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While much of our conversation these days has been focused on the implementation of the Dodd-Frank Act, interestingly enough the SEC is still adopting rules to implement pieces of the Sarbanes-Oxley Act of 2002. Recently, the SEC amended its “Informal and Other Procedures” to add a rule that will facilitate interim SEC review of PCAOB inspection reports.

This rule was adopted to implement Section 104(h) of the Sarbanes-Oxley Act, which provides that a registered public accounting firm may request interim Commission review of PCAOB inspection reports. These reviews can take place in situations where a registered public accounting firm has responded to the substance of particular items in the PCAOB’s draft inspection report and disagrees with the assessments contained in any final report prepared by the PCAOB following that response, or when a registered public accounting firm disagrees with the PCAOB’s determination that quality control criticisms or defects identified in the inspection report have not been addressed to the satisfaction of the PCAOB within 12 months of the date of the inspection report. The new rules provide for the logistics of making these sorts of review requests, and the SEC has delegated responsibility for the interim reviews to the Chief Accountant.

A Few Things I Learned at the ABA Annual Meeting

The ABA Annual Meeting wrapped up earlier this week in San Francisco, and as always there were a lot of great programs and subcommittee discussions, thanks to the hard work of the Federal Regulation of Securities Committee. I learned a few things at the meeting that I thought might be worth sharing:

1. The walk up California Street from my hotel on the Embarcadero to the Fairmont Hotel in Nob Hill involved climbing what seemed to me to be an incredibly steep hill (note to self: pay more attention to your hotel reservations next time).

2. The “conflict minerals” provision of the Dodd-Frank Act (Section 1502), which Broc recently blogged about, will potentially have a very broad reach once the SEC adopts implementing rules by April 17, 2011. The new disclosure will be triggered whenever conflict minerals are “necessary to the functionality or production of a product” manufactured by a company. The conflict minerals are columbitetantalite (coltan), cassiterite (tin ore), gold, wolframite, or their derivatives, and other minerals that may be determined by the Secretary of State. These minerals are used in such everyday products as cell phones, laptops, digital cameras, tin cans, light bulbs and jewelry (just to name a few). Companies whose products use any of these minerals in their manufacture under the standard referenced above will have to disclose on an annual basis whether they are sourcing these minerals from the Democratic Republic of Congo or adjoining countries (Angola, the Republic of Congo, the Central African Republic, the Sudan, Uganda, Rwanda, Burundi, Tanzania, and Zambia). When minerals are being sourced from these countries, then a report is required which will describe the measures that the company has taken to exercise due diligence on the source and chain of custody of the minerals. This report must include an independent private sector audit conducted in accordance with standards established by the GAO. There is no materially standard contemplated in the statute, so the SEC will not likely be able to apply such a standard when adopting the mandated rules.

3. The CEO pay ratio disclosure required by Section 953 of the Dodd-Frank Act will be required in any filing to which Regulation S-K applies, so presumably the SEC will feel compelled by that statutory language to require the disclosure in more than just the proxy statement. The statute doesn’t contemplate any exclusions from the calculation of median total employee compensation, such as based on status as a part-time, hourly or overseas employee, so it appears unlikely at this point that any such exclusions would end up in the final rules. The practical realities of computing the total compensation numbers using the methodology of the “Total” column of the Summary Compensation Table loom large for companies, although perhaps rulemaking with respect to this particular provision will take a while.

4. Under the new Corp Fin office structure announced last month, the office tasked with reviewing large and financially significant companies will continue to expand the Staff’s efforts to conduct continuous, real time reviews of certain registrants, which involves reviewing everything that these companies file and providing comments in real time. So, for example, the Staff will comment on the earnings release that is furnished by one of these companies so that comments can be addressed in the upcoming 10-K or 10-Q. The new office in Corp Fin tasked with observing capital market trends through the review of 424s will not only have input into rule changes and interpretations that may be necessary based on observed trends in offering techniques and products, but will also issue comments on 424s, presumably on a “futures” basis. This office will also handle inquiries about new products.

5. The SEC is working on rule changes and MD&A guidance that is likely to be out this Fall regarding short-term borrowing disclosure, in order to address recent events indicating that there may not have been adequate disclosure about short-term borrowings, given the way that such borrowings were reflected in the financials.

The New Pay Legislation: Action Items

We have posted the transcript from our pre-conference briefing “The New Pay Legislation: Action Items.”

Access to the audio archive of this webcast and the transcript is free with your registration for our upcoming conferences, the “5th Annual Proxy Disclosure Conference” and the “7th Annual Executive Compensation Conference.” The Conferences take place on September 20th and 21st in Chicago and via nationwide video webcast. Given all that is going on in the wake of the Dodd-Frank Act, you will not want to miss these conferences, so be sure to sign up today if you haven’t already done so.

– Dave Lynn