Eli Lilly 2008 Annual Report Download - page 89

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PROXY STATEMENT
8787
Standards No. 61 (Communication with Audit Committees), as amended and as adopted by the Public Company
Accounting Oversight Board (PCAOB) in Rule 3200T, including the quality, not just the acceptability, of the accounting
principles, the reasonableness of signifi cant judgments, and the clarity of the disclosures in the fi nancial statements.
In addition, we have received the written disclosures and the letter from the independent auditor required by applica-
ble requirements of the PCAOB regarding communications with the audit committee concerning independence, and
have discussed with the independent auditor the auditor’s independence from the company and its management. In
concluding that the auditor is independent, we determined, among other things, that the nonaudit services provided
by Ernst & Young LLP (as described below) were compatible with its independence. Consistent with the requirements
of the Sarbanes-Oxley Act of 2002, we have adopted policies to avoid compromising the independence of the indepen-
dent auditor, such as prior committee approval of nonaudit services and required audit partner rotation.
We discussed with the company’s internal and independent auditors the overall scope and plans for their
respective audits, including internal control testing under Section 404 of the Sarbanes-Oxley Act. We periodically
meet with the internal and independent auditors, with and without management present, and in private sessions
with members of senior management (such as the chief fi nancial offi cer and the chief accounting offi cer) to discuss
the results of their examinations, their evaluations of the company’s internal controls, and the overall quality of the
company’s fi nancial reporting. We also periodically meet in executive session.
In reliance on the reviews and discussions referred to above, we recommended to the board (and the board
subsequently approved the recommendation) that the audited fi nancial statements be included in the company’s
annual report on Form 10-K for the year ended December 31, 2008, for fi ling with the Securities and Exchange Com-
mission. We have also appointed the company’s independent auditor, subject to shareholder ratifi cation, for 2009.
Audit Committee
J. Michael Cook, Chair
Michael L. Eskew
Martin S. Feldstein, Ph.D.
Douglas R. Oberhelman
Kathi P. Seifert
Services Performed by the Independent Auditor
The audit committee preapproves all services performed by the independent auditor, in part to assess whether the pro-
vision of such services might impair the auditor’s independence. The committee’s policy and procedures are as follows:
• The committee approves the annual audit services engagement and, if necessary, any changes in terms,
conditions, and fees resulting from changes in audit scope, company structure, or other matters. The committee
may also preapprove other audit services, which are those services that only the independent auditor reasonably
can provide. Since 2004, audit services have included internal controls attestation work under Section 404 of the
Sarbanes-Oxley Act.
• Audit-related services are assurance and related services that are reasonably related to the performance of the
audit, and that are traditionally performed by the independent auditor. The committee believes that the provision
of these services does not impair the independence of the auditor.
• Tax services. The committee believes that, in appropriate cases, the independent auditor can provide tax
compliance services, tax planning, and tax advice without impairing the auditor’s independence.
• The committee may approve other services to be provided by the independent auditor if (i) the services are
permissible under SEC and PCAOB rules, (ii) the committee believes the provision of the services would not
impair the independence of the auditor, and (iii) management believes that the auditor is the best choice to
provide the services.
• Process. At the beginning of each audit year, management requests prior committee approval of the annual
audit, statutory audits, and quarterly reviews for the upcoming audit year as well as any other engagements
known at that time. Management will also present at that time an estimate of all fees for the upcoming audit
year. As specifi c engagements are identifi ed thereafter, they are brought forward to the committee for approval.
To the extent approvals are required between regularly scheduled committee meetings, preapproval authority is
delegated to the committee chair.
For each engagement, management provides the committee with information about the services and fees suf-
fi ciently detailed to allow the committee to make an informed judgment about the nature and scope of the services
and the potential for the services to impair the independence of the auditor.
After the end of the audit year, management provides the committee with a summary of the actual fees
incurred for the completed audit year.