report on internal controls for financial reporting. The Audit Committee will also approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Company structure or other items.
The Audit Committee has pre-approved the Audit Services in Appendix A. All other Audit Services not listed in Appendix A must be specifically pre-approved by the Audit Committee.
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IV. |
Audit-related Services |
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Audit-related Services are assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statements or that are traditionally performed by the independent auditor. Because the Audit Committee believes that the provision of Audit-related Services does not impair the independence of the auditor and is consistent with the SEC's rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related Services.
The Audit Committee has pre-approved the Audit-related Services in Appendix B. All other Audit-related Services not listed in Appendix B must be specifically pre-approved by the Audit Committee.
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V. |
Tax Services |
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The Audit Committee believes that the independent auditor can provide Tax Services to the Company such as tax compliance, tax planning and tax advice without impairing the auditor's independence, and the SEC has stated that the independent auditor may provide such services. Hence, the Audit Committee believes it may grant general pre-approval to those Tax Services that have historically been provided by the auditor to the Company or its predecessors, that the Audit Committee has reviewed and believes would not impair the independence of the auditor and that are consistent with the SEC's rules on auditor independence. The Audit Committee will not permit the retention of the independent auditor in connection with a transaction initially recommended by the independent auditor that may produce federal tax savings unless such savings are substantially supported by the current Internal Revenue Code and related regulations. The Audit Committee will not permit the retention of the independent auditor in connection with the provision of any tax service on a contingent fee or percentage of tax savings basis. The Audit Committee will consult with the Vice President, Tax and internal or external counsel, if necessary, to determine that the tax planning and reporting positions are consistent with this policy. In addition to the foregoing, each person who is in a financial reporting oversight role, and the immediate family members of such a person, are prohibited, subject to limited exceptions, from obtaining any Tax Service from the Company's independent auditor. This prohibition applies irrespective of whether the Company or the individual pays for the Tax Service. Persons in a "financial reporting oversight role" are directors of Reynolds American Inc., and persons holding any of the following positions with Reynolds American Inc., R. J. Reynolds Tobacco Company or Conwood Company, LLC: Chief Executive Officer, President, Chief Financial Officer, Chief Operating Officer, General Counsel, Senior Vice President and Chief Accounting Officer, Vice President and General Auditor, Director of Financial Reporting, Treasurer, Senior Manager of Financial Reporting, or any equivalent position. An "immediate family member" for purposes of this prohibition means a person's spouse, spousal equivalent and dependents. Any questions over the application of this prohibition should be directed to the Senior Vice President and Chief Accounting Officer.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved the Tax Services in Appendix C. All Tax Services not listed in Appendix C must be specifically pre-approved by the Audit Committee.
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VI. |
Pre-Approval Fee Levels |
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The Audit Committee generally establishes approved fees for pre-approved audit and non-audit services on an annual basis. The Audit Committee is required to approve any fee expected to exceed a pre-approved level by more than $100,000, and is required to be notified at its next meeting if any fee is expected to exceed a pre-approved level by less than $100,000. In addition, to the extent that the Audit Committee does not establish a fee level for a specific service which falls within a broad category of a pre-approved audit or non-audit service, the Audit Committee is required to pre-approve any fee for such service expected to exceed $100,000, and is required to be notified at its next meeting if any fee for such service is expected to be less than $100,000. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services.
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VII. |
Procedures |
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All requests for services to be provided by the independent auditor will be submitted to the Senior Vice President and Chief Accounting Officer, or in his absence, the Chief Financial Officer, and must include a detailed description of the services to be rendered. The Senior Vice President and Chief Accounting Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the independent auditor.
Requests to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the independent auditor and the Senior Vice President and Chief Accounting Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC's rules on auditor independence.
On a quarterly basis, the Vice President and General Auditor will provide to the Audit Committee a summary of fees paid to the independent auditor.
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Adopted: February 1, 2005
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