Charter of the Audit Committee
Revised as of March 14, 2012
The purpose of the Audit Committee (the “Committee”) is to represent and assist the Board of Directors (the “Board”) in its general oversight of the integrity of Spark Networks, Inc.’s (the “Company’s”) financial statements, the Company’s accounting and financial reporting processes, the Company’s internal controls, audits of the financial statements, and reviewing the independent auditors’ qualifications and independence. Management is responsible for (a) the preparation, presentation and integrity of the Company’s financial statements; (b) accounting and financial reporting principles; and (c) the Company’s internal controls and procedures designed to promote compliance with accounting standards and applicable laws and regulations. The Company’s independent registered public accounting firm (independent auditor) is responsible for performing an independent audit of the consolidated financial statements in accordance with standards of the Public Company Accounting Oversight Board.
The Committee members are not professional accountants or auditors and their functions are not intended to duplicate or to certify the activities of management and the independent auditor, nor can the Committee certify that the independent auditor is “independent” under applicable rules. The Committee serves a Board-level oversight role where it oversees the relationship with the independent auditor, as set forth in this Charter, and provides advice, counsel and general direction, as it deems appropriate, to management and the auditors on the basis of the information it receives, discussions with the auditor, and the experience of the Committee’s members in business, financial and accounting matters.
II. Membership and Structure
The Committee shall consist of at least three directors determined by the Board of Directors to meet the independence and financial literacy requirements of the NYSE-Amex (or such other exchange upon which the Company’s securities are listed) and applicable federal law. Appointment to the Committee, including the designation of the Chair of the Committee and the designation of any Committee members as “audit committee financial experts,” shall be made on an annual basis by the full Board. The Board may fill vacancies on the Committee by a majority vote of the Board, but may remove Committee members only with the approval of a majority of the independent directors then serving on the full Board. Each member of the Committee shall have the ability to read and understand fundamental financial statements and a working familiarity with basic finance and accounting principles at the time he or she joins the Committee.
III. Meetings, Reports, Resources and Evaluations
(a) Meetings and Reports. The Committee shall meet as often as it determines, but not less frequently than quarterly. The Committee may also hold special meetings or act by unanimous written consent as the Committee may decide. The meetings may be in person or telephone. The Committee shall maintain written minutes of its meetings, which minutes will be filed with the minutes of the meetings of the Board. The Committee will also record summaries or reports of its recommendations to the Board in written form, which will be incorporated as part of the minutes of the Board meeting at which those recommendations are presented. The Committee shall meet with management and the independent auditor in separate executive sessions as appropriate. The Committee may request any officer or employee of the Company or the Company’s outside counsel or the independent auditors to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.
(b) Subcommittees. The Committee may form and delegate authority to subcommittees, or to one or more members of the Committee, when appropriate, but no less than annually.
(c) Resources. The Committee is at all times authorized to have direct, independent and confidential access to the Company’s other directors, management and personnel to carry out the Committee’s purposes. The Committee shall have the authority, to the extent it deems necessary or appropriate, to retain independent legal, accounting or other advisors. The Company shall provide appropriate funding, as determined by the Committee, to permit the Committee to perform its duties under this Charter, to compensate its advisors and to compensate any registered public accounting firm engaged for the purpose of rendering or issuing an audit report or related work or performing other audit, review or attest services for the Company.
(d) Evaluations. The Committee shall evaluate the adequacy of its own performance and this charter on an annual basis and shall report to the Board annually the results of an annual review by the Committee of its own performance and shall recommend any proposed changes to the Board for approval.
IV. Committee Authority and Responsibilities
The Committee, at its discretion, has the authority to initiate special investigations, and, to hire special legal, accounting or other outside advisors or experts to assist the Committee, as it deems necessary to fulfill its duties under this Charter. The Committee may also perform such other activities consistent with this Charter, the Company’s Articles and Memorandum of Association and governing law, as the Committee or the Board deems necessary or appropriate. When appropriate, The Committee may designate one or more of its members to perform certain of its duties on its behalf, subject to such reporting to or ratification by the Committee as the Committee shall direct.
The Committee, to the extent it deems necessary or appropriate, shall:
Oversight of the Company’s Relationship with the Independent Auditor
• Be directly responsible for the appointment, replacement, compensation,
and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services. The independent auditor shall report directly to the Committee.
• Obtain and review annually a report by the independent auditor (i) describing the firm’s internal quality-control procedures, (ii) any material issues raised by the most recent internal quality-control review or peer review 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, (iii) any steps taken to deal with any such issues, (iv) any relationships or services that may impact the objectivity and independence of the auditor and (v) all relationships between the independent auditors and the Company, including considering whether the auditor’s quality controls are adequate and the provision or permitted non-audit services is compatible with maintaining the auditor’s independence, taking into account the opinions of management. The Committee shall present its conclusions with respect to the independent auditors to the Board. Establish policies for the hiring of employees and former employees of the independent auditor.
• Review and discuss the written statement from the independent auditor concerning all relationships between the auditor and the Company, consistent with Public Accounting Oversight Board Ethics and Independence Rule 3526, or any other relationships that may adversely affect the independence of the auditor, and, based on such review, assesses the independence of the auditor.
• Review and discuss with the independent auditor: (a) its audit plans, and audit procedures, including the scope, fees and timing of the audit; (b) the results of the annual audit examination, unadjusted audit or review differences, and accompanying management letters; (c) the results of the independent auditor’s procedures with respect to interim periods; and any other matter that generally is required to be communicated by the independent auditor to the Committee.
• Discuss with the independent auditors all critical accounting policies. Review with the independent auditor its judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such matters as are required to be discussed with the Committee under generally accepted auditing standards.
• Meet and discuss with the independent auditor (i) the issues on which they were consulted by the Company’s audit team, (ii) any matters of audit quality and consistency, and (iii) any audit problems or difficulties and management’s responses to such problems or difficulties.
• Review the use of auditors other than the independent auditor in cases such as management’s request for second opinions.
Financial Statement and Disclosure Matters
• Review and discuss with management and the independent auditor quarterly earnings press releases, including the interim financial information included therein and the use of “pro forma” or “adjusted” non-GAAP information, review the year-end audited financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, if deemed appropriate, recommend to the Board of Directors that the audited financial statements be included in the Annual Report for the year.
• Discuss with management financial information and earnings guidance provided to analysts and rating agencies. Such discussion may be done generally consisting of discussing the types of information to be disclosed and the types of presentations to be made.
• Review and discuss reports from the independent auditors on (a) all critical accounting policies and practices used by the Company, (b) alternative accounting treatments within GAAP related to material items that have been discussed with management, including the ramifications of the use of the alternative treatments and the treatment preferred by the independent auditor, and (c) other material written communications between the independent auditor and management.
• Discuss with management and the independent auditors any significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including any significant changes in the Company’s selection or application or accounting principles, any major issues as to the adequacy of the Company’s internal controls over financial reporting and any special steps adopted or which need to be adopted in light of any material weaknesses.
• Review and discuss with management and the independent auditor various topics and events that may have significant financial impact on the Company or that are the subject of discussions between management and the independent auditors, such as the effect of regulatory and accounting initiatives as well as off-balance sheet structures.
• Discuss with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies.
• Review and retain prior-approval authority for related-party transactions (as defined in the relevant NYSE-Amex (or such other exchange upon which the Company’s securities are listed) requirements.
• The Chairman of the Committee is to be contacted directly by the independent auditor (1) to review items of a sensitive nature that can impact the accuracy of financial reporting or (2) to discuss significant issues relative to the overall Board responsibility that have been communicated to management but, in their judgment, may warrant follow-up by the Audit Committee.
Oversight of the Company’s Internal Controls
• Review and discuss with management and the independent auditor: (a) the adequacy and effectiveness of the Company’s internal controls (including any material weaknesses and significant deficiencies and significant changes in internal controls reported to the Committee by the independent auditor or management); (b) the Company’s internal control procedures; and (c) the adequacy and effectiveness of the Company’s disclosures controls and procedures, and management reports thereon.
Compliance Oversight Responsibilities
• Establish monitoring controls through the achievement of Sarbanes-Oxley 404 compliance.
• Review matters related to the corporate compliance activities of the Company.
• Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
• Discuss with management and the independent auditors any correspondence with regulators or governmental agencies and any published reports, which raise material issues regarding the company’s financial statements or accounting policies.
• Review and publish the report of the Committee required by the rules of the Securities and Exchange Commission to be included in the Company’s annual proxy statement.
The Audit Committee shall pre-approve all auditing services and permitted non-audit services, including tax services, to be performed for the Company by its independent auditor, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934, as amended, which are approved by the Committee prior to the completion of the services. The scope of the pre-approval shall include pre-approval of all fees and terms of engagement. The Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Committee at its next scheduled meeting.
- Financial Expert
- Independent Director