March 14, 2003

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Yesterday, the Public Company Accounting Oversight Board met and proposed rules to allocate, assess and collect annual accounting support fees from issuers in accordance with Section 109 of Sarbanes-Oxley. The allocation formula would be used to cover the expenses of both the Board – and the accounting standard setting body.

Fees will be assessed against issuers registered under Section 12 of the Exchange Act, required to file reports under Section 15(d) of the Exchange Act, or that have filed a registration statment under the Securities Act that has not become effective and that has not been withdrawn. This would include foreign private issuers.

Certain classes of issuers will be exempt from the fees (such as who do not file audited financial statements, employee stock purchase savings and similar plans, asset-backed issuers and issuers in bankruptcy). In addition, operating company issuers with an average market cap less than $25 million will not be assessed fees. There was no discussion of exactly how the average monthly market capitalization will be computed.

Fees will be allocated based on a ratio of the issuer’s average monthly equity market capitalization over the 12 months immediately preceding the Board’s fiscal year to the total average monthly capitalization of all covered issuers.

The staff of the Board expects that this formula will result in operating companies paying 95% of the fees – and investment companies 5%. However, the staff was not able to give a ballpark figure on what the largest issuers might expect to be charged. That of course depends in part on the budget of the Board and also the budget for the standard setting body. However, the Washington Post reported that larger issuers would pay fees of about $2 million per year.

Under Sarbanes-Oxley, the registration or annual fees received from public accounting firms registered with the Board will be deducted from the budget expenses of the Board that are required to be paid by issuers. As the staff pointed out, since there were no such fees paid last year, the Board’s budget expenses for fiscal year 2003 will be funded entirely by fees charged to issuers. Under Sarbanes-Oxley, all of the expenses of the standard setting body are to be covered by fees paid by issuers.

Comments are due by April 4th. After the comment period, the Board has to approve final rules and submit them to the SEC – which then puts the rules out for comment and approves them.

The Board hopes to send notices of the fees due to issuers by late May for this 2003 fiscal year – and then going forward, the notice would be sent in late January or February each year. Apparently, the Board is using a calendar year fiscal year.

Before Congress, SEC Chair Donaldson testified that the SEC needs the entire 18% budget increase proposed by President Bush (i.e. $841.5 million) – to improve its technology, crack down on corporate fraud and hire more staff.