THE DESCARTES SYSTEMS GROUP INC.
CHARTER FOR
THE AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
1. PURPOSE
| 1. | The primary functions of the Audit Committee are to oversee the accounting and financial reporting practices of The Descartes Systems Group Inc. (the “Company”) and the audits of the Company’s financial statements and to attend to the responsibilities set forth below, including, but not limited to, assisting the Board of Directors (the “Board”) in fulfilling its responsibilities in reviewing the following: financial disclosures and internal controls over financial reporting; monitoring the system of internal control and compliance with Applicable Requirements (as defined below); selecting the auditors for shareholder approval; and reviewing the qualifications, independence and performance of the auditors and the qualifications and performance of the Company’s financial management. |
2. MEMBERSHIP AND ORGANIZATION
| 1. | Composition - The Audit Committee shall consist of not fewer than three members of the Board. At the invitation of the Audit Committee, members of the Company’s management and others may attend Audit Committee meetings as the Audit Committee considers necessary or desirable. |
| 2. | Appointment and Removal of Audit Committee Members - Each member of the Audit Committee shall be appointed by the Board on an annual basis and shall serve at the pleasure of the Board, or until the earlier of (a) the close of the next meeting of the Company’s shareholders at which the Company’s directors are elected, (b) the death of the member, or (c) the resignation, disqualification or removal of the member from the Audit Committee or from the Board. The Board may fill a vacancy in the membership of the Audit Committee. |
| 3. | Chair - At the time of each appointment of the members of the Audit Committee, the Board shall appoint a Chair of the Audit Committee. The Chair shall be a member of the Audit Committee, preside over all Audit Committee meetings that they attend, coordinate the Audit Committee’s compliance with this mandate, work with management to develop the Audit Committee’s annual work-plan and provide reports of the Audit Committee to the Board. |
| 4. | Independence - Each member of the Audit Committee shall meet the requirements of applicable law and any applicable requirements promulgated by any exchange upon which securities of the Company are traded, or any governmental or regulatory body exercising authority over the Company, as are in effect from time to time (collectively, “Applicable Requirements”) related to independence and audit committee composition. |
| 5. | Financial Expertise - At the time of their appointment to the Audit Committee, each member of the Audit Committee shall be able to read and understand fundamental financial statements, including a balance sheet, cash flow statement and income statement, be “financially literate” as defined under Applicable Requirements, and shall not have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the preceding three years. At least one member of the Audit Committee shall have past employment experience in financing or accounting, requisite professional certification in accounting, or other comparable experience or background which results in the individual’s financial sophistication, including being or having been a Chief Executive Officer, Chief Operating Officer, Chief Financial Officer or other senior officer with financial oversight responsibilities. Further, at least one member of the Audit Committee shall qualify as an “audit committee financial expert” (as such term is defined under the Securities and Exchange Commission’s rules). |
3. MEETINGS
| 1. | Meetings - The members of the Audit Committee shall hold meetings as are required to carry out this mandate, and in any case no fewer than four meetings annually. The external auditors are entitled to attend and be heard at each quarterly Audit Committee meeting scheduled to consider the Company’s financial statements. The Chair, any member of the Audit Committee, the external auditors, the Chair of the Board, the Lead Director, the Chief Executive Officer or the Chief Financial Officer may call a meeting of the Audit Committee by notifying the Company’s Corporate Secretary who will notify the members of the Audit Committee. The Chair shall preside over all Audit Committee meetings or, in the absence of the Chair, the members of the Audit Committee present may appoint a chair from their number for a meeting. |
| 2. | Secretary and Minutes - The Corporate Secretary, their designate or any other person the Audit Committee requests, shall act as secretary at Audit Committee meetings. Minutes of Audit Committee meetings shall be recorded and maintained by the Corporate Secretary and subsequently presented to the Audit Committee for approval. |
| 3. | Quorum - A majority of the members of the Audit Committee shall constitute a quorum. |
| 4. | Access to Management and Outside Advisors - The Audit Committee shall have unrestricted access to the Company’s management and employees and the books and records of the Company, and, from time to time may hold unscheduled or regularly scheduled meetings or portions of regularly scheduled meetings with the auditor, the Chief Financial Officer, the Chief Operating Officer, President or the Chief Executive Officer. The Audit Committee shall have the authority to conduct investigations into any matters within its scope of responsibilities, retain external legal counsel, consultants or other advisors to assist it in fulfilling its responsibilities and to set and pay the respective compensation for these advisors without consulting or obtaining the approval of the Board or any Company officer. The Company shall provide appropriate funding, as determined by the Audit Committee, for the services of these advisors. |
| 5. | Meetings Without Management - As part of each meeting, the Audit Committee shall hold an in camera session, at which management and non-independent directors are not present, and the agenda for each Audit Committee meeting shall afford an opportunity for such a session. |
4. FUNCTIONS AND RESPONSIBILITIES
The Audit Committee shall have the functions and responsibilities set out below as well as any other functions that are specifically delegated to the Audit Committee by the Board and that the Board is authorized to delegate by applicable laws and regulations. In addition to these functions and responsibilities, the Audit Committee shall perform the duties required of an audit committee by Applicable Requirements.
| a. | General - The Audit Committee is responsible for overseeing the Company’s accounting and financial reporting practices and the audits of the Company’s financial statements. Management is responsible for the preparation, presentation and integrity of the Company’s financial statements and financial disclosures and for the appropriateness of the accounting principles and the reporting policies used by the Company. The auditors are responsible for auditing the Company’s annual consolidated financial statements and for reviewing the Company’s unaudited interim financial statements. |
| b. | Review of Annual Financial Reports - The Audit Committee shall review the annual consolidated audited financial statements of the Company prepared by management, the auditors’ report thereon and the related management’s discussion and analysis of the Company’s financial condition and results of operation (“MD&A”). After completing its review, if advisable, the Audit Committee shall approve and recommend for Board approval the annual financial statements and the related MD&A. |
| c. | Review of Interim Financial Reports - The Audit Committee shall review the interim consolidated financial statements of the Company prepared by management, the auditors’ review report thereon and the related MD&A. After completing its review, if advisable, the Audit Committee shall approve and recommend for Board approval the interim financial statements and the related MD&A. |
| d. | Review Considerations - In conducting its review of the annual financial statements or the interim financial statements, the Audit Committee shall: |
| i. | meet with management and the auditors to discuss the financial statements and MD&A; |
| ii. | review the disclosures in the financial statements; |
| iii. | review the audit report or review report prepared by the auditors; |
| iv. | review the qualitative judgments of the auditors about the appropriateness, not just the acceptability, of accounting principles and financial disclosure practices used or proposed to be adopted by the Company; |
| v. | discuss with management, the auditors and internal legal counsel, as requested, any litigation claim or other contingency that could have a material effect on the financial statements; |
| vi. | review the accounting policies followed and critical accounting and other significant estimates and judgments underlying the financial statements as presented by management; |
| vii. | review any material effects of regulatory accounting initiatives or off-balance sheet structures on the financial statements as presented by management; |
| viii. | review any material changes in accounting policies and any significant changes in accounting practices and their impact on the financial statements as presented by management; |
| ix. | review the methods used to account for significant unusual transactions; |
| x. | review the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus; |
| xi. | review significant recorded and unrecorded audit adjustments; |
| xii. | review any material accounting issues among management and the auditors; |
| xiii. | review management’s report on the effectiveness of internal controls over financial reporting; |
xiv. review the factors identified by management as factors that may affect future financial results;
| xv. | review results of the Company’s audit committee hotline program; and |
xvi.review any other matters, related to the financial statements, that are brought forward by the auditors, management or which are required to be communicated to the Audit Committee under accounting policies, auditing standards or Applicable Requirements.
| e. | Approval of Other Financial Disclosures - The Audit Committee shall review and, if advisable, approve and recommend for Board approval financial disclosure in a prospectus or other securities offering document of the Company, press releases disclosing financial results of the Company and any other material financial disclosure, including financial guidance provided to rating agencies or otherwise publicly disseminated, and material non-GAAP financial measures, non-GAAP ratios, total of segments measures, capital management measures, and supplementary financial measures (each as defined in National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure). |
| a. | General - The Audit Committee shall be responsible for oversight of the work of the auditors, including the auditors’ work in preparing or issuing an audit report, performing other audit, review or attest services or any other related work. |
| b. | Appointment and Compensation - The Audit Committee shall review and, if advisable, select and recommend for Board and shareholder approval the appointment of the auditors. The Audit Committee shall have ultimate authority to approve all audit engagement terms and fees, including the auditors’ audit plan. |
| c. | Resolution of Disagreements - The Audit Committee shall review all reportable events, including any disagreements, unresolved issues and consultations (as those terms are defined by Applicable Requirements), with the Company’s auditors, whether or not there is to be a change of auditors. |
| d. | Change of Auditors - When the Audit Committee determines to recommend a change of auditors or the auditors are otherwise terminated or resign, the Audit Committee shall review all issues related to the change of auditors, including the information required to be disclosed by Applicable Requirements and the planned steps for an orderly transition. |
| e. | Discussions with Auditors - At least annually, the Audit Committee shall discuss with the auditors such matters as are required by applicable auditing standards to be discussed by the auditors with the audit committee, including the matters required to be discussed by applicable auditing standards. |
| f. | Audit Plan - At least annually, the Audit Committee shall review a summary of the auditors’ annual audit plan. The Audit Committee shall consider and review with the auditors any material changes to the scope of the plan. |
| g. | Quarterly Review Report - The Audit Committee shall review a report prepared by the auditors in respect of each of the interim financial statements of the Company. |
| h. | Independence of Auditors - At least annually, and before the auditors issue their report on the annual financial statements, the Audit Committee shall: obtain from the auditors a formal written statement describing all relationships between the auditors and the Company; discuss with the auditors any disclosed relationships or services that may impact the objectivity and independence of the auditors; and obtain written confirmation from the auditors that they are objective and independent within the meaning of the applicable Rules of Professional Conduct/Code of Ethics adopted by the provincial institute or order of chartered accountants to which it belongs and other Applicable Requirements. The Audit Committee shall take appropriate action to oversee the independence of the auditors. |
| i. | Evaluation and Rotation of Lead Partner - At least annually, the Audit Committee shall review the qualifications and performance of the lead partner(s) of the auditors. The Audit Committee shall obtain a report from the auditors annually verifying that the lead partner of the auditors has served in that capacity for no more than five fiscal years of the Company and that the engagement team collectively possesses the experience and competence to perform an appropriate audit. |
| j. | Evaluation of performance and audit quality - The Audit Committee shall review and evaluate the performance of the external auditor to assess the quality of the audit and the services performed by the external auditor. |
| k. | Requirement for Pre-Approval of Non-Audit Services - The Audit Committee shall approve in advance any retainer of the auditors to perform any non-audit service to the Company that it deems advisable in accordance with Applicable Requirements, and Board approved policies and procedures. The Audit Committee may delegate pre-approval authority to a member of the Audit Committee. The decisions of any member of the Audit Committee to whom this authority has been delegated must be presented to the full Audit Committee at its next scheduled Audit Committee meeting. |
| l. | Review of Professional Services - The Audit Committee shall review reports from management at each quarterly Audit Committee meeting scheduled to consider the Company’s financial statements concerning expenses incurred in the quarter for the services of any accounting firm (other than the appointed auditor) engaged to provide services to the Company, in each case to the extent that the amount of such expenses in respect of any such firm exceeds $100,000. |
| m. | Approval of Hiring Policies - The Audit Committee shall review and approve the Company’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditors of the Company. |
| a. | General - The Audit Committee shall review reports from management on the nature, establishment, monitoring and effectiveness of the Company’s system of internal control over financial reporting and disclosure controls and procedures (as those terms are defined in Applicable Requirements). |
| b. | Establishment, Review and Approval - The Audit Committee shall require management to establish and maintain appropriate systems of internal control over financial reporting and disclosure controls and procedures in accordance with Applicable Requirements and guidance and to review, evaluate and approve these controls and procedures. At least annually, the Audit Committee shall consider and review with management and the auditors: |
| i. | the effectiveness of, or weaknesses or deficiencies in the design or operation of the Company’s internal control over financial reporting and disclosure controls and procedures, and the impact of any identified weaknesses in these controls and procedures on management’s conclusions; |
| ii. | any significant changes in internal control over financial reporting that are disclosed, or considered for disclosure, including those in the Company’s periodic regulatory filings; |
| iii. | the auditors’ report on the Company’s internal control over financial reporting; |
| iv. | any material issues raised by any inquiry or investigation by the Company’s regulators; |
| v. | the Company’s fraud prevention and detection program, including deficiencies in internal controls that may impact the integrity of financial information, or may expose the Company to other significant internal or external fraud losses and the extent of those losses and any disciplinary action in respect of fraud taken against management or other employees who have a significant role in financial reporting; and |
| vi. | any related significant issues and recommendations of the auditors together with management’s responses thereto, including the timetable for implementation of recommendations to correct weaknesses in internal controls over financial reporting and disclosure controls. |
| 4. | Sustainability and Climate Matters |
The Committee shall oversee the establishment and maintenance by management of a system of processes and controls to ensure the integrity, accuracy and reliability of any material sustainability disclosures included in any (a) sustainability or similar climate-report report or (b) other disclosure material of the Company to be (i) sent to its securityholders or (ii) in accordance with the Applicable Requirements, filed with a regulatory authority or made public.
| a. | General - In addition to being responsible for overseeing risks related to the Company’s accounting, financial statements, financial reporting process and internal controls related to financial reporting, the Audit Committee is also responsible for overseeing management’s implementation and operation of the enterprise risk management program, as documented in the Risk Management Policy established by the Board of Directors. The risk oversight process is the means by which the Board of Directors determines that the Company has in place an effective process for identifying, assessing, managing and monitoring key risks in the business on a continuous basis as the business evolves. |
| b. | Management Responsibilities - Management is responsible for: |
| i. | ensuring the development and implementation of the Risk Management process. Risk Management is the framework required to identify, assess and develop strategies to manage and monitor control risks; |
| ii. | the design and implementation of the actions, measures and/or processes to mitigate to an appropriate level all material risks in the business (the “Risk Controls”) including the design and implementation of appropriate crisis preparedness, business continuity and disaster recovery plans; and |
| iii. | monitoring overall compliance with and adherence to the Risk Management Policy and the Company’s Code of Business Conduct and Ethics as established by the Board of Directors. |
| c. | Audit Committee Responsibilities - The Audit Committee is responsible for: |
| i. | at least annually, reviewing the effectiveness of the Risk Management program that is in place. As part of its review, the Audit Committee will review reports prepared by management that assess the risks in the business, identifies the Risk Controls that are in place to mitigate and manage these risks to an appropriate level, and evaluate the residual risk in the business (the risk that remains after implementation of the Risk Controls); |
| ii. | periodically monitoring risk and risk management capabilities within the Company including crisis preparedness, business continuity and disaster recovery plans; and |
| iii. | reporting to the Board of Directors on its oversight of the Company’s Risk Management program, including an assessment of whether the program is being followed and is effective. |
| d. | Computerized Information Systems - The Audit Committee shall review reports from the Company’s management containing its assessment of the adequacy of the Company’s computerized information system controls and security and related risks, including cybersecurity risk. |
| 6. | Conflicts of Interest - The Audit Committee shall review the Company’s policies relating to the avoidance of conflicts of interest and review and approve all payments to be made pursuant to any related party transactions involving executive officers and members of the Board, as may be necessary or desirable under Applicable Requirements. The Audit Committee shall consider the results of any review of these policies and procedures by the Company’s external auditors. |
| 7. | Internal Audit - the Audit Committee may choose to establish and maintain an Internal Audit function from time to time. If so established, the internal audit function will report directly to the Chair of the Audit Committee and administratively to the Chief Financial Officer. In relation to the internal audit function, if so established and maintained, the Audit Committee shall: |
| a. | establish an internal audit charter and review and approve any necessary revisions to such charter on an annual basis; |
| b. | review and evaluate the effectiveness of the internal audit function; |
| c. | review the operating budget for the internal audit function, including staffing levels and resources; and |
| d. | on a regular basis, meet with the head of the internal audit function without other members of management present. |
| 8. | Compliance with Legal and Regulatory Requirements - The Audit Committee shall review reports from the Company’s Corporate Secretary and other management members on: legal or compliance matters that may have a material impact on the Company; the effectiveness of the Company’s compliance policies; and any material communications received from regulators. The Audit Committee shall review management’s evaluation of and representations relating to compliance with specific Applicable Requirements, and management’s plans to remediate any deficiencies identified. |
| 9. | Audit Committee Hotline Procedures - The Audit Committee shall establish procedures for: (a) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and (b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. Any such complaints or concerns that are received shall be reviewed by the Audit Committee and, if the Audit Committee determines that the matter requires further investigation, it will direct the Chair of the Audit Committee to engage outside advisors, as it deems necessary or appropriate, to investigate the matter and will work with management and the Company’s General Counsel to reach a satisfactory conclusion. |
| 10. | Audit Committee Disclosure - The Audit Committee shall review and approve any audit committee disclosures required by Applicable Requirements in the Company’s disclosure documents. |
| 11. | Requirement for Review and Approval of the CEO Business Expenses - The Chair of the Audit Committee shall review and approve the reimbursable business expenses incurred by the Chief Executive Officer of the Company in connection with the performance of their duties. Such approval may be provided subsequent to reimbursement of such expenses. |
| 12. | Review of Audit Committee Charter - On at least an annual basis, the Audit Committee shall, in conjunction with the Corporate Governance Committee, review and reassess the adequacy of this Audit Committee Charter. |
| 13. | Delegation - The Audit Committee may, to the extent permissible by Applicable Requirements, designate a sub-committee to review any matter within this mandate as the Audit Committee deems appropriate. |
6. REPORTING TO THE BOARD
| 1. | The Chair shall report to the Board, as required by Applicable Requirements or as deemed necessary by the Audit Committee or as requested by the Board, on matters arising at Audit Committee meetings and, where applicable, shall present the Audit Committee’s recommendation to the Board for its approval. |
7. GENERAL
| 1. | The Audit Committee shall, to the extent permissible by Applicable Requirements, have such additional authority as may be reasonably necessary or desirable, in the Audit Committee’s discretion, to exercise its powers and fulfill the responsibilities under this mandate. |
8. NO RIGHTS CREATED
| 1. | This charter is a statement of broad policies and is intended as a component of the flexible governance framework within which the committees of the Board assist the Board in directing the affairs of the Company. While it should be interpreted in the context of all Applicable Requirements, as well as in the context of the Company’s Articles and By-laws, it is not intended to establish any legally binding obligations. |
9. CURRENCY OF THE AUDIT COMMITTEE CHARTER
| 1. | This charter was last approved by the Audit Committee and Board on March 11, 2026. |
Appendix “B” to Annual Information Form
