EXHIBIT C
DIAMOND HILL INVESTMENT GROUP, INC.
AUDIT COMMITTEE CHARTER
Revised 10/25/02
The audit committee is a committee of the board of directors. Its primary
function is to assist the board in fulfilling its oversight responsibilities by
reviewing the financial information that will be provided to the shareholders
and others, the systems of internal controls, which management and the board of
directors have established, and the audit process. This charter specifies the
scope of the audit committee's responsibilities, and how it carries out those
responsibilities, including structure, processes, and membership requirements.
In meeting its responsibilities, the audit committee is expected to:
1. Provide an open avenue of communication between the independent
accountant and the board of directors.
2. Review and update the committee's charter annually.
3. Recommend to the board of directors the independent accountants to be
nominated, approve the compensation of the independent accountant, and
review and approve the discharge of the independent accountants. The
outside auditor is ultimately accountable to the board of directors
and the audit committee, as representatives of shareholders, and these
shareholder representatives' have ultimate authority and
responsibility to select, evaluate, and, where appropriate, replace
the outside auditor (or to nominate the outside auditor to be proposed
for shareholder approval in any proxy statement).
In connection with each SEC filing the audit committee should discuss
with the auditor the auditor's judgments about the quality, not just
the acceptability, of the company's accounting principles as applied
in its financial reporting. Since the primary responsibility for
establishing the company's accounting principles rests with
management, the discussion generally would include management as an
active participant. The discussion should include such matters as the
consistency of application of the company's accounting policies and
the clarity, consistency and completeness of the company's accounting
information contained in the financial statements and related
disclosures. The discussion should also include items that have a
significant impact on the representational faithfulness,
verifiability, neutrality, and consistency of the accounting
information included in the financial statements. Examples of items
that may have such impact are the following:
o Selection of new or changes to accounting policies
o Estimates, judgments, and uncertainties
o Unusual transactions
o Accounting policies relating to significant financial statement
items, including the timing of transactions and the period in
which they are recorded
The discussion should be tailored to the company's specific
circumstances, including accounting applications and practices not
explicitly addressed in the accounting literature, for example, those
that may be unique to an industry. Objective criteria have not been
developed to aid in the consistent evaluation of the quality of the
company's accounting measurements and disclosures. Given this lack of
objective criteria and to facilitate an open and frank discussion, the
auditor's judgments should not be communicated in writing. As a
result, the audit committee need only document in the minutes that the
discussion has taken place, the date of the discussion, and the
participants.
4. Confirm and assure the independence of the independent accountant,
including a review of management consulting services and related fees
provided by the independent accountant. The audit committee is
responsible for ensuring it receives from the outside auditors, a
formal written statement delineating all
relationships between the auditor and the company, consistent with
Independence Standards Board Standard 1, and the audit committee is
responsible for actively engaging in a dialogue with the auditor with
respect to any disclosed relationships or services that may impact the
objectivity and independence of the auditor and for taking, or
recommending that the full board take, appropriate action to ensure
the independence of the outside auditor.
5. Inquire of management and the independent accountant about significant
risks or exposures and assess the steps management has taken to
minimize such risk to the company.
6. Consider, in consultation with the independent accountant, the audit
scope and plan of the independent accountant.
7. Consider and review with the independent accountant:
a. The adequacy of the company's internal controls including
computerized information system controls and security.
b. Any related significant findings and recommendations of the
independent accountant together with management's responses
thereto.
8. Review with management and the independent accountant at the
completion of the annual examination:
a. The company's annual financial statements and related footnotes.
b. The independent accountant's audit of the financial statements
and his or her report thereon.
c. Any significant changes required in the independent accountant's
audit plan.
d. Any serious difficulties or disputes with management encountered
during the course of the audit.
e. Other matters related to the conduct of the audit that are to be
communicated to the committee under generally accepted auditing
standards.
9. Review filings with the SEC and other published documents containing
the company's financial statements and consider whether the
information contained in these documents is consistent with the
information contained in the financial statements.
10. Independent Accounts are to review the expense reports of the officers
of the company, as well as review the policies and procedures that are
in place with respect to officers' expense accounts and perquisites,
including the officers use of corporate assets. The Independent
Accounts are to review any abnormalities found and report this
information to the audit committee.
11. The Company's Code of Ethics will be reviewed by the Executive
Committee and reported to the full board. As appropriate, the
Executive Committee will engage the Independent Accountants to review
the Code and monitoring systems management has in place.
12. The Independent Accountants will submit to the audit committee a
report on an annual basis regarding the legal and regulatory matters
that may have a material impact on the financial statements, related
company compliance policies, and programs and reports received from
regulators. As management and the audit committee deems appropriate,
legal counsel may be asked to review information when necessary.
13. The audit committee will report committee actions to the board of
directors with such recommendations as the committee may deem
appropriate.
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14. The audit committee shall have the power to conduct or authorize
investigations into any matters within the committee's scope of
responsibilities. The committee shall be empowered to retain
independent counsel, accountants, or others to assist it in the
conduct of any investigation.
15. The committee shall meet at least annually or more frequently as
circumstances require. The committee may ask members of management or
others to attend the meeting and provide pertinent information as
necessary.
16. The committee will perform such other functions as assigned by law,
the company's charter or bylaws, or the board of directors.
17. At least annually, an Executive Session will be held with the audit
committee and Independent Accounts without management present. This
will provide the audit committee the ability to ask questions to the
Independent Accountants independently of management. Upon completion
of the Execution Session, management will join both parties and
continue discussions.
The membership of the audit committee shall consist of the independent members
of the board of directors who shall serve at the pleasure of the board of
directors and independent directors will be a majority of the audit committee.
Audit committee members must be able to read and understand fundamental
financial statements, including a company's balance sheet, income statement, and
cash flow statement with at least one member of the audit committee having
extensive knowledge. Audit committee members and the committee chairman shall be
designated by the full board of directors.
The duties and responsibilities of a member of the audit committee are in
addition to those duties set out for a member of the board of directors.
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