Audit Committee Charter

I. Purpose 

a. The integrity of the Company’s financial statements and reporting system and the audits of the financial statements of the Company;

 

b.  The systems of internal control over financial reporting;

 

c.  Approval of financial code of ethics;

 

d.  The internal audit function;

 

e.  The retention, compensation and termination of independent auditors;

 

f.  The annual independent audit of the company’s financial statements;

 

g.  The independent auditor’s qualification and independence; 

 

h.  The company’s compliance with legal and regulatory requirements; and

 

i.  The performance of the company independent auditors.

The management of the Company is responsible for the preparation, presentation and integrity of the Company’s financial statements.  Management is responsible for maintaining and applying appropriate accounting and financial reporting principles and policies and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations.  The independent auditors are responsible for planning and carrying out audits and reviews, including reviews of the Company’s quarterly financial statements prior to the filing of each quarterly report on Form 10-Q, and other procedures.

In discharging its oversight role, the Committee is empowered to create procedures to receive and investigate complaints regarding the Company’s accounting internal controls, or auditing matters brought to its attention.  The Committee shall have authority to engage independent counsel and other advisers as determined necessary to carry out its oversight duties.

(ii)    Internal Audit Function     
 
The Committee shall have a clear understanding with management that the Company’s internal auditor is ultimately accountable to the Board and the Committee.  The Committee shall have the ultimate authority and responsibility to appoint, retain, evaluate and, where appropriate, replace the internal auditor.  The Committee shall review the internal auditor’s responsibilities and ensure unrestricted access by internal auditors to relevant records, personnel and physical properties.  The Committee shall ensure the internal audit function is structured so that it achieves organizational independence and permits full and unrestricted access to the Committee, management and the Board.  In addition, the Committee shall review and approve the annual internal audit plan and budget.  Further, the committee shall meet separately with the internal auditors, with and without management present, to discuss the results of their examinations.

II.  Composition
 
The Committee shall be composed of at least three members (including a Chairman), all of whom shall be “independent directors”, as such term is defined in the effective rules and regulations of the SEC.  At least one member of the Committee must have      accounting or related financial management expertise to qualify as an “audit committee financial expert” as defined by the SEC.  Upon appointment of a qualified financial expert, this person shall be appointed as Chairman of the Committee.

The Board shall determine annually whether each member is free from any relationships that may interfere with his or her independence from management of Company.  No member shall serve on an audit committee of more than two other public companies unless the Board determines that such simultaneous service would not impair the ability of such director to effectively serve on the Committee.  The Chairman shall maintain regular communication with the chief executive officer, chief financial officer, and the lead partner of the independent accountant.

III. Meetings

The Audit Committee shall meet no less than four times each year.  Other meetings may be held at the discretion of the Audit Committee.  The Audit Committee should meet separately, at least annually, with management and the independent auditors  to discuss any matters that the Audit Committee or any of those persons believe should be discussed privately.  At the final meeting to discuss the annual audited financial statements of the Company, the Committee will set its meeting calendar for the next fiscal year of the Company.

IV. Duties and Powers

The following shall be the principal recurring processes of the Committee in carrying out its oversight responsibilities.  The processes are set forth as a guide with the understanding that the Committee may supplement  them as appropriate.
 
The Audit Committee will have the following duties and powers:

a. With respect to the independent auditors:

(i) To directly appoint, retain or terminate, compensate, and oversee and evaluate the Company’s auditors, and to approve all audit engagement fees and terms;

 

(ii) To annually obtain and review a report from the auditors delineating:  (1) the auditors internal quality- control procedures; (2) any material issues raised by the most recent internal quality-control review, or peer review, of the auditors, 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 firm, and any steps taken to deal with any such issues;  and (3) all relationships between the auditors and the Company (“Statement as to Independence”), addressing at least the matters set forth in the Independence Standards Board No. 1, (it being understood that the auditors are responsible for the accuracy and completeness of this Statement as to Independence), discuss with the auditors the nature and scope of any disclosed relationships and non-audit services which may have been provided that might impact the auditor’s objectivity and independence, and take appropriate action in response to the Statement as to Independence and this discussion to satisfy itself of the continuing independence of the auditors;

(iii) To pre-approve all permissible, non-de-minimis, non-audit services and all audit, review or attestation engagements with the auditors;

(iv) To periodically meet separately with the auditors, and review/discuss:  (1) any difficulties the auditors encountered in the course of the audit work (including any restrictions on the scope of the auditors activities or on access to information, and any significant disagreements with management) and management’s response; and (2) the auditor’s evaluation of the Company’s financial, accounting and internal control policies and procedures and auditing personnel; and
    
(v) To set clear hiring policies for employees or former employees of the auditors.

b.  With respect to the annual audit:

(i) To review with the auditors and management of the Company the scope of the proposed audit and timely quarterly reviews for the current year financial statements, the procedures to be utilized and the compensation of the auditors;

(ii) To advise management and the auditors that they are expected to provide and discuss with the Audit Committee:

(a) a timely analysis of significant financial reporting issues and practices and control risks or exposures determined during the course of the audit, to include the Company’s guidelines and policies that govern the process by which risk assessment and management is undertaken; and,

(b) the steps management has taken or plans to take to address such issues and practices and to monitor and control such risks and exposures;

(iii) At the completion of the annual audit:

(a)  To review with management and the auditors the audited financial statements to be included in the annual report to stockholders, including the disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), to determine that the auditors are satisfied with the disclosure and content of the financial statements and the MD&A;

 

(b)  To consider any reports or communications (and management’s responses thereto) submitted to the Audit Committee by the auditors required by or referred to in Statement on Auditing Standards 61, discuss any other matters required to be communicated to the Committee by the auditors, and review with management and the auditors their judgments about the appropriateness, not just acceptability, of accounting principles and the clarity of the financial disclosure practices used or proposed to be used, and particularly, the degree of aggressiveness or conservatism of the organization’s accounting principles and underlying estimates, and other significant decisions made in preparing the financial statements;

 

(c) To review with the auditors their audit of the financial statements and the report thereon, any significant changes made in the approved scope of the independent audit plan, any serious difficulties or disputes with management encountered during the course of the audit including any restrictions on the scope of their work or access to required information, and other matters related to the conduct of the audit which are to be communicated to the Committee under generally accepted auditing standards.   

 

(d)  To consider and review with management and the auditors:

(i) The adequacy of the Company’s internal controls including computerized information system controls and security; and

 

(ii) Any related significant findings and recommendations of the auditors with management’s responses thereto and;

 

(iii) To obtain from the auditors assurance that the audit was conducted in a  manner consistent with Section 10A of the Securities Exchange Act of 1934, as amended, which sets forth certain procedures to be followed in any audit of financial statements required under the Securities Exchange Act of 1934.

c.  With respect to financial statements and reports and earning guidance:

(i) To review the quarterly financial statements, including disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the related press releases with management and the auditors prior to the filing of the Form 10-Q and issuance of the press release, to determine that the auditors are satisfied with and do not take exception to the disclosure and content of the financial statements or results, and discuss any other matters required to be communicated to the Committee by the auditors (the chair of the Committee may represent the entire Committee for purposes of this review);
 
(ii) To review financial information and earnings guidance provided to analysts and rating agencies with management;  
          
(iii) To review any report required by the rules of the Securities and Exchange Commission to be included in the Company’s proxy statement for its annual meeting of stockholders; and

(iv) To review legal and regulatory matters that may have a material impact on financial statements, related Company compliance policies, and programs and reports received from regulators.

d.  With respect to complaints:

(i) Establish procedures for the receipt, retention, and treatment of complaints received regarding accounting, internal accounting controls, or auditing matters, and the confidential and anonymous submission of concerns regarding accounting or auditing matters by employees.

e. With respect to violations of the Code of Ethics (“Code”):

(i) To investigate alleged violations of the Code and to take appropriate disciplinary action, up to and including termination of employment, in the event a violation of the Code is determined by the Committee. For alleged violations of the Code pertaining to conflicts of interest involving executive officers and/or directors, the Committee shall refer these alleged violations to the Governance and Nominating Committee who shall have sole authority and jurisdiction to investigate and resolve these violations of the Code.

f. With respect to oversight of the Company’s internal audit function:

(i) To discuss with the independent auditor and management the Company’s internal auditing responsibilities, budget and staffing and any recommended changes in the planned scope of the internal audit.

(ii) To review the appointment, performance and any replacement of a senior internal auditing executive.

(iii) To review the significant reports to management prepared by internal auditors and management responses.

g. With respect to the Board:

(i) To report regularly to the full Board and to report Committee actions to the Board with such recommendations as the Committee may deem appropriate;
          
(ii) To obtain the full Board’s approval of this Charter, and review and reassess this Charter and conduct an annual self-appraisal at least annually;

(iii)To conduct or authorize investigations into any matters with the Committee’s scope of responsibilities, using, in its sole discretion, independent counsel, accountants, or others to assist it in the conduct of any investigation without seeking Board approval; and

(iv) To perform such other functions as assigned by law, the Company’s charter or by-laws or the Board.

(v) To establish sub-committees and delegate authority to such sub-committee if the Committee determines it is desirable to accomplish the duties and responsibilities of the Committee.

(vi) The Audit Committee is to review and approve related party transactions, including any “related party transaction” that ERHC would be required to disclose pursuant to Item 404 of Regulation S-K.

(vii) To discharge the foregoing functions ERHC will provide appropriate funding,as determined by the Audit Committee, for the payment of compensation to any outside legal, accounting and other advisors employed by the Audit Committee.

Adoption by the Board of ERHC

The forgoing Audit Committee Charter was adopted by the Board of Directors of ERHC Energy Inc on the 12th day of August 2007