April 19, 2004

What to Consider for Your

I would call this interview with Jonathan Wolfman on Important Changes for Your Next 10-Q a “must” read. Not just because it includes a link to a 18-page checklist of matters to consider, but because there are some new issues to consider that were not applicable for the recently filed 10-Ks.

One big change is the new Item 703 stock repurchase tables that I blogged about a few weeks back, when I noted our compliation of sample tables that had already been voluntarily filed. We also have two dozen law firm memos in Section B.23 of our Sarbanes-Oxley Law Firm Memos on this topic.

At the ABA Spring Meeting a few weeks ago, Alan Beller fielded a few questions in the Item 703 area and indicated that, for purposes of this table, “repurchases” would not include common stock surrendered to a company in connection with a cashless exercise. Alan noted that this was his own opinion and referred the audience to check with the SEC staff (but I have spoken to some people that have checked in with the Chief Counsel’s office and gotten confirmation of this position – let me know if you hear differently).

E&Y Banned from Obtaining New Public Clients for 6 Months

On Friday, SEC Chief Admin Law Judge Brenda Murry – in this 69-page initial decision – barred E&Y from obtaining new public company clients for a 6-month period.

The initial decision found that E&Y violated the SEC’s rules on auditor independence during E&Y’s audit of PeopleSoft, which caused PeopleSoft to violate the securities laws by filing financial statements that were not audited by an independent accountant. Interestingly, the 6-month bar is not unprecedented as three of them were levied by the SEC back in the ’70s – but each of these prior instances involved fraudulent audits. In this case, the SEC didn’t allege that PeopleSoft had incorrect financials.

In addition to the 6-month bar, E&Y was hit with a cease and desist order and must disgorge $1.7 million (equal to the fees for auditing PeopleSoft) – as well is required to retain an independent counsultant acceptable to the SEC to help implement better controls. E&Y reportedly will not appeal this decision to the Commissioners.