Eli Lilly 2004 Annual Report Download - page 70

PROXY STATEMENT
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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 share-
holder 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 nan-
cial 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 manage-
ment. In concluding that the auditors are independent, we determined, among other things, that the nonaudit ser-
vices 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
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, 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, 2004, for fi ling with the Securities and Exchange Com-
mission. We have also appointed the company’s independent auditors, subject to shareholder ratifi cation for 2005.
Audit Committee
Sir Winfried Bischoff, Chair
J. Michael Cook (from February 1, 2005)
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,
company structure, or other matters. The committee may also grant preapproval for other audit services, which
are those services that only the independent auditor reasonably can provide. Beginning in 2004, audit services
include 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. All audit-related services must be
preapproved by the committee.
• All tax services must be separately preapproved by the committee. 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.
• Nonaudit services classifi ed as “all other services” must be separately preapproved by the committee. The
committee may approve such services if (i) the services are permissible under SEC rules, (ii) the committee
believes the provision of the services would not impair the independence of the auditor, and (iii) management