TheCorporateCounsel.net

Today, the SEC issued an exemptive order to grant certain accelerated filers an additional 45 days to include their 404 report (and the related auditor attestation). The exemptive order applies to an accelerated filer that has a fiscal year ending between and including November 15, 2004 and February 28, 2005, and that had a public equity float of less than $700 million at the end of its second fiscal quarter in 2004.

The PCAOB also met today to adopt a temporary rule, subject to SEC approval, that would permit the delayed filing of the auditor’s attestation consistent with the SEC’s exemptive order.

Securities Act Reform Practice Area

In preparation for tomorrow’s webcast – “The Overhaul: ’33 Act Reform” – we have developed a Securities Act Reform Practice Area devoted to the ’33 Act reform proposal – including a Table of Contents from Shearman & Sterling that helps navigate the 389-page proposing release. In the Practice Area, we also have posted the 97-page copy of the release from the Federal Register.

The New SEC Phone Book is Here!

We have just posted the new edition of the “SEC Phone Directory” – not available anywhere else on the Web! The “SEC Phone Directory” is available from TheCorporateCounsel.net home page under the “SEC Rules/Guidance” button.

Moody’s Ratings of Internal Control Disclosures

In the wake of SEC Chief Accountant’s Donald Nicolaisen’s speech in early October about internal controls – during which the Chief Accountant noted that Moody’s would be analyzing internal control disclosures – a number of members have asked me about how Moody’s intends to divide material weaknesses into two degrees of severity.

The first category – “Category A” – of material weaknesses concern control problems with specific transaction-level processes such as tax accrual, bad-debt reserves, and impairment charges. These require attention, but external auditors can effectively “audit around” them and still deliver an unqualified opinion of the financial statements.

The second category – “Category B” – of material weaknesses, however, cannot be circumvented by auditors because they represent “company level” control problems, such as ineffective control environments, audit committees, and financial reporting processes, encompassing everything from a lax code of conduct, to feeble fraud-prevention guidelines, to poor attempts at assigning executive responsibility.

Moody’s does not intend to publicize the categorization of internal control disclosures for any particular company. However, Moody’s has made clear the process it will be using (which is described in this Special Comment in our Internal Controls Practice Area) – and if a company’s rating is adjusted due to material weakness disclosures, the rationale for the downgrade would be disclosed at that time.