Eli Lilly 2005 Annual Report Download - page 76

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PROX Y S TATEM ENT
7474
Audit Committee Matters
Audit Committee Membership
All members of the audit committee are independent as defined in both the New York Stock Exchange listing
standards and the Securities and Exchange Commission standards applicable to audit committee members. The
board of directors has determined that Sir Winfried Bischoff and Mr. J. Michael Cook are audit committee financial
experts as defined in the rules of the Securities and Exchange Commission.
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, includ-
ing the systems of internal 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 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 auditors,
including a review of the significant management judgments underlying the financial statements and disclosures.
The independent auditors report to us and to the board. We have sole authority to appoint (subject to share-
holder ratification) 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 significant judgments, and the clarity of the disclosures in the finan-
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
services provided by Ernst & Young LLP (as described below) were compatible with their independence. Consistent
with the requirements of the Sarbanes-Oxley Act of 2002, we have adopted policies to avoid compromising the in-
dependence 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, 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 sub-
sequently 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, 2005, for filing with the Securities and Exchange Commission.
We have also appointed the company’s independent auditors, subject to shareholder ratification, for 2006.
Audit Committee
Sir Winfried Bischoff, Chair
J. Michael Cook
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 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.