Eli Lilly 2012 Annual Report Download - page 123

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reasonableness of significant judgments, and the clarity
of the disclosures in the financial statements. In
addition, the committee has 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 has discussed with the
independent auditor the auditor’s independence from
the company and its management. In concluding that
the auditor is independent, the committee 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 (the
Sarbanes-Oxley Act), the committee has adopted
policies to avoid compromising the independence of the
independent auditor, such as prior committee approval
of nonaudit services and required audit partner rotation.
The committee 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.
The committee periodically meets 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. The committee also
periodically meets in executive session.
In reliance on the reviews and discussions referred to
above, the committee 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, 2012, for filing with the SEC. The
committee has also appointed the company’s
independent auditor, subject to shareholder ratification,
for 2013.
Audit Committee
Michael L. Eskew, Chair
Katherine Baicker, 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.
Audit services include internal controls attestation
work under Section 404 of the Sarbanes-Oxley Act.
The committee may also preapprove other audit
services, which are those services that only the
independent auditor reasonably can provide.
• 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.
• 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.
• 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 specific engagements
are identified 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,
sufficiently 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.