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| U.S. Governance
Regulations & Sarbanes-Oxley Act This section includes information on governance regulations proposed or issued by the U.S. Stock Exchanges, the SEC and other regulatory bodies.
NYSE Proposes Amendments to Corporate Governance Listing Standards On August 3, 2004, the New York Stock Exchange (NYSE) submitted for approval amendments to its corporate governance listing standards. The amendments were proposed in order to address a number of issues prompting questions and requests for interpretive guidance since the listing standards were first approved in November 2003. One of the proposed amendments would require audit committees at listed companies to “meet to review and discuss” annual and quarterly financial statements, and “review the company’s specific Management’s Discussion & Analysis disclosures.” Other proposed amendments would more accurately reflect how the applicable look-back periods should be applied; change the substance of the independence standards regarding affiliations with a listed company’s internal or external auditor, and other areas of the corporate governance listing standards. These amendments were approved by the Securities and Exchange Commission on November 3, 2004.. The listing standards approved in November 2003 are accessible below under the section titled "U.S. Stock Exchange Final Corporate Governance Listing Standards."
On June 17, 2004, The Securities and Exchange Commission approved, the Public Accounting Oversight Board's (PCAOB's) Auditing Standard No. 2, “An Audit of Internal Control Over Financial Reporting Performed in Conjunction with An Audit of Financial Statements.” This Auditing Standard governs the independent auditor’s audit, and reporting, on management’s assessment of the effectiveness of internal control over financial reporting. Paragraphs 55 through 59 of this proposed Auditing Standard address the external auditor’s responsibility, as part of its audit of internal control over financial reporting, to evaluate the effectiveness of the audit committee’s oversight of the company’s external financial reporting and internal control over financial reporting. The PCAOB's Auditing Standard No. 2 and a related Briefing Paper, PCAOB and SEC Questions and Answers, SEC approval and KPMG's Defining Issues related to this topic can be accessed as follows:
Sarbanes-Oxley Section 404: An Overview of the PCAOB's
Requirements Additional information on the PCAOB's Auditing Standard No. 2 is available below under the section titled "PCAOB Approved Auditing Standard on Audit of Internal Control."
U.S. Stock Exchange Final Corporate Governance Listing Standards SEC Approves NYSE, NASDAQ Strengthening of Corporate Governance Listings -- November 2003 On November 4, 2003, the Securities and Exchange Commission (SEC) approved new rules proposed and adopted by the New York Stock Exchange (NYSE) and the Nasdaq Stock Market, Inc. (NASDAQ) requiring strengthening of their corporate governance listing standards. These standards will generally be effective by the first annual shareholders meeting after January 31, 2004 but not after October 31, 2004. The SEC's approval results in new requirements regarding board composition, structure and process, and other corporate governance matters initially proposed by the NYSE and NASDAQ late in 2002 and later amended during 2003 based on feedback from the SEC, the public, and internal committees. These new listing standards also address the definition of director independence, the composition and responsibilities of the audit committee, the requirement for an audit committee charter and the requirement for independent directors and independent committees. The requirement for independent directors and independent committees includes a requirement that: a majority of board members be independent; executive sessions of independent directors are held; and independent oversight of executive compensation and director nominations exist. These requirements were also impacted by the final rules issued by the SEC during 2003 in accordance with the Sarbanes-Oxley Act of 2002, however, these requirements go beyond the SEC's rules. The SEC press release approving the new rules, the final NYSE and NASDAQ exchange listing standards, and KPMG's Defining Issues related to this topic can be accessed as follows: SEC Press Release Approving the New Rules (November 4, 2003) SEC Release: NYSE and NASDAQ Final Corporate Listing Standards (November 4, 2003) KPMG's Defining Issues -- New Corporate-Governance Listing Standards (November 2003) View documents including summary and analysis of the new exchange listing standards below from the law firm of Weil, Gotshal & Manges LLP, including a Memorandum containing an executive summary, as well as a November 4, 2003 "Special Alert" of its newsletter, titled, "The Corporate Charter." Weil, Gotshal - Executive Summary of the Final Listing Standards Weil, Gotshal - "The Corporate Charter" newsletter (November 4, 2003) SEC Approves Amex Enhanced Corporate Governance Listings -- December 2003 On December 1, 2003, the Securities and Exchange Commission (SEC) approved new rules proposed and adopted by the American Stock Exchange (Amex) which enhance its corporate governance listing standards. These standards will generally be effective by the first annual shareholders meeting after January 31, 2004 but not after October 31, 2004. These new listing standards, among other things, requires each issuer listed on the Amex to comply with the standards for audit committees mandated by Section 10A(m) of the Securities Exchange Act of 1934 and Rule 10A-3 there under. The rule change also includes provisions relating to board independence and independent committees, codes of conduct and other corporate governance issues. Amex has amended its original proposal to harmonize it with the rule changes recently approved by the SEC for the NYSE and NASDAQ. The final Amex listing standards can be accessed as follows: Amex Final Listing Standards -- "Spotlight" (December 1, 2003)
NYSE Releases Listing Standards FAQ On January 29, 2004, the New York Stock Exchange (NYSE) released its “NYSE Listed Company Manual Section 303A Corporate Governance Listing Standards Frequently Asked Questions” (FAQs), which was further updated on February 13, 2004. This 18-page document contains, in a question-and-answer format, information about the NYSE’s recently revised corporate governance listing standards, including: transition periods; disclosure and certifications; independence determination; non-management director communications requirements; compensation committee requirements; audit committee requirements; code of business conduct and ethics requirements; and foreign private issuer disclosure. The updates to the FAQ in February represent guidance for foreign private issuers, and clarification of independence determination rules. Most U.S. NYSE listed companies must comply with the new Section 303A requirements by the company's first annual meeting after January 15, 2004, but no later than October 31, 2004.
ACI Updates Corporate Accountability Reforms Comparison KPMG's Audit Committee Institute (ACI) has updated as of March 31, 2004, a side-by-side comparison of select elements of the Sarbanes-Oxley Act of 2002 and the NYSE, NASDAQ, and Amex stock exchange corporate governance listing standards approved by the Securities and Exchange Commission in November / December 2003. This summary of select elements is meant to provide high-level overview of elements of the new requirements that impact audit committees and reflects the status of these issues. The comparison was distributed at the Spring 2004 Audit Committee Roundtable series.
Sarbanes-Oxley Act of 2002 (SOX) On July 30, 2002, President George W. Bush signed into law the Sarbanes-Oxley Act of 2002 (Accounting Industry Reform Act). The law of sweeping changes creates an oversight board to monitor the accounting industry, toughens penalties against executives who commit corporate fraud and increases the Securities and Exchange Commission (SEC) budget for auditors and investigators. The law is also intended to restore investor confidence in U.S. markets. This was a landmark event, representing the most dramatic changes in the Federal Securities laws since the 1930s. Summary of Sarbanes-Oxley from the AICPA The American Institute of Certified Public Accountants (AICPA) provides a summary of relevant sections of the Sarbanes-Oxley Act of 2002. Speech by SEC Commissioner Atkins: This speech, presented by Securities and Exchange (SEC) Commissioner Paul S. Atkins on February 3, 2003, at the University of Cologne in Germany,
included remarks about the Sarbanes-Oxley Act rules adopted by the
SEC and the accommodations that the SEC has made in response to the concerns
of foreign entities.
GAO Study on the Potential Effects of Mandatory Audit Firm Rotation -- November 2003 The Sarbanes-Oxley Act of 2002 (the Act) required the United States
General Accounting Office (GAO) to study the potential effects of requiring
rotation of the public accounting firms that audit public companies registered
with the Securities and Exchange Commission (SEC). The GAO recommended that the SEC and the Public Company Accounting Oversight Board closely monitor and evaluate the effectiveness of the reforms under the Sarbanes-Oxley Act for enhancing auditor independence and audit quality.
Implementation of Standards of Professional Conduct for Attorneys January 29, 2003 -- The Securities and Exchange Commission (SEC) solicited comments on proposed rules setting standards of professional conduct for attorneys who appear and practice before the SEC on behalf of issuers. Section 307 of the Sarbanes-Oxley Act of 2002 requires the SEC to prescribe minimum standards of professional conduct for attorneys appearing and practicing before the SEC in any way in the representation of issuers. Disclosure Required by Sections 404, 406, and 407 ofthe Sarbanes-Oxley Act of 2002 October 22, 2002 -- Most of this proposal has been issued as final regulation by the SEC other than the portion of this proposal related to internal controls (Section 404). Section 404 requires the SEC to adopt rules requiring a company's management to present an internal control report in the company's annual report containing: (1) a statement of the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and (2) an assessment, as of the end of the company's most recent fiscal year, of the effectiveness of the company's internal control structure and procedures for financial reporting. Section 404 also requires the company's registered public accounting firm to attest to, and report on, management's assessment. View final rule on Section 404 View final rule on Sections 406 and 407 Improper Influence on Conduct of Audits October 18, 2002 -- As directed by Section 303(a) of the Sarbanes-Oxley Act of 2002, the SEC is proposing rules to prohibit officers and directors of an issuer, and persons acting under the direction of an officer or director, from taking any action to fraudulently influence, coerce, manipulate or mislead the auditor of the issuer's financial statements for the purpose of rendering the financial statements materially misleading.
SEC Final Regulation Related to Sarbanes-Oxley SEC Issues Final Rules Relating to Listed Company Audit Committees April 1, 2003 -- The Securities and Exchange Commission (SEC) voted to adopt new rules and amendments to direct the national securities exchanges and national securities associations to prohibit the listing of any security of an issuer that is not in compliance with the audit committee requirements established by the Sarbanes-Oxley Act of 2002. These requirements relate to: the independence of audit committee members; the audit committee's responsibility to select and oversee the issuer's independent accountant; procedures for handling complaints regarding the issuer's accounting practices; the authority of the audit committee to engage advisors; and funding for the independent auditor and any outside advisors engaged by the audit committee. Implementation of Standards of Professional Conduct for Attorneys January 29, 2003 -- The Securities and Exchange Commission (SEC) is adopting a final rule establishing standards of professional conduct for attorneys who appear and practice before the Commission on behalf of issuers. Section 307 of the Sarbanes-Oxley Act of 2002 requires the Commission to prescribe minimum standards of professional conduct for attorneys appearing and practicing before the Commission in any way in the representation of issuers. Strengthening the SEC's Requirements Regarding Auditor Independence January 28, 2003 -- The SEC is adopting amendments to its existing requirements regarding auditor independence to enhance the independence of accountants that audit and review financial statements and prepare attestation reports filed with the SEC. View Application of the January 2003 Rules on Auditor Independence -- Frequently Asked Questions Disclosure in Management's Discussion and Analysis About Off-Balance-Sheet Arrangements and Aggregate Contractual Obligations January 27, 2003 -- As directed by new Section 13(j) of the Securities Exchange Act of 1934, added by Section 401(a) of the Sarbanes-Oxley Act of 2002, the SEC is adopting amendments to rules to require disclosure of off-balance sheet arrangements. The amendments require a registrant to provide an explanation of its off-balance sheet arrangements in a separately captioned subsection of the "Management's Discussion and Analysis" ("MD&A") section of a registrant's disclosure documents. The amendments also require registrants (other than small business issuers) to provide an overview of certain known contractual obligations in a tabular format. Certification of Management Investment Company Shareholder Reports and Designation of Certified Shareholder Reports as Exchange Act Periodic Reporting Forms; Disclosure Required by Sections 406 and 407 of the Sarbanes-Oxley Act of 2002 January 27, 2003 -- The SEC is adopting rule and form amendments that require registered management investment companies to file certified shareholder reports on Form N-CSR with the SEC, and designating these certified reports as reports that are required under Sections 13(a) and 15(d) of the Securities Exchange Act of 1934 and Section 30 of the Investment Company Act of 1940. Retention of Records Relevant to Audits and Reviews January 24, 2003 -- The SEC is adopting rules requiring accounting firms to retain for seven years certain records relevant to their audits and reviews of issuers' financial statements. Records to be retained include an accounting firm's workpapers and certain other documents that contain conclusions, opinions, analyses, or financial data related to the audit or review. Retention of Records Relevant to Audits and Reviews January 24, 2003 -- The SEC is adopting rules requiring accounting firms to retain for seven years certain records relevant to their audits and reviews of issuers' financial statements. Records to be retained include an accounting firm's workpapers and certain other documents that contain conclusions, opinions, analyses, or financial data related to the audit or review. SOX: SEC Issues Rules On "Financial Experts"; Codes of Ethics On January 24, 2003, the Securities and Exchange Commission (SEC) issued “Final Rule: Disclosure Required by Sections 406 and 407 of the Sarbanes-Oxley Act of 2002” which require public companies to disclose if they have an “audit committee financial expert" and final regulation related to to codes of ethics applying to officers or similar functions. Conditions for Use of Non-GAAP Financial Measures January 22, 2003 -- As directed by the Sarbanes-Oxley Act of 2002, the SEC is adopting new rules and amendments to address public companies' disclosure or release of certain financial information that is calculated and presented on the basis of methodologies other than in accordance with generally accepted accounting principles (GAAP). Insider Trades During Pension Fund Blackout Periods January 22, 2003 -- The SEC is adopting rules that clarify the application and prevent evasion of Section 306(a) of the Sarbanes-Oxley Act of 2002. Section 306(a) prohibits any director or executive officer of an issuer of any equity security from, directly or indirectly, purchasing, selling, or otherwise acquiring or transferring any equity security of the issuer during a pension plan blackout period that temporarily prevents plan participants or beneficiaries from engaging in equity securities transactions through their plan accounts, if the director or executive officer acquired the equity security in connection with his or her service or employment as a director or executive officer. In addition, the rules specify the content and timing of the notice that issuers must provide to their directors and executive officers and to the Commission about a blackout period. Acceleration of Periodic Report Filing Dates and Disclosure Concerning Web Site Access to Reports September 5, 2002 -- The SEC is adopting amendments to its rules and forms to accelerate the filing of quarterly and annual reports under the Securities Exchange Act of 1934 by domestic reporting companies that have a public float of at least $75 million, that have been subject to the Exchange Act's reporting requirements for at least 12 calendar months and that previously have filed at least one annual report. The SEC also is adopting amendments to require accelerated filers to disclose in their annual reports where investors can obtain access to their filings, including whether the company provides access to its Forms 10-K, 10-Q and 8-K reports on its Internet Web site, free of charge, as soon as reasonably practicable after those reports are electronically filed with or furnished to the SEC. Certification of Disclosure in Companies' Quarterly and Annual Reports August 29, 2002 -- As directed by Section 302(a) of the Sarbanes-Oxley Act of 2002, the SEC is adopting rules to require an issuer's principal executive and financial officers each to certify the financial and other information contained in the issuer's quarterly and annual reports. Division of Corporation Finance: Sarbanes-Oxley Act of 2002 -- Frequently Asked Questions November 14, 2002 -- The answers to these frequently asked questions represent the views of the Division of Corporation Finance. They are not rules, regulations nor statements of the Securities and Exchange Commission (SEC). Further, the SEC has neither approved nor disapproved them.
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