TheCorporateCounsel.net

Last week, the SEC Staff revised its FAQs on Management’s Report on Internal Control over Financial Reporting. These FAQs were originally jointed issued by Corp Fin and the Office of Chief Accountant in late ’04. [Admittedly, this development snuck by us – it never showed up on Corp Fin’s “What’s New” page, etc. We are redoubling our investigative efforts and promise it will never happen again.]

The Staff eliminated twelve FAQs it believed were no longer relevant or necessary or that were addressed by the SEC’s recent interpretive guidance on management reports. The Staff also added four new FAQs pertaining to foreign private issuers.

Courtesy of Cleary Gottlieb, here is some analysis of the new foreign private issuer FAQs (as well as a blacklined copy of the overhauled FAQs, which is posted in our “Internal Controls” Practice Area):

– Scope of ICFR Evaluation Should be Based on Primary Financial Statements (New FAQ 12) – Management of an FPI that files home country accounts with a US GAAP reconciliation should plan and scope its ICFR evaluation based on the primary financial statements (i.e., home country GAAP). However, the evaluation should consider controls related to the preparation of the US GAAP reconciliation.

– Reference to “Interim Financial Statements” in Material Weakness Definition Does Not Apply to FPIs (New FAQ 13) – Since home country requirements vary significantly and there are no uniform requirements requiring FPIs to file periodic interim financial statements, the reference to “interim financial statements” in the definition of material weakness does not apply to FPIs (unless they are filing on domestic forms).

– Treatment of Entities for ICFR Evaluation Purposes Should Track Treatment in Primary Financial Statements (New FAQ 14) – If an entity is treated differently under primary GAAP (i.e., home country GAAP) than it is in the US GAAP reconciliation (e.g., consolidated in the home country accounts but equity method under US GAAP), the ICFR evaluation should be based on how the entity is treated in the primary financial statements.

– Scope Limitation Permitted for Certain Proportionately Consolidated Entities (New FAQ 15) – Some FPIs are required under home country GAAP to account for certain entities on a proportionate consolidation basis. Management’s ICFR report ordinarily should include all consolidated entities, even if they are consolidated on a proportionate basis. However, in cases where the company does not have the right or authority to evaluate internal controls of the proportionately consolidated entity and lacks the access necessary in practice to make that evaluation, the proportionately consolidated entity’s internal controls may be excluded from the scope of management’s assessment. (Management must still evaluate controls over the recording of amounts relating to the proportionately consolidated entity in the company’s consolidated financial statements). The FAQ specifies certain disclosure that must be provided regarding the exclusion of the internal controls of these entities from the scope of the ICFR assessment.

The remaining FAQs are substantially the same and have been renumbered as a result of the elimination of the 12 old FAQs.

Exec Comp Comment Letters: Here Ye, Here Ye

Here is the latest installment of “The Sarbanes-Oxley Report” from Billy Broc and Dave the Animal: “Exec Comp Comment Letters: Here Ye, Here Ye.”

How to Pick Up Your “Chicago” Concert Ticket

Many of those attending the NASPP Conference next week have registered for a free ticket to a “Chicago” concert on Tuesday, October 9th. The concert is jointly sponsored by the NASPP and Fidelity Investments. Here are some logistics:

Attendees can pick up their tickets to the concert at Fidelity’s registration desk at the San Francisco Marriott until 6:45 pm on Tuesday, October 9th (the day of the concert). After 6:45, Fidelity will have a satellite registration desk at the San Francisco Concourse Exhibition Center (which is the site of the concert) and attendees can pick up their tickets there.

There will be shuttle service from the Marriott to the San Francisco Concourse Exhibition Center. Buses will begin departing from the Marriott after the reception in the Exhibit Hall ends (starting at 7:00 pm). It’s not walking distance, you will need to take a shuttle bus.

Advance registration for the concert is now closed – but attendees can still register at the Conference; remember that only full NASPP Conference attendees are eligible – here are the eligibility requirements. If you didn’t register in advance and show up at the concert site, you will need to prove that you are a NASPP Conference attendee to register there. You can do this by checking in for the NASPP Conference and picking up your Conference badge or by bringing the confirmation that you received when you registered for the NASPP Conference.

– Broc Romanek