After posting the August edition of the monthly ezine last week (10 days early), there already are enough developments to run an entire new issue, including:

– Sarbanes bill becomes “The Sarbanes-Oxley Act of 2002” as Senate and House conference concludes – yesterday, the entire House passed the Act and the Senate is expected to pass it today – the conference report for the Sarbanes-Oxley Act of 2002 is available at http://commdocs.house.gov/reports/107/h3763.pdf.

– Senate finally confirms four Commissioners for the SEC (Goldschmid, Campos, Atkins and Glassman) after a record length of time with the Senate conducting no confirmations for any position (due to politics as usual)

– Chairman Pitt is criticized for including suggestion of elevating his position to a Cabinet level one – with an attendent $30k pay raise – as part of list of proposals from the SEC to Senate and House conference – the Washington Post ran an incredible story yesterday based on interviews with current and past co-workers (on a no-name basis) that provides insights into what it is like to work with the Chairman – this article is available at http://www.washingtonpost.com/wp-dyn/articles/A60011-2002Jul24.html.

– ACCA conducted a webcast yesterday on the certification requirements that included panelists John Olson of Gibson Dunn, David Martin of Covington Burlin and David Berger of Wilson Sonsini. Anyone can listen to the archived webcast at http://www.acca.com/communities/networks/cslaw/post_enron.html.

Regarding the sworn CEO/CFO certifications that are due soon, we have posted a memo that set forth 10 practical considerations to take into account at http://www.realcorporatelawyer.com/CEO_Certifications.html

At the ASCS National Conference today, Alan Beller, Director of the Division of Corporation Finance, indicated that several dozen comment letters had already been sent to companies on their latest 10-K filings – with hundreds more expected in the next few months.

Some conference attendees expressed concern about CEOs and CFOs providing certification regarding the accuracy of their past reports – as required by the SEC’s recent order – and then getting comments from the SEC staff afterwards. They wondered if the staff could indicate whether a comment letter would be forthcoming before providing the certification. In line with past staff practice, Alan stated that the staff could not tip off a company that a comment letter would be sent soon.

Alan did indicate that – wearing his hat as a former law firm partner – companies would be well advised to develop a set of procedures before CEOs and CFOs executed their certifications – even if the procedures were a “one time” only situation (it would be one-time only because the order differs in scope and manner from the SEC’s proposed rulemaking on the same topic). These procedures would include input from key insiders and outside advisors on the areas that the senior managers should focus on when asking about the accuracy and completeness of past disclosure.

Alan urged companies to call Corp Fin or the Office of the Chief Accountant if they had any questions – so that companies would at least “get it right the second time.”

According to the July 3rd issue of the Washington Post, administrative law judge Brenda P. Murray found that the SEC improperly initiated the SEC’s enforcement action against Ernst & Young regarding alleged violations of auditor independence (see our June ezine for details of the allegations). E&Y challenged the SEC’s action because it proceeded on the vote of only one commissioner, Commissioner Hunt after the other two commissioners recused themselves. Past ties to Ernst & Young prevented Chairman Pitt and Commissioner Glassman from voting.

According to the Post, in papers filed in the case, the SEC staff said that E&Y was a repeat offender and “remains both positioned and likely to commit future violations of the auditor independence rules” and argued that Commissioner Hunt voted to initiate the case under authority delegated to him as the commission’s duty officer to handle urgent matters. The judge found the SEC failed to prove the matter was urgent. The judge’s order, which does not prohibit the SEC from filing the case again in the future, can be appealed to a federal appellate court. But securities lawyers said the judge’s order means that, unless the agency can prove the case is urgent, at least two commissioners must be able to participate in the vote.

Under the ethics rules, Pitt’s one-year recusal expires on August 3, and after that he will decide whether to participate in matters on a case-by-case basis, SEC spokeswoman Christi Harlan said.

I mentioned the other day that Chairman Pitt wrote a letter to President Bush outlining the steps that the SEC took to carry out Bush’s 10-point plan, we now have a copy of the letter posted to the site. It is at http://www.realcorporatelawyer.com/Features/Pitt-Bush.pdf

There is so much going on that there is almost too much to blog. Within the last 24 hours, the SEC has posted the proposal releases that it passed last week. This thursday, the SEC has an open meeting to consider the creation of a new public accounting board. Chairman Pitt wrote a letter to President Bush this week to outline the steps that the SEC has taken to carry out the 10-point plan that the Bush administration issued in March. Boy, the SEC is moving fast…

The proposal regarding disclosure of critical accounting estimates in MD&A may prove to be as controversial as any of the other proposals that have received much more attention. Upon my first reading, I quickly decided i need to create a flow chart to comprehend what a company would need to do in order to comply with this proposal. A pdf of this flow chart is available at http://www.realcorporatelawyer.com/Features/critical%20accounting.pdf.

As expected, the SEC proposed rules that would require CEO/CFO certification as well as more frequent and timelier Form 8-Ks. The details are at http://www.sec.gov/news/press/2002-88.htm.

I have created a flow chart to help understand the complex SEC proposal regarding critical accounting policy disclosure in MD&A. The flow chart is at http://www.realcorporatelawyer.com/Features/critical%20accounting.pdf.

Tommorrow, I will post a summary of the SEC’s open meeting deliberations on mandating 8-K disclosure for more events and CEO/CFO certifications…

The NYSE’s Corporate Accountability and Listing Standards Committee has issued it’s Recommendations to the NYSE Board of Directors. The
recommendations can be found on the NYSE’s website at http://www.nyse.com/pdfs/corp_govreport.pdf

A comment period runs til early August and some of the Recommendations should prove to be contentious. The highlights of the Recommendations include:

– An increased role and authority for independent directors

– A tightening of the definition of “independent” director

– New audit committee qualification requirements

– A requirement to adopt corporate governance guidelines

– An increased role for shareholders in monitoring governance
at companies and in approving equity-based compensation
plans

– New control and enforcement procedures by requiring CEO certifications
of certain company procedures

– Improving director education and training

With accounting reforms not moving in Congress, 7 state legislatures are taking reform steps that are quite different from the bills pending on the Hill. For example, the California Assembly is considering a bill that would limit the consulting services that accounting firms can provide to their audit clients – and the New York state legislature is considering one that would require companies to rotate their audit firms every five years. These legislative efforts are in addition to the Texas State Board of Public Accountancy’s attempt to revoke Arthur Andersen LLP’s license to do business in that state.

For a Washington Post article on the Sarbanes bill and state efforts, see http://www.washingtonpost.com/wp-dyn/articles/A18198-2002May27.html.