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Yesterday, Corp Fin posted answers to some of the most frequently asked questions concerning implementation of the new smaller reporting company disclosure rules. These new Compliance and Disclosure Interpretations include definitive answers to some of the queries posted recently in our Q&A Forum.

Among the notable interpretations are:

1. Given the application of the transition rules for accelerated filers, a company can be both an accelerated filer and a smaller reporting company simultaneously (such as when it has a public float of $60 million on the last business day of its second fiscal quarter of 2007), in which case the company may use the scaled disclosure rules in its annual report on Form 10-K, but the report is due 75 days after the end of the its fiscal year and the company must include the auditor attestation report required by Item 308(b) of Regulation S-K. (See Interpretation 2)

2. All smaller reporting companies must provide the audit committee report required by Item 407(d)(3) of Regulation S-K. Smaller reporting companies are not required to provide the audit committee financial expert disclosure required in paragraph (d)(5) of Item 407 until their first annual report after their initial Securities Act or Exchange Act registration statement becomes effective. A corrected adopting release has been posted to clarify this point. (See Interpretation 4)

3. In its proxy statement, a smaller reporting company must provide all of the disclosure required by Item 404(d)(1) of Regulation S-K – rather than just the disclosure required by Item 404(a) of Regulation S-K – even though Item 7(b) of Schedule 14A refers specifically to Item 404(a). In addition, smaller reporting companies need not furnish the disclosure required by Item 404(b) of Regulation S-K – regarding the review, approval or ratification of related person transactions – even if a form or schedule (like Schedule 14A) specifically calls for Item 404(b) disclosure. (See Interpretations 5 and 6)

The SEC’s Foreign Private Issuer Reporting Proposals

The SEC has posted the proposing release for its foreign private issuer initiatives. In addition to shortening the filings deadline for accelerated filer and large accelerated filer FPIs to within 90 days of an issuer’s fiscal year-end, the SEC proposes to change the testing for FPI status to once a year, rather than the continuous testing scheme that is currently in place. The SEC also proposes to change the requirements regarding segment data in the Form 20-F and to clarify the applicability of Exchange Act Rule 13e-3 when an FPI deregisters under the Exchange Act. The SEC is soliciting comment on some other potential changes to the disclosure required of FPIs in registration statements and annual reports.

These proposals are out for a 60 day comment period.

The Latest FCPA Developments

At the end of last year, I noted how in 2007 we saw a significant uptick in Foreign Corrupt Practices Act enforcement activity. Now, the SEC and DOJ have kicked off 2008 with two more high profile FCPA cases. Flowserve was recently charged with violating the books and records and internal controls provisions of the FCPA in connection with kickbacks made during the company’s participation in the UN’s Oil for Food Program, while Westinghouse Air Brake Technologies was charged with FCPA violations in connection with improper payments that the company’s Indian subsidiary made to employees of the government of India.

These trends should put FCPA compliance on the front burner for any company with operations abroad. In this podcast, Ellen Zimiles and Joseph Spinelli of Daylight Forensic and Advisory LLC discuss the latest developments in FCPA enforcement, including:

– What is the current “lay of the land” regarding FCPA enforcement?
– What do you see as the principal areas of focus for regulators and prosecutors?
– What are the potential consequences of failure to comply with the FCPA?
– How can companies protect themselves?

– Dave Lynn