February 8, 2005

SEC Will Hold Internal Controls Roundtable

Yesterday, the SEC announced that it intends to hold a roundtable later this spring on internal controls. No date yet has been set. The SEC will also solicit – and post – written comments about 404.

By the way, I continue to post sample 404 reports in our “Sample Section 404 Management Reports and Auditor Attestations,” including this report from Altria Group filed in an 8-K last Wednesday.

Restatements Regarding Lease Accounting

Yesterday, the SEC’s Office of Chief Accountant posted this letter regarding how to use lease accounting in restatements, including what disclosures might be appropriate in MD&A such as:

– The accounting for leases should be clearly described in the notes to the financial statements and in the discussion of critical accounting policies in MD&A if appropriate.

– Known likely trends or uncertainties in future rent or amortization expense that could materially affect operating results or cash flows should be addressed in MD&A.

The SEC noted that the MD&A disclosures should address:

1. Material lease agreements or arrangements.

2. The essential provisions of material leases, including the original term, renewal periods, reasonably assured rent escalations, rent holidays, contingent rent, rent concessions, leasehold improvement incentives, and unusual provisions or conditions.

3. The accounting policies for leases, including the treatment of each of the above components of lease agreements.

4. The basis on which contingent rental payments are determined with specificity, not generality.

5. The amortization period of material leasehold improvements made either at the inception of the lease or during the lease term, and how the amortization period relates to the initial lease term.

Shareholder Access (And More) By Gunpoint

In the latest of a string of settlements that impose governance changes on companies, Ashland has settled a shareholder derivative lawsuit brought by the Central Laborers’ Pension FundHolders that requires the company:

– to solicit institutional shareholders who hold 1 percent or more of the company stock’s for a list of candidates to nominate as independent directors

– to make a part of its governance policy its practice of requiring at least two-thirds of its board be independent directors

– to mandate shareholder approval for the adoption of stock option plans for directors or officers, and require a holding period for a portion of shares acquired by directors and senior officers through option exercises