AUDIT COMMITTEE CHARTER
- Statement of Purpose
The Audit Committee (the “Committee”) shall be established by the Board of Directors (the “Board”) of Dolphin Digital Media, Inc. (the “Company”) primarily for the purpose of overseeing the accounting and financial reporting processes of the Company, and audits of the financial statements of the Company.
The Committee shall be responsible for (a) assisting the Board in overseeing (i) the Company’s accounting and financial reporting practices and policies and systems of internal controls over financial reporting and compliance activities and operating effectiveness and efficiencies, (ii) the integrity of the Company’s consolidated financial statements and the independent audit thereof, (iii) the Company’s compliance with legal and regulatory requirements, (iv) the performance of the independent registered public accounting firm (the “Auditors”), (v) the Auditors’ qualifications and independence set forth rules promulgated under the Security Exchange Act of 1934, as amended (the “Exchange Act”) and the NASDAQ Stock Market Rules (the “Nasdaq Rules”) and (vi) the Board’s process for overseeing the Company’s exposure to major risks and (b) preparing an annual report for inclusion in the Company’s proxy statement, in accordance with the rules of the Securities and Exchange Commission (the “SEC”).
This Charter is intended as a component of the flexible governance framework within which the Board, assisted by the Audit Committee, shall direct the affairs of the Company. While it should be interpreted in the context of all applicable laws, regulations and the rules of the national securities exchange on which the Company’s securities are listed, as well as in the context of the Company’s Articles of Incorporation and Bylaws, in each case as amended or restated from time to time, it is not intended to establish by its own force any legally binding obligations.
- Members. The Committee shall consist of as many members as the Board shall determine, but in any event not fewer than two members. The members of the Committee shall be appointed annually by the Board.
- Qualifications. All Committee members must be financially literate, as such qualification is determined by the Board in its judgment, and at least one member of the Committee shall be an “audit committee financial expert.” The Board shall make a determination that each member of the Committee meets all applicable independence, financial literacy and other requirements of law, the SEC, the Exchange Act and the Nasdaq Rules. The Board shall also designate at least one member of the Committee as an “audit committee financial expert” as defined by the SEC.
- Chair. The Chair of the Committee shall be appointed by the Board.
- Removal and Replacement. The members of the Committee may be removed or replaced, and any vacancies on the Committee shall be filled, by the Board.
III. Committee Management
- Meetings. The Committee shall establish a meeting agenda for the ensuing year prior to the beginning of each fiscal year and shall plan in person or telephonically at least 4 times a year at a time and place determined by the Committee chairperson, with further meetings to occur, or actions taken by unanimous written consent, when deemed necessary or desirable by the Committee or its chairperson.
- Quorum. A majority of the members then serving on the Committee shall constitute a quorum, and actions at meetings may be approved by a majority of the members present. The Committee may also act by unanimous written consent, which may be provided electronically.
- Report to Board. The Committee shall submit the minutes of all meetings of the Committee to, and discuss the matters discussed at each Committee meeting with, the Board with such recommendations as the Committee may deem appropriate.
- Assessment of Charter. The Committee shall review this Charter annually and recommend to the Board any improvements to this Charter that the Committee deems necessary or desirable.
- Responsibility and Duties of the Committee
In furtherance of the Committee’s purpose, and in addition to any other responsibilities which may be properly assigned by the Board from time to time hereunder, the Committee shall have the following authorities and duties:
- Management of Relationship with Independent Auditors
- On an annual basis, directly appoint the independent auditors to audit the financial statements of the Company and its divisions and subsidiaries. As part of such selection, the Committee shall inquire as to any Public Company Accounting Oversight Board (“PCAOB”) inspections to which the independent auditors have been subject during the past year.
- On an annual basis, approve, in advance, (a) all auditing services to be provided by the independent auditors, (b) the amount of compensation to be paid to the independent auditors for such auditing services and (c) the engagement letter to be executed by the Company.
- The independent auditors shall report directly to the Committee, and the Committee shall oversee the work of the independent auditors and resolve any disagreements between management and the independent auditors. Meet with the independent auditors and financial management of the Company to review the scope and strategy of the proposed audit for the current year, including the timing of the audit, any significant risks identified during the auditor’s risk assessment procedures and those other matters required to be communicated by PCAOB Auditing Standard No. 16.
- Receive and review (i) the independent auditors’ formal written statement delineating all relationships between the independent auditors and the Company, consistent with applicable requirements of the PCAOB regarding the independent auditor’s communications with the Committee concerning independence, and (ii) any other certifications or documentation necessary to ensure that the independent auditors meet the independence standard required by law. Review all such documentation with the independent auditors, and, if so determined by the Committee, take or recommend that the full Board take appropriate action to oversee the independence of the auditors.
- Prior to the finalization of any audit report or the filing of any quarterly report, receive and review reports from the independent auditors regarding: (i) all critical accounting policies and practices to be used; (ii) all significant estimates and judgments; (iii) all alternative treatments of financial information, within GAAP that have been discussed with management officials of the Company, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditors; (iv) significant unusual transactions and (v) other material written communications between the independent auditors and the management of the Company, such as any management letter or schedule of unadjusted differences.
- Review the following with management and the independent auditors:
- a) the Company’s annual financial statements and related disclosures contained in the Form 10-K, including the Company’s disclosure under Management’s Discussion and Analysis of Financial Condition and Results of Operations (including quality of financial reporting decisions and judgments);
- b) the audit of the annual financial statements and the independent auditors’ report thereon;
- c) (i) management’s assessment of the effectiveness of the Company’s internal control structure and procedures for financial reporting; (ii) any steps taken in light of material control deficiencies; and (iii) any internal control recommendations made by the independent auditors;
- d) any significant changes required in the independent auditors’ audit plan;
- e) any significant difficulties or disputes encountered during the audit; and
- f) critical accounting policies’ disclosure for inclusion in the Form 10-K.
- Prior to the issuance of the independent auditors’ report, discuss with the independent auditors any matters relevant to the audit involving the Company’s or any of its employees’ violations or possible violations of laws or regulations about which the Committee is aware.
- Recommend to the Board that the audited annual financial statements be included in the Company’s Annual Report on Form 10-K.
- Review with management and the independent auditors the Company’s quarterly financial statements and the results of the independent auditors’ reviews of the quarterly financial statements prior to the filing of its Form 10-Q. Review with management its evaluation of the Company’s internal control structure and procedures for financial reporting and review management’s conclusions about the effectiveness of such internal controls and procedures.
- Adopt a pre-approval policy that provides the policies and procedures to ensure that any audit related, tax and other permitted non-audit services to be provided by the independent auditors are approved in advanced.
- Develop Controls to Insure the Integrity of the Financial Statements and Quality of Disclosure
- Review with management and the independent auditors significant risks and exposures, and the steps management has taken to minimize the risks or exposures.
- Discuss with management the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Company’s financial statements.
- Review with management the Company’s systems of internal control.
- On a quarterly basis, discuss the following with management and the independent auditors, if applicable:
- a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data and any material weaknesses in internal controls; and
- b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls.
- Establish procedures for: (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters; and (iii) the receipt and treatment of any evidence of a violation of the securities laws or breach of fiduciary duty brought to the Committee’s attention by the Company’s external securities counsel.
- Prepare the Audit Committee Report for inclusion in the Company’s annual proxy statement.
- Discuss with management the scope and substance of financial information and guidance to be included in earnings press releases, including the use and reconciliation of non-GAAP financial measures, as well as presentations to ratings agencies.
- Review with management any legal and regulatory matters that may have a material impact on the Company’s financial statements, including reserves for, and disclosure regarding, loss contingencies.
- Ethical Compliance, Legal Compliance, and Risk Management
Approve any waivers of the Code of Ethics. Review and approve related person transactions as defined in Item 404 of Regulation S-K.
- Delegation to Subcommittee
The Committee may, in its discretion, delegate its duties and responsibilities to a subcommittee of the Committee as it deems appropriate.
- Authority and Resources
The Committee shall have the resources as determined by the Committee and authority appropriate to discharge its duties and responsibilities, including the authority, in its sole discretion, to retain or obtain the advice of such outside counsel, consultants and other advisers, as it deems appropriate, without seeking approval of the Board or management. The Committee shall be directly responsible for the appointment, compensation and oversight of the work of any outside counsel, consultants and other advisers retained by the Committee. The Committee shall have full access to all books, records, facilities and personnel of the Company. The Company will provide for appropriate funding, as determined by the Committee, in its capacity as a committee of the Board, for the payment of (a) compensation to the Auditors, (b) compensation to any advisers employed by the Committee under this Section V, and (c) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.
Approved by the Board of Directors on October 29, 2014