Eli Lilly 2003 Annual Report Download - page 66

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PROXY STATEMENT
64
AUDIT COMMITTEE MATTERS
Audit Committee Membership
All current members of the audit committee are independent as defi ned in both the New York Stock Exchange list-
ing standards and the Securities and Exchange Commission standards applicable to audit committee members.
The board of directors has determined that Sir Winfried Bischoff is an audit committee fi nancial expert as defi ned
in the rules of the Securities and Exchange Commission.
Audit Committee Report
The audit committee reviews the company’s fi nancial reporting process on behalf of the board. Management has
the primary responsibility for the fi nancial statements and the reporting process, including the systems of inter-
nal controls and disclosure controls. In this context, we have met and held discussions with management and the
independent auditors. Management represented to us that the company’s consolidated fi nancial statements were
prepared in accordance with generally accepted accounting principles, and we have reviewed and discussed the
audited fi nancial statements and related disclosures with management and the independent auditors, including a
review of the signifi cant management judgments underlying the fi nancial statements and disclosures.
The independent auditors report to us and to the board. We have sole authority to appoint (subject to shareholder
ratifi cation) and to terminate the engagement of the independent auditors.
We have discussed with the independent auditors matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication With Audit Committees), 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
auditors required by the Independence Standards Board Standard No. 1 (Independence Discussions With Audit
Committees) and have discussed with the independent auditors the auditors’ independence from the company
and its management. In concluding that the auditors are independent, we determined, among other things, that
the nonaudit services provided by Ernst & Young (as described below) were compatible with their independence.
Consistent with the requirements of the Sarbanes-Oxley Act of 2002, we have adopted additional policies to ensure
the independence of the independent auditors, 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 re-
spective audits. We periodically meet with the internal and independent auditors, with and without management
present, 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 subse-
quently 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, 2003, for fi ling with the Securities and Exchange Commis-
sion. We have also appointed the company’s independent auditors, subject to shareholder ratifi cation.
Audit Committee
Sir Winfried Bischoff, Chair
Martin S. Feldstein, Ph.D.
Franklyn G. Prendergast, M.D., Ph.D.
Kathi P. Seifert
Services Performed by the Independent Auditor
The audit committee preapproves all audit and nonaudit services performed by the independent auditor in order to
assure that the provision of such services does not impair the auditor’s independence. The committee’s policy and
procedures are as follows:
• All audit services must be preapproved by the committee. The committee approves the annual audit services
engagement and, if necessary, any changes in terms, conditions, and fees resulting from changes in audit scope,