CAPITAL ONE FINANCIAL CORPORATION<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
The Audit Committee (the “Committee”) is appointed by the Board of Directors (the “Board”) of Capital One Financial Corporation (the “Corporation”) to assist the Board in the oversight of (i) the integrity of the financial statements and internal controls of the Corporation, (ii) the qualifications, independence and performance of the Corporation’s independent auditor, (iii) the performance of the Corporation’s internal auditor, and (iv) the compliance by the Corporation with legal and regulatory requirements. The Committee shall also authorize, review and approve the report of the Committee required by the rules of the Securities and Exchange Commission to be included in the Corporation’s Annual Proxy Statement. The Committee shall also perform such other duties as may be specified from time to time as deemed necessary or appropriate to carry out its responsibilities.
The Committee shall serve as the audit committee of each of the Corporation’s federally insured depository institutions and perform the fiduciary audit functions required for national bank subsidiaries of the Corporation that have fiduciary powers. References in this Charter to the Corporation shall be deemed to include its subsidiaries and affiliates unless the context requires otherwise.
The Committee’s primary responsibility is one of oversight and it recognizes that the Corporation’s management is responsible for preparing the Corporation’s financial statements and that the independent auditor is responsible for auditing those financial statements. The Committee also recognizes that management and the independent auditor have more time, knowledge, and detailed information about the Corporation than the Committee members have. In carrying out its oversight duties, it is not the Committee’s responsibility to plan or conduct audits or to determine that the Corporation’s financial statements are complete or accurate or in accordance with generally accepted accounting principles. In addition, the Corporation’s management is responsible for managing its risk function and for reporting on its processes and assessments with respect to the Corporation’s management of risk. Accordingly, the Committee is not providing any expert or special assurance as to the Corporation’s financial statements, any professional certification as to the independent auditor’s work or any expert or special assurances as to the Corporation’s management of risk.
The Committee shall consist of at least three directors, all of whom, in the judgment of the Board, shall meet the criteria for independence as established by the Board in accordance with the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" /> New York Stock Exchange listing standards and any other applicable laws, rules or regulations regarding independence as they are in effect from time to time. Each member shall, in the judgment of the Board, be financially literate and have the ability to read and understand the Corporation’s financial statements. At least one member of the Committee shall, in the judgment of the Board, be an “audit committee financial expert” as defined by the rules and regulations of the Securities and Exchange Commission, and at least two members (one of whom may also serve as the audit committee financial expert) shall, in the judgment of the Board, have banking, accounting or related financial management expertise in accordance with both the New York Stock Exchange listing standards and applicable regulatory requirements. No member of the Committee shall be a large customer of the Corporation’s subsidiary depository institutions.
The members shall be appointed and removed by the Board acting on the recommendation of the Governance and Nominating Committee of the Board. The Board shall have the authority to fill any vacancies and to remove any Committee member for any reason. The Board shall have the authority to fill any vacancies and to remove any Committee member for any reason. Either the Board or the Committee shall appoint the chair of the Committee (the “Chair”).
No member of the Committee may serve simultaneously on the audit committees of more than three public companies, including that of the Corporation, unless the Board determines that such simultaneous service would not impair the ability of such member to effectively serve on the Committee and such determination is disclosed in accordance with the listing standards of the New York Stock Exchange.
The Committee shall meet at least quarterly during the year and at such other times as the Committee or the Chair deems advisable. The Committee shall periodically meet separately, in executive session, with the independent auditor, the Chief Internal Auditor, the Chief Risk Officer, the Chief Compliance Officer, the General Counsel, the Chief Financial Officer and other members of management as it deems appropriate for carrying out its responsibilities. The Committee may request any officer or employee of the Corporation or the Corporation’s independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee. The Committee may also meet periodically in separate executive sessions.
The Committee is governed by the same rules regarding meetings (including meetings by telephone conference or similar communications equipment), action without meetings, notice, waiver of notice, and quorum and voting requirements as are applicable to the Board.
Committee Duties and Responsibilities
A. General Duties
2. Maintain minutes of meetings, regularly report on its deliberations and actions to the Board and make recommendations to the Board, as appropriate, in accordance with the duties specified in this Charter and pursuant to applicable regulatory requirements and the listing standards of the New York Stock Exchange.
3. Conduct, and report to the Board the results of, an annual performance evaluation of the Committee, which evaluation shall compare the performance of the Committee with the requirements of this Charter.
4. In accordance with applicable policies of the Corporation, review and approve the terms of engagement and fees paid to any advisors employed by the Committee.
5. In addition to the activities enumerated herein, perform any other activities consistent with this Charter, the Corporation’s Amended and Restated Bylaws and governing law, as the Committee or the Board deems necessary or appropriate or as required by law or regulations.
B. Duties Relating to the Independent Auditors and the Conduct of the Audit
6. Appoint (subject to stockholder ratification in the Committee’s discretion as permitted by law), compensate, retain and oversee the work of the independent auditor. The independent auditor shall be ultimately accountable to the Committee and the Committee shall have sole authority to terminate the independent auditor in its discretion.
7. Approve all fees and terms of engagement for audit, audit-related and non-audit services provided by the independent auditor according to policies and procedures established by the Committee in accordance with applicable law, including appropriate policies and procedures for the pre-approval of any such services and the avoidance of any prohibited services. Any such engagements may be approved between Committee meetings by the Chair or individual Committee members designated by the Committee. All engagement terms shall not include any unsafe and unsound limitation of liability or remedy provisions prohibited by applicable laws and regulations.
8. Evaluate the independent auditor’s qualifications, performance and independence, taking into account the opinions of management and the Chief Internal Auditor, and present conclusions reached by the Committee to the Board. This evaluation will include, at least annually:
a. A review of the independent auditor’s work during the prior year, including consideration of the regular rotation of the independent auditor;
b. A review and evaluation of the lead partner and concurring/reviewing partner of the independent auditor assigned to the Corporation’s audit, including consideration of the regular rotation of the lead partner and concurring/reviewing partner in accordance with applicable regulations and standards; and
c. A review of periodic reports from the independent auditor describing:
i. The internal quality-control procedures of the independent auditor;
ii. The independent auditor’s most recent peer review that complies with applicable Federal Deposit Insurance Corporation requirements, and any material issues raised by the most recent peer review or internal quality control report of the independent auditor;
iii. Any material issues raised by any inquiry or investigation by governmental or professional authorities, within the preceding five years, with respect to one or more independent audits carried out by the independent auditor and any steps taken to deal with any such issues; and
iv. Any relationships, services or other factors or considerations, including all relationships between the independent auditor and the Corporation that could impact the independent auditor’s objectivity and independence.
9. Discuss with the independent auditor the overall scope and plans for its audits, including the adequacy of staffing and budget, any problems or difficulties the auditors may have encountered in connection with such audits and management’s response (including restrictions on the scope of the independent auditor’s activities or on access to requested information), any disagreements with management, and any management letters provided by the independent auditor and the Corporation’s response thereto; discuss with the independent auditor any significant changes required in the audit plan; obtain from the independent auditor assurance that the audit was conducted in a manner consistent with Section 10A of the Securities Exchange Act of 1934; and, to the extent deemed necessary or appropriate by the Committee, discuss with the independent auditor any communications between the audit team and the firm’s national office respecting auditing or accounting issues presented by the engagement as well as matters of audit quality and consistency.
11. In accordance with applicable policies of the Corporation, review and approve the terms of engagement and any fees paid to 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 attestation services.
12. In accordance with applicable requirements of the Securities and Exchange Commission and applicable regulatory requirements, review, and ensure the appropriate review by the Corporation and the independent auditor, of any required notice regarding the engagement, resignation or dismissal of the independent auditor; and ensure the filing and distribution of any required regulatory reports pertaining to the same.
13. Obtain from the independent auditor assurances that Section 10A(b) of the Securities Exchange Act of 1934 has not been implicated, which relates to illegal acts that have come to the attention of the independent auditor during the course of the audit.
C. Duties Relating to the Internal Auditors
14. Oversee the Corporation’s Internal Audit department and review and approve its annual budget and staffing levels.
15. Approve or replace the Chief Internal Auditor, as appropriate; and annually review the performance, independence and compensation of the Chief Internal Auditor. The Chief Internal Auditor shall report directly to the Committee for functional purposes but may report to a member of management for administrative purposes, which administrative reporting arrangement shall be reviewed and assessed by the Committee on an annual basis.
16. Review the significant reports to management prepared by the Internal Audit department and management’s responses, as applicable.
17. Discuss with the internal auditors the overall scope and plans for their audit, including the adequacy of staffing and any problems or difficulties the internal auditors may have encountered in connection with material audit; and review and approve annually the Internal Audit Plan, including Internal Audit’s overall risk-assessment methodology, and the Internal Audit Policy, and any significant changes to such Plan or Policy as appropriate; review and approve all significant aspects of internal audit outsourcing arrangements.
18. Review periodically reports regarding the Chief Internal Auditor’s assessment of the Corporation’s internal controls.
D. Duties Relating to the Corporation’s Financial Statements
19. Discuss the quarterly and annual financial statements and related footnotes of the Corporation and its subsidiaries with management and the independent auditor, as well as the Corporation’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
20. In connection with the preparation of quarterly and annual financial statements of the Corporation and its subsidiaries and otherwise as is necessary, review, or as appropriate the Chair on behalf of the Committee shall review, with the independent auditor and management on a timely basis any matters appropriate or required to be discussed by applicable accounting and auditing professional standards or applicable regulations. These discussions shall include, as appropriate, any significant financial reporting issues; judgments about the quality and acceptability of accounting principles as applied to the Corporation’s financial reporting, including the receipt from the independent auditor of a report on alternative treatments of financial information within generally accepted accounting principles discussed with management, the ramifications of such alternatives, and the treatment preferred by the independent auditor; the reasonableness of significant judgments made in connection with the preparation of the Corporation’s financial statements and the clarity of the disclosures therein and any analyses prepared by management or the independent auditor with respect thereto; the effect of regulatory and accounting initiatives and off-balance sheet structures on the Corporation’s financial statements; and the adequacy of the Corporation’s internal controls and the internal auditor’s response thereto.
21. Recommend to the Board whether to include the audited financial statements in the Corporation’s Form 10-K.
22. Discuss generally earnings press releases and the financial information and any earnings guidance provided to the Corporation’s analysts and rating agencies, as well as the disclosure of any “pro forma” or “non-GAAP” information.
23. Review both the acceptability and quality of major changes to the Corporation's accounting principles and practices as suggested by the independent auditor, Chief Internal Auditor or management, and be responsible for the resolution of any disagreements between management and the independent auditor regarding financial reporting issues.
24. Discuss generally with management, the independent auditor and the Chief Internal Auditor the selection, application and disclosure of critical accounting policies and estimates used by the Corporation.
25. Review disclosures made to the Committee by the Corporation’s Chief Executive Officer and Chief Financial Officer during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies or material weaknesses in the design or operation of internal controls over financial reporting, any fraud involving any employees who have a significant role in the Corporation’s internal control over financial reporting, and any significant changes in internal controls over financial reporting or in other factors that could significantly affect internal controls over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses.
26. Review and discuss with the independent auditor its assessment of the effectiveness of the Corporation’s internal controls over financial reporting, whether any changes are necessary in light of such assessment, and the basis for its report on the Corporation’s internal controls.
27. Review and discuss with management their assessment of the effectiveness of the Corporation’s disclosure controls and procedures and whether any changes are necessary in light of such assessment.
28. Review with the General Counsel or the attorney(s) designated by the General Counsel any legal matters that may have a material impact on the financial statements.
29. Oversee the establishment of and monitor procedures for: (i) the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting control or auditing matters; and (ii) the confidential, anonymous submission by the employees of the Corporation of concerns regarding accounting or auditing matters.
30. Review with management, the Chief Internal Auditor and the independent auditor any correspondence with regulators or governmental agencies and any employee “whistleblower” complaints or published reports which raise material issues regarding the Corporation’s financial statements or accounting policies, procedures or controls in accordance with the Committee’s established procedures and the process for obtaining and handling such complaints or published reports
E. Duties Related to Discussion of Policies for Risk Assessment and Management
31. Taking into consideration the overall primary responsibility of the Risk Committee for the oversight of management’s identification, assessment and management of operational, credit, market and liquidity risks, and the Risk Committee’s oversight of the Corporation’s enterprise-wide risk management framework and policies and practices for the identification, assessment and management of enterprise-wide key risk categories, it shall be a duty of the Committee to discuss, in a general manner, at least annually with the Chief Risk Officer, and other members of management as the Committee deems appropriate, the policies and practices that govern the processes by which key risk exposures are identified, assessed, managed and controlled on an enterprise-wide basis.
32. The Committee may from time to time, in fulfilling its duty in this regard, meet with the chair of the Risk Committee or the entire Risk Committee by means of a joint meeting, as the Committee deems appropriate.
33. Review and discuss reputation risk matters within the scope of the Committee’s responsibilities.
F. Duties Relating to Reporting and Compliance Matters
34. Review with management and the independent auditor the annual management report required to be submitted to the federal financial institution regulatory authorities, including the basis therefor and management’s and the independent auditor’s assessments of the adequacy and effectiveness of internal controls.
35. Review with management and the Chief Internal Auditor the Corporation’s compliance with designated banking laws and regulations.
36. Receive quarterly written reports from and discuss with the Corporation’s Chief Compliance Officer matters that may have a material impact on the Corporation’s compliance with state and federal laws, rules, regulations or the standards or codes of conduct of self-regulatory organizations applicable to the Corporation’s activities, and review management’s corrective actions for any deficiencies that may arise with respect to the effectiveness of the enterprise compliance risk management program, taking into consideration the Board’s assignment of responsibilities for review of the Corporation’s enterprise-wide compliance risk management program to the Risk Committee.
37. Authorize, review and approve the report of the Committee required by the rules of the Securities and Exchange Commission to be included in the Corporation’s Annual Proxy Statement.
38. Receive reports from the Head of Regulatory Relations or other members of management, as appropriate, on material inquiries received from, and any reports of examination submitted by, the various federal and state financial institution regulatory authorities and management’s responses to such reports or inquiries.
Access to Advisors
The Committee shall have the authority to retain special legal, accounting or other advisors to advise the Committee, when deemed necessary, without the prior permission from the Board or management, and the Corporation shall provide the necessary resources for such purposes. The Committee shall determine, it its business judgment, that any such advisors have no relationship with the Corporation that would interfere with the exercise of their independent judgment.
In carrying out its responsibilities, the Committee shall maintain free and open means of communication between the directors, the independent auditor, the Chief Internal Auditor, the Chief Risk Officer, the Chief Compliance Officer, the General Counsel, the Chief Financial Officer and other members of management. The Committee’s policies and procedures shall remain flexible, in order to best react to changing conditions and circumstances that might have a material effect on the financial accounting and reporting practices of the Corporation. Upon the recommendation of the Committee or if requested by the Board, the independent auditor shall be requested to attend any full Board meeting to assist in reporting the results of the annual audit or to answer directors’ questions.
Delegation of Authority
The Committee may form, and delegate authority to, subcommittees comprised of one or more members of the Committee, as appropriate. Each subcommittee shall have the full power and authority of the Committee, as to matters delegated to it.
- Financial Expert
- Independent Director