Author Archives: Broc Romanek

Thanks to Julie Hoffman of Squire Sanders & Dempsey for her lengthy and precise notes from the recent SEC Speaks 2003 conference. TheCorporateCounsel.net subscribers can review those at http://www.thecorporatecounsel.net/member/SEC/03_11_03_SECspeaks.htm.

We have also posted sample audit fee tables for subscribers at http://www.thecorporatecounsel.net/member/Disclosure/audit_fee.htm.

FASB commences its discussion of rulemaking to require expensing options today – by now, a number of accounting firms support the move, including E&Y, PwC, Deloitte, Grant Thornton – and allegedly even KPMG. See a related Washington Post article at http://www.washingtonpost.com/wp-dyn/articles/A12710-2003Mar11.html.

Yesterday, the SEC/NYSE/Nasdaq released a joint study on mutual fund fees, claiming that some funds overcharge investors – see the study at http://www.sec.gov/news/studies/breakpointrep.htm.

The Public Company Accounting Oversight Board has issued a proposing release with proposed registration rules and a proposed form for public accounting firms to register with the Board. Comments are due by March 31, 2003 – and may be filed electronically or in writing. The Release is available on the Board’s website at the following link by clicking on “Proposed Rules” at http://www.pcaobus.org.

The proposed registration rules do not exempt non-US public accounting firms – and would apply to non-US audit firms that play a substantial role (as defined) in the rules in the preparation or furnishing of audit reports (even though they do not issue the report). The Board initially announced plans for a public roundtable on the effect and operation of Board registration and oversight of foreign public accounting firms on March 21st – that date has been changed to March 31st. A list of questions the Board would like addressed by commentators is contained on pages 13-14 of the proposing release.

As reflected in an interview with Pat McGurn, as one of its new policies, ISS will recommend voting against ratification of a company’s auditors – as well as withholding for a company’s audit committee members – if the company does not meet a simple formula regarding the level of the audit and audit-related fees paid to the auditor compared to non-audit fees (ISS separately analyzes the types of fees in the “tax fees” column to determine which side of the equation each fee should go).

The bottom line is that companies should voluntarily comply with the SEC’s new audit fee table (which is adopted but not yet effective) to enable ISS to conduct its analysis. Otherwise, the company faces the prospect of numerous votes against ratification of auditors and withholding for audit committee members – ISS already has recommended this adversarial stance in the first instances it has arisen since ISS’ new policies took effect early last week. TheCorporateCounsel.net subscribers can learn more about all of ISS’ new policies in the Pat McGurn interview posted at http://www.thecorporatecounsel.net/member/InsideTrack/03_10_03_McGurn.htm.

Warren Buffett’s annual letter to shareholders always is interesting reading – this year’s letter criticizes derivatives (page 13), corporate governance, executive compensation and the accounting profession (page 16). You can read it at http://www.berkshirehathaway.com/letters/2002pdf.pdf.

The SEC has pronounced that the new listing standards on shareholder approval of equity compensation plans and broker voting will not go into effect for this proxy season. The current rules will be extended through June.

For TheCorporateCounsel.net subscribers, we have posted an interview with Erin Sweeney of Latham & Watkins on option dilution disclosure at http://www.thecorporatecounsel.net/member/InsideTrack/03_06_03_Sweeney.htm.

Yesterday, FASB chief Bob Herz testified before Congress on expensing options – and expressed his view that he would resist political pressure in his efforts towards mandating expensing. See the related Washington Post article at http://www.washingtonpost.com/wp-dyn/articles/A42477-2003Mar4.html.

For TheCorporateCounsel.net subscribers, we have posted an interview with Jeff Shulte of Morris, Manning & Martin on Attorney Responsibility Standards at http://www.thecorporatecounsel.net/member/InsideTrack/03_05_03_Schulte.htm.

Thanks to Mike Holliday – our roving friend and reporter – the following are some of the actions taken by the Public Company Accounting Oversight Board at its meeting today:

1. Approved putting out for comment proposed registration rules and forms for public auditing firms to register. Comments due by 5 p.m. on March 31st. After the comment period, the PCAOB has to approve the rules and forms and submit to the SEC, which will put out the rules for comment. The PCAOB time schedule is to send the rules and forms to the SEC by mid-April, with applications from auditing firms due to be filed by early September and firms registered by the end of October.

2. The PCAOB plans to put out proposals for allocation, assessment and collection of fees from issuers next week, with final rules to the SEC by mid-April. They plan to be able to send bills to issuers in mid-to-late spring.

3. The PCAOB plans to adopt transitional standards on auditing, quality control and independence in mid-April, and to announce standard setting procedures in April.

4. Non-US auditing firms – including non-US firms that play a substantial part in preparing audit reports even if the firm does not issue the report – are not exempt from the registration process.

5. The PCAOB plans to hold a roundtable the week of March 17, they mentioned Friday, March 21, to consider registration of non-US auditing firms and how the PCAOB should exercise its authority over non-US firms. They want to invite participation by US and non- US auditing firms, investors and financial regulatory authorities. There will be a separate release on this with a list of questions attached.

Although most of this regulation directly affects the auditing firms and not public companies, there are a few issues for companies to follow – in addition to the fees public companies will have to pay. The PCAOB will be collecting data, particularly in audit firm investigations, that may include some public company client information.

Also, SOX 105 specifically authorizes the Board to establish rules to request testimony of, and production of any document in the possession of, any other person including any client of an auditing firm, and to seek issuance by the SEC of a subpoena to require the testimony of or production of any document in the possession of any person including any client, with relevancy and materiality standards. Public companies will have an interest in how their confidential and proprietary information will be protected.

The SEC also announced the details of its selection process for head of the PCAOB – it’s at http://www.sec.gov/news/press/2003-28.htm.

More than 100 companies with 12/31 year-ends filed their Form 10-Ks (and some 10-KSBs) within 60 days – meeting what will be the new deadline two years hence.

From these and other filings, for TheCorporateCounsel.net subscribers, we have excerpted sample disclosures related to loans under Section 402 and changes in accountants. We also have sample disclosures regarding audit committee financial experts. These are posted at http://www.thecorporatecounsel.net/member/Disclosure/.

The Public Company Accounting Oversight Board hired away George Diacont from the Nasdaq to be head of registration and inspections. George used to work at the SEC. The Oversight Board has a much anticipated meeting today at 12:30 est – tackling registration of foreign auditng firms among other issues. You can hear the webcast at http://www.connectlive.com/events/pcaob/.

At “SEC Speaks,” no real bombshells were dropped. However, the SEC staff did note that there is some possibility that the upcoming final rules on broker uninstructed votes could still be applied to this proxy season. But the staff did not indicate when the final rules would be adopted – so the likelihood of this appears relatively limited to us. Notes from SEC Speaks will be posted on TheCorporateCounsel.net within a few days.

The Sunday edition of the NY Times included an article on a recent Indiana University study on the impact of CEO Certifications on corporate earnings – we have posted a copy of that survey at http://www.thecorporatecounsel.net/member/alerts/03_03_03_CEO.pdf.

Just in time for Friday’s “SEC Speaks” program (affectionately known as “SEC Spleaks” by alumni), Corp Fin has released a summary of significant issues addressed in its review of 10-Ks of the Fortune 500 companies. The Summary states that comment letters have been sent to more than 350 companies – and that the Staff is continuing to work with many companies as they respond to comments. This Summary is at http://www.sec.gov/divisions/corpfin/fortune500rep.htm.

The Summary is an objective, factual summary that concentrates on what the SEC staff sees as common deficiencies – staffers already are saying that they anticipate a similar review of “large” – but not necessarily the Fortune 500 – companies for next year, focusing on the same type of issues (i.e. revenue recognition, restructuring charges, liquidity) – as well as compliance with the new rules.

Here is an interesting Washington Post article about people declining director positions – http://www.washingtonpost.com/wp-dyn/articles/A8160-2003Feb26.html.

For TheCorporateCounsel.net subscribers, we have posted an interview with Amy Goodman about pre-approval policies for non-audit services at http://www.thecorporatecounsel.net/member/InsideTrack/02_25_03_Goodman.htm.