Eli Lilly 2009 Annual Report Download - page 122

Audit Committee Matters
Audit Committee Membership
All members of the audit committee are independent as defined in the SEC regulations and NYSE listing
standards applicable to audit committee members. The board of directors has determined that Mr. Eskew,
Mr. Hoover, and Mr. Oberhelman are audit committee financial experts, as defined in the rules of the SEC.
Audit Committee Report
The audit committee (“we” or “the committee”) reviews the company’s financial reporting process on behalf of
the board. Management has the primary responsibility for the financial statements and the reporting process,
including the systems of internal controls and disclosure controls. In this context, we have met and held
discussions with management and the independent auditor. Management represented to us that the company’s
consolidated financial statements were prepared in accordance with generally accepted accounting principles,
and we have reviewed and discussed the audited financial statements and related disclosures with management
and the independent auditor, including a review of the significant management judgments underlying the
financial statements and disclosures.
The independent auditor reports to us. We have sole authority to appoint and to replace the independent
auditor.
We have discussed with the independent auditor matters required to be discussed by Statement on Auditing
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 significant judgments, and the clarity of the disclosures in the
financial statements. In addition, we have received the written disclosures and the letter from the independent
auditor required by applicable 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 independent 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 financial officer and the chief accounting officer) to
discuss the results of their examinations, their evaluations of the company’s internal controls, and the overall
quality of the company’s financial 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 financial statements be included in the company’s
annual report on Form 10-K for the year ended December 31, 2009, for filing with the SEC. We have also
appointed the company’s independent auditor, subject to shareholder ratification, for 2010.
Audit Committee
Michael L. Eskew, Chair
Martin S. Feldstein, Ph.D.
R. David Hoover
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 provision 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
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