1. Purpose And Scope
The audit committee (the “Committee”) of MI Developments Inc. (the “Company”) is a committee of the Board of Directors (the “Board”). The Committee shall oversee the accounting and financial reporting processes of the Company and the audits of the Company’s financial statements and exercise the responsibilities and duties set out in this Charter.
2. Membership
2.1 Number of Members
The Committee shall be composed of three or more members of the Board.
2.2 Independence
Each member of the Committee must be independent in accordance with applicable law and the applicable rules and regulations of the Canadian Securities Administrators, the United States Securities and Exchange Commission, The New York Stock Exchange and any other regulator or authority having jurisdiction over the Company from time to time (the “Applicable Requirements”).
2.3 Financial Literacy
Each member of the Committee shall be financially literate and shall have such accounting or financial management expertise as is required to comply with the Applicable Requirements.
2.4 Term
The members of the Committee shall be appointed annually by the Board. Each member of the Committee shall serve at the pleasure of the Board until the member resigns, is removed or ceases to be a member of the Board.
2.5 Chair
At the time of the annual appointment of the members of the Committee, the Board shall appoint a member of the Committee as Chair of the Committee.
3. Duties and Responsibilities
The Committee shall have the functions and responsibilities set out below as well as any other functions that are specifically delegated to the Committee by the Board and that the Board is authorized to delegate by applicable laws and regulations. In addition to these functions and responsibilities, the Committee shall perform the duties required of an audit committee by any Applicable Requirements.
3.1 Financial Reports
(a) General
The Committee is responsible for overseeing the Company’s financial statements and financial disclosures. Management is responsible for the preparation, presentation and integrity of the Company’s financial statements and financial disclosures and for the appropriateness of the accounting principles and the reporting policies used by the Company. The auditors are responsible for auditing the Company’s annual consolidated financial statements and for reviewing the Company’s unaudited interim financial statements.
(b) Review of Annual Financial Reports
The Committee shall review the annual consolidated audited financial statements of the Company, the external auditor’s report thereon and the related management’s discussion and analysis of the Company’s financial condition and results of operation (“MD&A”). After completing its review, if advisable, the Committee shall approve and recommend for Board approval the annual financial statements and the related MD&A.
(c) Review of Interim Financial Reports
The Committee shall review the interim consolidated financial statements of the Company, the external auditor’s review report thereon and the related MD&A. After completing its review, if advisable, the Committee shall approve and recommend for Board approval the interim financial statements and the related MD&A.
(d) Review Considerations
In conducting its review of the annual financial statements or the interim financial statements, the Committee shall:
(i) meet with management and the external auditor to discuss the financial statements and MD&A;
(ii) review the disclosures in the financial statements;
(iii) review the audit report or review report prepared by the external auditor;
(iv) discuss with management, the auditors and internal legal counsel, as requested, any litigation claim or other contingency that could have a material effect on the financial statements;
(v) review the accounting policies followed and critical accounting and other significant estimates and judgements underlying the financial statements as presented by management;
(vi) review any material effects of regulatory accounting initiatives or offbalance sheet structures on the financial statements as presented by - 3 - management, including requirements relating to complex or unusual transactions, significant changes to accounting principles and alternative treatments under Canadian GAAP applicable to publicly accountable enterprises;
(vii) review any material changes in accounting policies and any significant changes in accounting practices and their impact on the financial statements as presented by management;
(viii) review management’s report on the effectiveness of internal controls over financial reporting;
(ix) review the factors identified by management as factors that may affect future financial results;
(x) review responses received under the Company’s Internal Reporting Procedures; and
(xi) review any other matters related to the Company’s financial statements that are brought forward by the auditors or management or which are required to be communicated to the Committee under accounting policies, auditing standards or Applicable Requirements.
(e) Approval of Other Financial Disclosures
The Committee shall review and, if advisable, approve and recommend for Board approval financial disclosure in a prospectus or other securities offering document of the Company, press releases disclosing, or based upon, financial results of the Company and any other material financial disclosure, including financial guidance provided to analysts, rating agencies or otherwise publicly disseminated.
3.2 Auditors
(a) General
The Committee shall be responsible for oversight of the work of the auditors, including the external auditor’s work in preparing or issuing an audit report, performing other audit, review or attest services or any other related work. The external auditor will report directly to the Committee.
(b) Nomination and Compensation
The Committee shall review and, if advisable, select and recommend for Board approval the external auditor to be nominated and the compensation of such external auditor. The Committee shall have ultimate authority to approve all audit engagement terms and fees, including the external auditor’s audit plan.
(c) Resolution of Disagreements
The Committee shall resolve any disagreements between management and the auditors as to financial reporting matters brought to its attention.
(d) Discussions with External Auditor
At least annually, the Committee shall discuss with the external auditor such matters as are required by applicable auditing standards to be discussed by the external auditor with the Committee.
(e) Audit Plan
At least annually, the Committee shall review a summary of the external auditor’s annual audit plan. The Committee shall consider and review with the external auditor any material changes to the scope of the plan.
(f) Independence of External Auditor
At least annually, and before the external auditor issues its report on the annual financial statements, the Committee shall obtain from the external auditor a formal written statement describing all relationships between the external auditor and the Company; discuss with the external auditor any disclosed relationships or services that may affect the objectivity and independence of the external auditor; and obtain written confirmation from the external auditor that it is objective and independent within the meaning of the applicable Rules of Professional Conduct/Code of Ethics adopted by the provincial institute or order of chartered accountants to which the external auditor belongs and other Applicable Requirements. The Committee shall take appropriate action to oversee the independence of the external auditor.
(g) Evaluation of Lead Partner
At least annually, the Committee shall review the qualifications and performance of the lead partner(s) of the external auditor.
(h) Requirement for Pre-Approval of Non-Audit Services
The Committee shall approve in advance any retainer of the external auditor to provide any nonaudit service to the Company in accordance with Applicable Requirements and Board approved policies and procedures. The Committee may delegate pre-approval authority to any member of the Committee. The decisions of any member of the Committee to whom this authority has been delegated must be presented to the full Committee at its next scheduled Committee meeting.
(i) Approval of Hiring Policies
The Committee shall review and approve the Company’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditors of the Company.
3.3 Internal Controls
(a) General
The Committee shall review the Company's system of internal controls.
(b) Establishment, Review and Approval
The Committee shall require management to implement and maintain appropriate systems of internal controls in accordance with Applicable Requirements, including internal controls over financial reporting and disclosure, and shall review, evaluate and approve these procedures. At least annually, the Committee shall consider and review with management and the auditors:
(i) the effectiveness of, or weaknesses or deficiencies in: the design or operation of the Company’s internal controls (including computerized information system controls and security); the overall control environment for managing business risks; and accounting, financial and disclosure controls (including, without limitation, controls over financial reporting), non-financial controls, and legal and regulatory controls and the impact of any identified weaknesses in internal controls on management’s conclusions;
(ii) any significant changes in internal controls over financial reporting that are disclosed, or considered for disclosure, including those in the Company’s periodic regulatory filings;
(iii) any material issues raised by any inquiry or investigation by regulators;
(iv) the Company’s fraud prevention and detection program, including deficiencies in internal controls that may impact the integrity of financial information, or may expose the Company to other significant internal or external fraud losses and the extent of those losses and any disciplinary action in respect of fraud taken against management or other employees who have a significant role in financial reporting; and
(v) any related significant issues and recommendations of the auditors together with management’s responses thereto, including the timetable for implementation of recommendations to correct weaknesses in internal controls over financial reporting and disclosure controls.
3.4 Internal Audit Function
The Committee shall periodically review and approve the internal audit function, including its plan, budget and resources. The Committee shall direct management to make changes it deems advisable in respect of the internal audit function.
3.5 Internal Reporting Procedures
The Committee shall establish procedures (the “Internal Reporting Procedures”) for (a) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; and (b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. The Internal Reporting Procedures shall also be available for reports of breaches of the Code of Conduct and Ethics. Any such complaints or concerns that are received shall be reviewed by the Committee and, if the Committee determines that the matter requires further investigation, it will direct the Chair of the Committee to engage outside advisors, as necessary or appropriate, to investigate the matter and will work with management and the General Counsel to reach a satisfactory conclusion. The Committee shall review investigations and any resolutions of complaints received and report to the Board thereon.
3.6 Compliance with Legal and Regulatory Requirements
The Committee shall review reports from the Company’s Corporate Secretary and other management members on: legal or compliance matters that may have a material impact on the Company; the effectiveness of the Company’s compliance policies; and any material communications received from regulators. The Committee shall review management’s evaluation of and representations relating to compliance with specific applicable law and guidance, and management’s plans to remediate any deficiencies identified.
3.7 Audit Committee Disclosure
The Committee shall prepare, review and approve any audit committee disclosures required by Applicable Requirements in the Company’s disclosure documents.
3.8 Financial Executives
The Committee shall review and discuss with management the appointment of key financial executives and recommend qualified candidates to the Board, as appropriate.
3.9 Charter Review
The Committee shall review and update this Charter annually and present it to the Board for approval.
4. Meetings
4.1 Procedure
The time and place of the meetings of the Committee, the calling of meetings of the Committee and the procedure at such meetings in all respects shall be determined by the Committee; provided, however, that a majority of the members of the Committee shall constitute a quorum.
4.2 Reporting to the Board
The Chair shall provide a report to the Board on material matters considered by the Committee.
4.3 In Camera Sessions
The Committee shall hold meetings, or portions of meetings, at which management is not present. The Committee shall also periodically meet separately with management, the internal auditors and the external auditors.
5. Delegation
The Committee may, to the extent permissible by Applicable Requirements, designate a subcommittee to review any matter within this Charter as the Committee deems appropriate.
6. Outside Advisors
The Committee shall have the authority to retain external legal counsel, consultants or other advisors to assist it in fulfilling its responsibilities and to set and pay the respective compensation for these advisers. The Company shall provide appropriate funding, as determined by the Committee, for the services of these advisors.
