Eli Lilly 2010 Annual Report Download - page 116

PROXY STATEMENT
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, 2010, for filing with the SEC. We have also appointed
the company’s independent auditor, subject to shareholder ratification, for 2011.
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. 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.
•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
impair the independence of the auditor, and (iii) management believes that the auditor is the best choice to
provide the services.
•Process. 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.
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