The Practical Corporate & Securities Law Blog

By Broc Romanek

Go to TheCorporateCounsel.net

 
After Alan Beller spoke on Friday at the ABA Spring Meeting, it remains unclear if Section 906 CEO/CFO certifications are required for Form 11-Ks. Alan merely noted that the staff has not taken a position (which makes sense as it is a DOL matter). Note that Section 302 certifications are not required for Form 11-Ks as the SEC made clear in its adopting release last summer. However, that release did not address 906 certifications (as again, it is a DOL matter).

Before the House Financial Services Committee, in a hearing yesterday, the SEC was criticized for lax oversight of the credit rating industry. See the Washington Post article at http://www.washingtonpost.com/wp-dyn/articles/A15116-2003Apr2.html.

For TheCorporateCounsel.net subscribers, we have posted an interview with Ken Blackman and Michael Levitt of Fried Frank on Earnings Releases and Announcements at http://www.thecorporatecounsel.net/member/InsideTrack/04_01_03_Blackman.htm.
posted by broc at 8:01 AM

 
The SEC staff has issued no-action relief - and the precise form of CEO/CFO certifications - for two classes of asset-backed issuers: auto lease securitizations and resecuritizations. The no-action letters are http://www.sec.gov/divisions/corpfin/cf-noaction/mldepositor032803.htm and http://www.sec.gov/divisions/corpfin/cf-noaction/mitsubishi032703.htm.

Yesterday, at Chairman Donaldson's 1st open Commission meeting, the SEC adopted rules regarding audit committee requirements and delisting standards. For the most part, the adopted rules are the same as the proposed rules. The following provides a snapshot certain aspects of the new rules regarding "independence" [thanks to Mike Holliday] - more details are in the SEC's press release available below:

- Advisory and consulting fees - The new rules do not contain a de minimus amount exception.

- Safe harbor - The adopted safe harbor keeps the proposed ownership test at 10% (so that a person who is not an executive officer or 10% owner will not be an "affiliated person"). The final rules will indicate that failure to meet the safe harbor terms will not create an presumption that the person is affiliated, which will be subject to a facts and circumstances test.

- Outside director of company and subsidiary - The final rules contain the exemption that a director otherwise independent to both companies would be permitted to be on the audit committee of a listed company as well as an affiliate. There was no discussion as to whether any change was made to the proposal that the exemption applies to a consolidated, majority-owned subsidiary.

- IPO exemption - The proposed exemption was expanded to require at least one independent member on the audit committee at the time of listing, a majority of independent members within 90 days, and all independent members within a full year.

Companies must be in compliance with the new rules by their 1st annual meeting after January 15, 2004 (or by October 31, 2004 at the latest). Foreign issuers and small business issuers would have until July 31, 2005. As adopted, the transition period is about 6-7 months longer than the proposed period. This will be helpful for March 31, June 30 and September 30 fiscal year-end companies. However, because it does not add a complete annual cycle to the proposal, it will not really provide any additional lead time for calendar year fiscal year companies.

The SEC's press release is at http://www.sec.gov/news/press/2003-43.htm.
posted by broc at 8:41 AM

 
Yesterday, the PCAOB held its roundtable on foreign auditors and made its case for the outstanding proposal to require foreign firms auditing U.S.-traded companies to register with it (all of the SEC Commissioners attend to show their support). This has created quite a bit of controversy overseas.

As reported by the Washington Post, this meeting follows the SEC's recent warning to British accountants that disclaimers of liability that they were slapping on audit opinions better not show up on U.S. financial statements. Here are other tidbits from the roundtable:

- David Wright, director of financial markets for the European Commission, argued that the PCAOB should wait one year before making foreign auditors register to give European countries time to work out conflicts between their laws and US laws. The PCAOB disagreed.

- The PCAOB plans to initially focus on about 6 key areas - with more than 1,200 pages of audit standards.

- The AICPA has tried to hold on to a role in the writing of audit standards. The PCAOB responded by informing the AICPA that Congress had given them control over audit standards and that the oversight board would not be required to follow the AICPA's recommendations.

- The PCAOB is also replacing a widely criticized oversight system, in which accounting firms reviewed each other's work. The board is hiring accountants -- the number may grow to 100 by next year and is developing a code of conduct to prevent potential conflicts of interest by inspectors hired from Big Four firms. The new team is to start inspecting the Big Four this summer and smaller firms next year.

- Inspectors will operate differently as the new inspection team will examine audits under litigation - cases now exempt from the peer-review process. The board will also examine quality-control issues, such as how lead audit partners are paid, whether accounting firms have the right "tone at the top," and whether audit work is sufficiently independent from tax and other services the firms offer.

The Washington Post article is at http://www.washingtonpost.com/wp-dyn/articles/A62762-2003Mar31.html.
posted by broc at 8:45 AM

 
The SEC has issued technical corrections in an adopting release to clarify that companies can provide their audit committee financial expert disclosure in its proxy or information statement and incorporate that disclosure into its annual report (if it complies with applicable rules for incorporation by reference). The original rule had stated that the disclosure was only permitted in annual reports. See http://www.sec.gov/rules/final/33-8177a.htm.

Mark Borges in the SEC's Office of Rulemaking soon will be moving on to a new job at Mercer Consulting. Mark handled many of the staff's executive compensation disclosure issues over the past few years and will be missed.
posted by broc at 9:55 AM