In the last day, there has been a lot of discussion about the two potentially conflicting provisions in Sarbanes-Oxley Act requiring CEO and CFO certifications. The first provision, in Section 302 of the Act, will not be effective until the SEC adopts rules requiring the certification, which it must do within 30 days. However, the other provision, in Section 906 of the Act, does not provide for a delayed effective date and is not dependent on SEC rule making, so it is effective immediately and applicable to the 10-Qs currently being filed by public companies.
Section 906 requires that periodic reports containing financial statements (i.e., 10-Ks, 10-Qs, and some 8-Ks) be accompanied by a written statement by the CEO and CFO that certifies that the report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer.
President Bush signed the Sarbanes-Oxley Act of 2002 into law today…now the SEC has to interpret and rulemake under it. The staff is working around the clock to start interpreting it. Keep an eye on the SEC’s web site as developments are expected shortly.
Today, the SEC issued a statement that recommends that the 947 companies (the ones subject to their Order) file their certifications on Form 8-K (in addition to sending the manual ones to the SEC secretary) in addition to posting them on their own corporate web sites.
Based on the SEC’s strong language that the certications are material, nonpublic information (that then should be widely disseminated under Regulation FD), many practitioners believe that all 947 companies will do both – that is:
- send their manual certification to the SEC’s secretary – this is not edgarized and filed, and
- file a Form 8-K under either item 5 or item 9 (most probably will use item 9 as that carries less liability – the document is considered “furnished” rather than “filed” – even though both get edgarized and filed). Texas Instruments already has filed the first 8-K – and that was under item 9.
We have just updated the memo on RealCorporateLawyer.com on the topic – this is at http://www.realcorporatelawyer.com/CEO_Certifications.html.
After posting the August edition of the monthly ezine last week (10 days early), there already are enough developments to run an entire new issue, including:
- Sarbanes bill becomes “The Sarbanes-Oxley Act of 2002″ as Senate and House conference concludes – yesterday, the entire House passed the Act and the Senate is expected to pass it today – the conference report for the Sarbanes-Oxley Act of 2002 is available at http://commdocs.house.gov/reports/107/h3763.pdf.
- Senate finally confirms four Commissioners for the SEC (Goldschmid, Campos, Atkins and Glassman) after a record length of time with the Senate conducting no confirmations for any position (due to politics as usual)
- Chairman Pitt is criticized for including suggestion of elevating his position to a Cabinet level one – with an attendent $30k pay raise – as part of list of proposals from the SEC to Senate and House conference – the Washington Post ran an incredible story yesterday based on interviews with current and past co-workers (on a no-name basis) that provides insights into what it is like to work with the Chairman – this article is available at http://www.washingtonpost.com/wp-dyn/articles/A60011-2002Jul24.html.
- ACCA conducted a webcast yesterday on the certification requirements that included panelists John Olson of Gibson Dunn, David Martin of Covington Burlin and David Berger of Wilson Sonsini. Anyone can listen to the archived webcast at http://www.acca.com/communities/networks/cslaw/post_enron.html.
July 12, 2002
Regarding the sworn CEO/CFO certifications that are due soon, we have posted a memo that set forth 10 practical considerations to take into account at http://www.realcorporatelawyer.com/CEO_Certifications.html
July 11, 2002
At the ASCS National Conference today, Alan Beller, Director of the Division of Corporation Finance, indicated that several dozen comment letters had already been sent to companies on their latest 10-K filings – with hundreds more expected in the next few months.
Some conference attendees expressed concern about CEOs and CFOs providing certification regarding the accuracy of their past reports – as required by the SEC’s recent order – and then getting comments from the SEC staff afterwards. They wondered if the staff could indicate whether a comment letter would be forthcoming before providing the certification. In line with past staff practice, Alan stated that the staff could not tip off a company that a comment letter would be sent soon.
Alan did indicate that – wearing his hat as a former law firm partner – companies would be well advised to develop a set of procedures before CEOs and CFOs executed their certifications – even if the procedures were a “one time” only situation (it would be one-time only because the order differs in scope and manner from the SEC’s proposed rulemaking on the same topic). These procedures would include input from key insiders and outside advisors on the areas that the senior managers should focus on when asking about the accuracy and completeness of past disclosure.
Alan urged companies to call Corp Fin or the Office of the Chief Accountant if they had any questions – so that companies would at least “get it right the second time.”
July 4, 2002
According to the July 3rd issue of the Washington Post, administrative law judge Brenda P. Murray found that the SEC improperly initiated the SEC’s enforcement action against Ernst & Young regarding alleged violations of auditor independence (see our June ezine for details of the allegations). E&Y challenged the SEC’s action because it proceeded on the vote of only one commissioner, Commissioner Hunt after the other two commissioners recused themselves. Past ties to Ernst & Young prevented Chairman Pitt and Commissioner Glassman from voting.
According to the Post, in papers filed in the case, the SEC staff said that E&Y was a repeat offender and “remains both positioned and likely to commit future violations of the auditor independence rules” and argued that Commissioner Hunt voted to initiate the case under authority delegated to him as the commission’s duty officer to handle urgent matters. The judge found the SEC failed to prove the matter was urgent. The judge’s order, which does not prohibit the SEC from filing the case again in the future, can be appealed to a federal appellate court. But securities lawyers said the judge’s order means that, unless the agency can prove the case is urgent, at least two commissioners must be able to participate in the vote.
Under the ethics rules, Pitt’s one-year recusal expires on August 3, and after that he will decide whether to participate in matters on a case-by-case basis, SEC spokeswoman Christi Harlan said.