I. General FocusThe Audit Committee (the “Committee”) shall provide assistance to the Duke Energy Corporation (the “Corporation”) Board of Directors (“Board”) in fulfilling its responsibilities with respect to its oversight of the quality and integrity of the Corporation’s financial statements; the Corporation’s compliance with legal and regulatory requirements; the independent auditor’s qualifications and independence; the performance of the Corporation’s internal audit function and independent auditors; and the implementation and effectiveness of the Corporation’s ethics and compliance program.
II. Structure and OperationsThe Committee shall be comprised of three or more members of the Board, each of whom is determined by the Board to be “independent” under the rules of the New York Stock Exchange, Inc. (“NYSE”) and the rules promulgated by the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Each member of the Committee shall have a working familiarity with basic finance and accounting practices (or acquire such familiarity within a reasonable period after his or her appointment) and at least one member shall in the judgment of the Board of Directors have accounting or related financial management expertise as required by the rules of the NYSE.
Each member of the Committee shall be appointed by the Board and shall serve until such member’s successor is duly elected and qualified or until such member’s earlier resignation or removal. The members of the Committee may be removed, with or without cause, by majority vote of the Board.
The Board shall elect the Chair of the Committee. The Chair will approve the agendas for Committee meetings and any member may suggest items for consideration. Briefing materials will be provided to the Committee as far in advance of meetings as practicable.
III. MeetingsThe Committee shall meet as frequently as circumstances dictate. Each regularly scheduled meeting will conclude with an executive session of the Committee absent the members of management. The Chair of the Committee or a majority of the members of the Committee may call a special meeting of the Committee. As part of its goal to foster open communication, the Committee shall periodically meet separately with each of management, the personnel responsible for the internal audit function and the independent auditors to discuss any matters that the Committee or each of these groups believe should be discussed privately. The Committee may meet privately with the chief legal officer and the personnel responsible for the ethics and compliance program, as necessary.
All non-management directors who are not members of the Committee may attend meetings of the Committee but may not vote. Additionally, the Committee may invite to its meetings any director, member(s) of management of the Corporation and such other persons as it deems appropriate in order to carry out its responsibilities. The Committee may also exclude from its meetings any person it deems appropriate in order to carry out its responsibilities.
A majority of the members, but not less than two, will constitute a quorum. A majority of the members present at any meeting at which a quorum is present may act on behalf of the Committee. The Committee may meet by telephone or videoconference and may take action by unanimous written consent.
The Committee shall appoint a person who need not be a member thereof to act as secretary and minutes of its proceedings shall be kept in minute books provided for that purpose. The agenda of each meeting will be prepared by the secretary and, whenever reasonably practicable, circulated to each member prior to each meeting.
IV. Responsibilities and DutiesThe following functions shall be the common recurring activities of the Committee in carrying out its responsibilities outlined in Section I of this Charter. These functions should serve as a guide with the understanding that the Committee may carry out additional functions and adopt additional policies and procedures as may be appropriate in light of changing business, legislative, regulatory, legal or other conditions. The Committee shall also carry out any other responsibilities and duties delegated to it by the Board of Directors from time to time related to the purposes of the Committee outlined in Section I of this Charter.
The Committee, in discharging its oversight role, is empowered to study or investigate any matter of interest or concern that the Committee deems appropriate. In this regard, the Committee shall have the authority to retain outside legal, accounting or other advisors for this purpose, including the authority to approve the fees payable to such advisors and any other terms of retention.
The Committee shall be given full access to the Corporation’s internal audit group, ethics and compliance personnel, Board, corporate executives and independent accountants, as necessary, to carry out these responsibilities. While acting within the scope of its stated purpose, the Committee shall have all the authority of the Board.
Notwithstanding the foregoing, the Committee is not responsible for certifying the Corporation’s financial statements or guaranteeing the independent auditor’s report. The fundamental responsibility for the Corporation’s financial statements and disclosures rests with management and the independent auditors.
Documents/Reports Review1. Meet with management and the independent auditors to review and discuss, prior to public dissemination, the Corporation’s annual audited financial statements and quarterly financial statements, including the Corporation’s specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and discuss with the independent auditors the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard No. 16, the matters required to be discussed by Public Company Accounting Oversight Board Ethics and Independence Rule 3526, and the communications required under Public Company Accounting Oversight Board Auditing Standard No. 1, as such rules may be amended or superseded
2. Report to the Board whether, based on its discussions with management and the independent auditor, it recommends to the Board that the most recent year’s audited financial statements be included in the Corporation’s annual report on Form 10-K to be filed with the SEC.
3. Review and discuss with management and the independent auditors the Corporation’s earnings press releases (paying particular attention to the use of any “pro forma” or “adjusted” non-GAAP information).
4. Review and discuss with management and the independent auditors financial information and earnings guidance provided to analysts and rating agencies. The Committee’s discussion in this regard may be general in nature (i.e., discussion of the types of information to be disclosed and the type of presentation to be made) and need not take place in advance of each instance in which the Corporation may provide earnings guidance.
Independent Auditors5. The Committee shall have the direct responsibility and authority to appoint, compensate, retain, evaluate and oversee and, where appropriate, replace the independent auditors engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Corporation. The Committee shall inform the independent auditors that such firm shall report directly to the Committee. The Committee shall resolve disagreements between management and the independent auditor regarding financial reporting.
6. Review the independent auditors’ audit plan and areas of audit focus, as well as their review of internal control over financial reporting. Review the fees and other significant compensation to be paid to the independent auditors.
7. Approve in advance any audit or nonaudit engagement or relationship between the Corporation and any independent auditor engaged to prepare or issue an audit report or perform other audit, review or attest services, other than prohibited nonauditing services, as specified in the rules and regulations of the SEC or any rules of the Public Company Accounting Oversight Board promulgated thereunder. The Committee shall not approve any “prohibited nonauditing services” without obtaining a prior exemption from the Public Company Accounting Oversight Board. Audit and nonaudit engagements must be approved either (i) explicitly in advance or (ii) pursuant to a pre-approval policy established by the Committee. The Committee may delegate to one or more members of the Committee the authority to grant such pre-approvals. The delegatee’s decisions regarding approval of services shall be reported by such delegatee to the full Committee at each regular Committee meeting.
8. Review and assess, at least annually, the qualifications, performance and independence of the independent auditors, including a review and evaluation of the lead partner, and report the conclusions to the full Board. In conducting its review and evaluation, the Committee should:
(i) Review the written report of the independent auditor that delineates all relationships between the independent auditor and the Corporation that the auditors believe may impact their independence and objectivity, which report should be submitted to the Committee at least annually, and discuss with the independent auditor and management the scope of any such disclosed relationship and their actual or potential impact on the independent auditor’s independence and objectivity;
(ii) Obtain and review a report by the Corporation’s independent auditor describing: (a) the auditor’s internal quality-control procedures; (b) any material issues raised by the most recent internal quality-control review, or peer review, of the auditor 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 auditor, and any steps taken to deal with any such issues; and (c) all relationships between the independent auditor and the Corporation;
(iii) Take into account the opinions of management and the Corporation’s internal auditors (or personnel responsible for the internal audit function);
(iv) Confirm rotation of audit partners to ensure compliance with applicable law and consider whether there should be regular rotation of the independent auditor.
Internal Auditors9. Review and approve the internal audit plan and significant changes in planned activities; review significant findings resulting from audits and managements’ responsiveness to the findings.
10. Evaluate the performance and independence of the internal auditors, including the organizational structure of the function and the qualifications of its personnel.
11. Periodically review, with the internal auditors, any significant difficulties or disagreements with management, or scope restrictions encountered during the course of their work.
12. Periodically review, with the independent auditors, the internal audit function’s responsibility, budget and staffing.
13. Periodically review, and recommend changes, if any, to the internal audit charter.
Financial Reporting Process14. In consultation with the independent auditors, management and the internal auditors, review the integrity of the Corporation’s financial reporting processes, both internal and external. In connection therewith, the Committee should obtain and discuss with management and the independent auditor reports from management and the independent auditor regarding: (i) all critical accounting policies and practices to be used by the Corporation; (ii) all alternative treatments within GAAP for policies and practices related to material items that have been discussed with management of the Corporation, including ramifications of the use of such alternative disclosures and treatments and the treatment preferred by the independent auditor; (iii) other material written communications between the independent auditor and the Corporation’s management, such as any management letter or schedule of unadjusted differences; (iv) major issues regarding accounting principles and financial statement presentations, including any significant changes in the Corporation’s selection or application of accounting principles, and major issues as to the adequacy of the Corporation’s internal controls and any special audit steps adopted in light of material control deficiencies; and; (v) analyses prepared by management and/or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements.
15. The Committee will receive and review any disclosure from the Corporation’s Chief Executive Officer and Chief Financial Officer made in connection with the certification of the Corporation’s quarterly and annual reports filed with the SEC of: (i) significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Corporation’s ability to record, process, summarize, and report financial data; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Corporation’s internal controls.
16. Review periodically the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Corporation.
17. Review with the independent auditor (i) any audit problems or other difficulties encountered by the auditor in the course of the audit process, including any restrictions on the scope of the independent auditor’s activities or on access to requested information and any significant disagreements with management and (ii) management’s responses to such matters. Without excluding other possibilities, the Committee may wish to review with the independent auditor (i) any accounting adjustments that were noted or proposed by the auditor 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 auditor to the Corporation. The review should also include discussion of the responsibilities, budget and staffing of the corporation’s internal audit function.
Legal Compliance/General18. Review and assess the risk of management’s ability to override the Corporation’s internal controls.
19. Review and assess periodically the Corporation’s Finance organization, including its budget, organization, and quality of personnel, as well as the qualifications and performance of the senior leaders of the Finance organization, as well as the chief audit officer.
20. Review periodically, with the Corporation’s chief legal officer, any legal matter that could have a significant impact on the Corporation’s financial statements and any material inquiries or reports received from regulatory or governmental agencies.
21. Review periodically the content and operation of the Corporation’s ethics and compliance program and the Code of Business Ethics, as well as the qualifications and performance of the chief ethics and compliance officer.
22. Discuss with management and the independent auditors periodically the Corporation’s guidelines and policies with respect to risk assessment and risk management. The Committee should discuss the Corporation’s major financial statement risk exposures and the overall steps management has taken to monitor and control such exposures; however, the Committee is not responsible for detailed review of financial risk exposure, policy and management, which responsibility has been delegated to another committee of the Board.
23. Provide oversight for matters related to the security of and risks related to information technology systems and procedures and operational technology systems (i.e., energy management, power generation and transmission systems) and procedures.
24. Set clear hiring policies for employees or former employees of the independent auditors.
25. Establish, and review periodically, procedures for: (i) the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters and (ii) the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters.
Reports26. Review and approve the Committee’s report required to be included in the Corporation’s annual proxy statement, pursuant to and in accordance with applicable rules and regulations of the SEC.
27. Report regularly to the full Board including:
(i) with respect to any issues that arise with respect to the quality or integrity of the Corporation’s financial statements, the Corporation’s compliance with legal or regulatory requirements, the performance and independence of the Corporation’s independent auditors or the performance of the internal audit function;
(ii) following all meetings of the Committee; and
(iii) with respect to such other matters as are relevant to the Committee’s discharge of its responsibilities.
The report to the Board may take the form of an oral report by the Chair of the Committee or any other member of the Committee designated by the Committee to make such report.
28. Maintain minutes or other records of meetings and activities of the Committee.
29. The Committee shall receive appropriate funding from the Corporation for the payment of compensation to the independent auditors, to other advisors retained by the Committee pursuant to the provisions of this Charter, and for payment of ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.