We are hearing that the SEC staff will soon be issuing the long-awaited Regulation G FAQs (yes, i know we have heard that before) – we will post as soon as they are available.
Congrats to Amy Starr and Consuelo Hitchcock, who were named as Senior Special Counsels to advise Director Alan Beller. David Lynn returns to Corp Fin to become Chief Counsel (the big stud) – and Brian Breheny leaves Clifford Chance to become head of the Office of Mergers & Acquisitions.
The SEC is seeking to bar Ernst & Young from taking any new public company clients for 6 months due to alleged breaches of independence. See the Washington Post article at http://www.washingtonpost.com/wp-dyn/articles/A51527-2003May28.html.
At yesterday’s open Commission meeting, the biggest surprise was the SEC’s acknowledgement of the massive workload required for internal control attestations – the SEC moved back the effective date of the Section 404 internal control report from this fall to the middle of next year. “Accelerated filers” will file their first report for fiscal years ending after June 15, 2004 – all others can wait until their fiscal years ending after April 15, 2005.
Here are some significant components of the final rules under Section 404 of Sarbanes-Oxley:
- clarification that quarterly report unnecessary; rather, only material changes to internal controls needs to be disclosed quarterly
- the definition of “internal control over financial reporting” is not defined by referring to defintion under AU Section 319 – rather, the definition relies on the one in the COSO Report – and the SEC has built the COSO definition into the rules. In addition, the definition includes language from Section 103 of Sarbanes-Oxley (i.e. the specific assertions about internal control matters that registered
public accounting firms must make) – and includes the component of internal control over the safeguarding of assets.
- foreign private issuers and financial institutions that are under other regulatory internal control regimes will be “accommodated” by the SEC – but will not be exempted from the new rules
For TheCorporateCounsel.net subscribers, we have provided 3 new disclosure analyses: which companies have adopted QLCCs; how companies are disclosing their pre-approval of non audit service policies; and which companies have suspended/terminated split dollar arrangements. These analyses are in our “Disclosure” Practice Area at http://www.thecorporatecounsel.net/member/FAQ/Disclosure/.
The SEC has moved its open Commission meeting on internal control reports – and CEO/CFO certification placement – from Wednesday at 10 am to today at 2 pm.
Last Wednesday, Representative Richard Baker introduced a bill (H.R. 2179) that would enhance SEC authority by letting the SEC assess higher fines, obtain bank records and serve subpoenas. In addition, the bill would force states to channel money from securities settlements to the SEC’s Fair Fund (one of the reasons for the bill is because NY has not yet given investors any funds from the historic Wall Street settlement reached a few weeks ago).
The bill was referred to the House Financial Services subcommittee. The bill would supersede laws in several laws, including FL and TX, that allow defendants to keep their homes regardless of legal findings against them. Rep. Baker said that he drafted the bill with help from the SEC.
The bill would increase fines to as much as $2 million, up from the current $600,000 maximum. The bill would also let people, such as attorneys, give information to the SEC about company activities without having to give it to other parties, such as those involved in a lawsuit against the company. The text of the proposed legislation is at http://thomas.loc.gov/cgi-bin/query/z?c108:H.R.2179.
In a closely watched vote, Intel shareholders narrowly missed approving a shareholder proposal at Intel regarding expensing stock options – 48% of shareholders voted in favor of the proposal yesterday.
Hopefully, the uncertainty surrounding the possible need for CEO/CFO certifications for Form 11-Ks will soon be over. We understand that the SEC staff is in conversations with the DOL staff on this issue.
Since the SEC’s request for comments a few weeks back, we now have a company that has offered shareholders access to the ballot as part of a recent settlement of a Milberg Weiss shareholder suit (Bill Lerach and Bob Monks teamed up on this one). According to a press release, the settlement with Hanover Compressor involves two new independent director positions to the board to be nominated by shareholders holding more than 1% of outstanding shares. The settlement also includes a number of other governance restrictions, such as shareholder approval for new executive option plans and repricing of stock options and rotation of the independent auditors every 5 years. See the related Business Week article at http://www.businessweek.com/bwdaily/dnflash/may2003/nf20030514_3438_db002.htm.
Don’t forget that last week – May 6th – was the effective date for companies to pre-approve audit and non-audit services. So if a company has not yet adopted a pre-approval policy, any non-audit services must be approved by the audit committee (or the audit committee chair if that delegation has been granted) – although contracts for certain non-audit services in place before May 6th can continue for 12 months under specified conditions.
The odd thing about Section 201 of Sarbanes-Oxley – and the related rulemaking – is that its unclear what will be the consequences if a company uses non-audit services from its auditor without the appropriate pre-approval…
On Section16.net today, we are holding a webcast program entitled “Section 16 Filers: Users’ Perspective – Practice Tips and Lessons Learned from the Trenches.” Hear from panelists that have been test-driving the various filer products – as well as Alan Dye on the latest SEC developments – at http://www.section16.net/webcast0503/.
The SEC staff has done some housecleaning and issued Staff Accounting Bulletin 103 “Update of Codification of Staff Accounting
Bulletins.” The purpose of this SAB is to comprehensively update the existing SAB codification – as a result, the SEC will now feel sufficient comfort to post the entire SAB codification on its website. See http://www.sec.gov/interps/account/sab103.htm.