AUDIT CommITTEE CHARTER
I. Purpose
The primary purpose of the Audit Committee (the “Committee”)
of the Board of Directors (the “Board”) of Scientific
Games Corporation (the “Company”) is to assist the
Board in fulfilling its oversight responsibilities with respect
to: (i) the Company’s accounting, auditing, and financial
reporting processes; (ii) the integrity of the Company’s
financial statements; (iii) the Company’s internal controls
and procedures designed to promote compliance with accounting standards
and applicable laws and regulations; and (iv) the appointment,
and evaluation of the qualifications and independence, of the Company’s
independent auditors.
II. Membership
The Committee shall be comprised of three or more members of the
Board, each of whom shall satisfy the independence and financial
literacy requirements of The Nasdaq Stock Market, Inc. (“Nasdaq”)
and the Securities and Exchange Commission (the “SEC”).
At least one member of the Committee shall meet the requirements
of Rule 4350(d)(2)(A)(i) of the Nasdaq Marketplace Rules and, unless
the Board shall otherwise determine, shall also be an “Audit
Committee Financial Expert”, as defined by SEC regulations.
Each member shall be free from any relationship that, in the opinion
of the Board, would interfere with his or her exercise of independent
judgment. The Board must determine that each member of the Committee:
(i) qualifies as an “independent director” under
Rule 4200 of the Nasdaq Marketplace Rules, unless the Board determines
that an exemption to such qualification is available under Nasdaq
Rule 4350(d)(2)(B), (ii) meets the “independence” requirements
under Section 10A of the Securities Exchange Act of 1934 (the “Exchange
Act”) and (iii) satisfies the other requirements of Rule
4350(d)(2) of the Nasdaq Marketplace Rules.
The members of the Committee and the Chairman of the Committee
shall be appointed annually by the Board on the recommendation
of the Nominating and Corporate Governance Committee of the Board.
Members shall serve at the pleasure of the Board and for such term
or terms as the Board may determine.
The Committee shall meet at least four times annually, or more
frequently as the Committee may determine. Members of management,
the Company’s independent auditors and others shall attend
meetings to provide pertinent information, as necessary. As part
of its goal of fostering open communication, during its regularly
scheduled meetings the Committee shall meet in separate executive
sessions with management and with the independent auditors to discuss
any matters that the Committee or any of these groups believes
should be discussed privately. The Chairman of the Committee shall
report to the Board regularly regarding the Committee’s activities
and actions, including at the first Board meeting following any
Committee meeting.
The Chairman or, in the event of his absence from any meeting,
another member of the Committee designated by vote of the members
in attendance at such meeting, will chair all meetings of the Committee
and set the agendas for such meetings. Any other member of the
Committee shall have the right to submit items to be included on
the agenda for any Committee meeting.
The Committee shall keep regular minutes of its meetings and report
the same to the Board from time to time and upon request.
III. Duties and Responsibilities
The Committee shall have and may exercise the powers of the Board
in matters relating to the following duties and responsibilities,
to the fullest extent permitted by law:
Independent Auditors – Appointment and Oversight
| 1. |
The Committee shall be directly
responsible for the appointment, compensation, retention,
termination and oversight of the work of the Company’s
independent auditors (including resolution of disagreements
between management and the independent auditors regarding
financial reporting). The independent auditors shall report
directly to the Committee.
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| 2. |
The Committee shall approve in
advance all auditing services (including comfort letters
and statutory audits) performed by the independent auditors.
The Committee shall approve in advance all non-audit services
performed by the independent auditors as permitted under
Section 10A of the Exchange Act. The Committee may delegate
to one or more members the authority to grant pre-approvals
required by this section, in which case the decision of such
member or members shall be presented to the Committee at
the next scheduled meeting of the Committee. All approvals
shall be in accordance with the Committee’s Auditor
Pre-Approval Policy, as amended from time to time.
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| 3. |
The Committee shall annually review
and discuss with the independent auditors all relationships
the independent auditors have with the Company in order to
evaluate their continued independence. In this regard, the
Committee shall (i) review on an annual basis a written statement
from the independent auditors (consistent with Independent
Standards Board Standard No. 1) that discloses all relationships
and services that may impact the objectivity and independence
of the independent auditors; (ii) discuss with the independent
auditors any disclosed relationships or services that may
impact their objectivity and independence; and (iii) satisfy
itself as to the independence of the independent auditors.
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| 4. |
The Committee shall annually obtain
and review a report by the independent auditors describing:
(i) the independent auditors’ internal quality-control
procedures; and (ii) any material issues raised by the most
recent internal quality-control review, or peer review, of
the audit firm, 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 audit firm, and any steps taken to deal with such issues.
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| 5. |
The Committee shall confirm compliance
by the independent auditors with laws and regulations relating
to audit partner rotation.
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| 6. |
The Committee shall obtain, review
and discuss quarterly reports from the independent auditors
to the Committee with respect to critical accounting policies
and practices, alternative treatments of financial information
within generally accepted accounting principles that have
been discussed with management, including ramifications of
the use of such alternative disclosure and treatments, and
the treatment preferred by the independent auditors and the
impact of each on the quality and reliability of the Company’s
financial reporting, and other material communications with
management, such as any management letter or schedule of
unadjusted differences. All material communications shall
be promptly provided to each member of the Committee.
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| 7. |
The Committee shall review with
the independent auditors and management the scope of the
proposed audit plan for the current year, and at the conclusion
thereof review such audit and any comments and recommendations
of the independent auditors.
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| 8. |
The Committee shall discuss with
management and the independent auditors any accounting adjustments
that were noted or proposed by the independent auditors but
not adopted or reflected.
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| 9. |
The Committee shall regularly review
with the independent auditors any audit problems or difficulties
encountered in the course of the audit work, including any
restrictions on the scope of the independent auditors’ activities
or access to requested information and any significant disagreements
with management and management’s response thereto.
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| 10. |
The Committee shall annually review
the qualifications, performance and independence of the independent
auditors and the senior members of the independents auditors’ audit
engagement team.
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| 11. |
The Committee shall annually prepare
the report required by the proxy rules promulgated by the
SEC to be included in the Company’s annual proxy statement.
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Financial
Statements
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| 12. |
The Committee shall review and
discuss with management and the independent auditors the
Company’s annual audited financial statements and the
Company’s quarterly financial statements (including
disclosures made in the “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” portion
thereof) prior to issuance or filing.
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| 13. |
The Committee shall discuss with
the independent auditors the matters required to be discussed
by Statement on Auditing Standards No. 61 relating to the
conduct of the audit.
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| 14. |
The Committee shall recommend to
the Board, if appropriate, that the Company’s annual
audited financial statements be included in the Company’s
annual report on Form 10-K for filing with the SEC.
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Accounting
and Financial Reporting Processes and Risk Assessment
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| 15. |
The Committee shall periodically
discuss with the independent auditors, without management
being present, their judgments about the quality, appropriateness
and acceptability of the Company’s accounting principles
and financial disclosure practices, as applied in its financial
reporting, and the completeness and accuracy of the Company’s
financial statements.
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| 16. |
The Committee shall review with
management and the independent auditors any legal, regulatory
or compliance matters that could have a significant impact
on the Company’s financial statements, including any
correspondence with regulators or government agencies and
any employee complaints or published reports that raise material
issues regarding the Company’s financial statements
or accounting policies and any significant changes in accounting
standards or rules promulgated by the Financial Standards
Board, the SEC or other regulatory authorities.
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| 17. |
The Committee shall discuss generally
the types of information to be disclosed and the presentation
to be made in press releases regarding the Company’s
earnings, including the use of non-GAAP financial data, and
in financial information and earnings guidance (if any) otherwise
publicly announced or given to ratings agencies or other
third parties.
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| 18. |
The Committee shall review with
management and, if necessary, the independent auditors and
Company counsel, press releases announcing quarterly and
annual financial results and other financial reporting information
prior to their release.
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| 19. |
The Committee shall review any
off-balance sheet transactions, arrangements and obligations
(including contingent obligations) and any other relationships
of the Company with unconsolidated entities that may have
a current or future effect on the Company’s financial
statements.
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| 20. |
The Committee shall review and
discuss with management, and to the extent the Committee
deems necessary or appropriate, the independent auditors,
the Company’s disclosure controls and procedures that
are designed to ensure that the reports the Company files
with the SEC comply with the SEC’s rules and forms.
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| 21. |
The Committee shall review the
Company’s major financial risk exposures, the Company’s
system of internal controls and policies relating to risk
assessment and management and the steps management has taken
to monitor and control such exposures.
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Internal
Controls
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| 22. |
The Committee shall 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. |
| 23. |
The Committee shall review the
reports of the Chief Executive Officer and Chief Financial
Officer (in connection with their required certifications
for the Company’s filings with the SEC) regarding any
significant deficiencies or material weaknesses in the design
or operation of internal controls, and any fraud that involves
management or other employees who have a significant role
in the Company’s internal controls.
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Other
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| 24. |
The Committee shall take steps
to ensure that the Company shall not hire any person to perform
a financial reporting oversight role who has provided more
than ten hours of audit, review or attest services as part
of the independent auditors’ audit engagement team
within the past year. A financial reporting oversight role
refers to a role in which an individual has direct responsibility
for or oversight of those who prepare the Company’s
financial statements and related information which will be
included in the Company’s filings with the SEC, and
also includes members of the Board who may have significant
interaction with the independent auditors’ audit engagement
team.
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| 25. |
The Committee shall, prior to
the Company entering into any related party transaction required
to be disclosed pursuant to Item 404 of Regulation S-K promulgated
by the SEC (such transaction being a “Related Party
Transaction”), review and approve such transaction
and recommend to the Board that it approve such transaction;
however, the Company may only enter into a Related Party
Transaction approved by the Committee if the Board also approves
such transaction. The Committee shall report to the Board
any proposed Related Party Transaction that it does not approve.
The Committee shall also review and report to the Board any
questions of possible conflict of interest involving Board
members, members of senior management or their immediate
families.
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| 26. |
The Committee shall oversee the
Company’s internal audit function, including (i) the
appointment, replacement, dismissal and compensation of the
Company’s senior most internal auditor and (ii) reviewing
the internal audit department’s staffing, budget and
responsibilities.
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| 27. |
The Committee shall annually review
and evaluate the performance of the Committee, including
compliance by the Committee with this Charter.
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| 28. |
The Committee shall annually review
and assess the adequacy of this Charter and submit any proposed
changes to the Board for approval.
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| 29. |
The Committee shall perform any
other activities consistent with this Charter, and the Company’s
Bylaws and Certificate of Incorporation, as the Committee
may deem necessary or appropriate for the fulfillment of
its responsibilities under this Charter or as required by
applicable law or regulation, or as may be determined by
the Board. |
IV. Committee Resources and Advisors
The Committee shall have the authority to retain, at the expense
of the Company, such independent legal and other advisors as it
shall deem necessary to carry out its duties, without Board or
management approval.
The Committee members will be provided with continuing education
opportunities in financial reporting and other areas relevant to
the Committee.
The Company shall provide for appropriate funding, as determined
by the Committee, in its capacity as a committee of the Board,
for payment of: (i) compensation to any registered public accounting
firm engaged for the purpose of preparing or issuing an audit report
or performing other audit, review or attest services for the Company;
(ii) compensation to any advisors engaged by the Committee as provided
above; and (iii) ordinary administrative expenses of the Committee
that are necessary or appropriate in carrying out its duties.
V. Limitation of Committee’s Role
While the Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Committee to plan or
conduct audits or to determine that the Company’s financial
statements and disclosures are complete and accurate and are in
accordance with generally accepted accounting principles and applicable
rules and regulations. These are the responsibilities of management
and the independent auditors
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