hasuploaded_accountingauditing.ppt

1、,RECENT GOVERNANCE DEVELOPMENTS IN THE UNITED STATES,Robert D. Strahota Assistant Director, Office of International Affairs* U.S. Securities and Exchange Commission Prepared for Fourth South Eastern Europe Corporate Governance Roundtable March 7, 2003 *The U.S. Securities and Exchange Commission, as

2、 a matter of policy, disclaims responsibility for any publication or presentation by its employees. The views expressed in this presentation are those of Mr. Strahota and do not necessarily reflect the views of the Commission, individual Commissioners, or Mr. Strahotas colleagues on the staff of the

3、 Commission.,SARBANES-OXLEY OVERVIEW,On July 30, 2002, President Bush signed the Sarbanes-Oxley Act of 2002 (SOX) into law SOX is the most important securities legislation affecting public companies and accounting oversight since the Securities and Exchange Commission (SEC) was formed in 1934 While

4、the new law was prompted by problems encountered in the U.S., these problems are global in dimension SOX provisions generally make no distinction between U.S. and foreign issuers who seek to access U.S. capital markets The terms “issuer” and “public company” as used in many places throughout SOX mea

5、n an issuer the securities of which are registered under the Securities Exchange Act of 1934 (Exchange Act), which is required to file reports under the Exchange Act, or that has filed a registration statement for a public offering of its securities under the Securities Act of 1933 that has not beco

6、me effective and that has not been withdrawn SECs mandate is to implement SOX fully for all issuers, foreign and domestic, but it is prepared to consider how it may fulfill this mandate through rulemaking and interpretive authority in ways that accommodate home country requirements and regulatory ap

7、proaches to foreign issuers and accountants,SOX AUDIT COMMITTEE REQUIREMENTS,Before Enron and subsequent financial reporting abuses arose, the NYSE, AMEX and Nasdaq markets already had strengthened their audit committee requirements by requiring at the minimum a three-person committee comprised enti

8、rely of independent directors with financial sophistication and at least one committee member required to have accounting/auditing expertise In July 2002, the NYSE approved recommendations of its Corporate Accountability and Listing Standards Committee that would require domestic issuers to have a m

9、ajority of independent directors, strengthen the definition of independent director, and require that audit committees of NYSE listed companies have the sole authority to hire and fire the independent auditors Before SOX, the markets audit committee, independent director and other corporate governan

10、ce requirements generally have not applied to foreign issuers with listed securities,SOX AUDIT COMMITTEE REQUIREMENTS,SOX defines “audit committee” as: “a committee (or equivalent body) established by and amongst the board of directors of an issuer for purposes of overseeing the accounting and finan

11、cial reporting processes of the issuer and audits of the financial statements of the issuer; and if no such committee exists with respect to an issuer, the entire board of directors of the issuer” For certain purposes, however, SOX imposes additional requirements regarding the composition and respon

12、sibilities of an “audit committee”,SOX AUDIT COMMITTEE REQUIREMENTS,SOX adds Section 10A(m) to the Exchange Act and requires that by April 26, 2003 the SEC, by rule, must direct the national securities exchanges and NASD to prohibit the listing of securities of any company, including foreign compani

13、es, that do not meet the following requirements: Each member of the companys audit committee must be a director and must otherwise be independent; : The audit committee must be responsible for hiring, retention, compensation and oversight of the independent auditors The audit committee must be respo

14、nsible for pre-approval or all audit and non-audit services The audit committee must receive reports from the independent auditors regarding critical accounting polices and practices, discussions that have taken place with management regarding alternative treatments of financial information under GA

15、AP, and any accounting disagreements and other material written communications between the auditors and management The audit committee must establish procedures to receive and address complaints regarding accounting, internal control and audit issues, and to provide company employees an opportunity

16、to make confidential, anonymous submissions regarding accounting and auditing matters The audit committee must have authority to engage independent counsel and other advisers; the company must provide adequate funding for the committee,AUDIT COMMITTEE REQUIREMENTS,Section 10A(m)(1)(b) requires that

17、SEC rules shall provide for an issuer to have an opportunity to cure any defects that would be a basis for the U.S. listing prohibition “Independence” means that an audit committee member is not an affiliate (control person) of the issuer or any subsidiary and that the member receives no consulting,

18、 advisory or compensatory fee from the issuer except is his capacity as a member of the audit committee, another board committee or the board of directors SEC is given authority to exempt from the independence requirement “a particular relationship with respect to audit committee members, as the Com

19、mission deems appropriate in light of the circumstances.” SOX audit committee requirements apply to domestic and foreign issuers. Congress provided only specific, limited exemption authority in such provisions. Therefore, it doubtful that Congress intended the SECs general exemption authority under

20、Section 36(a) of the Exchange Act to be used to grant exemptions,ACCOMODATIONS FOR FOREIGN ISSUERS,In Exchange Act Release No. 34-47137 (January 8, 2003), SEC proposed rules that would provide that in the case of foreign issuers: Where there are two-tier boards, the audit committee requirement would

21、 apply to the supervisory board Non-management employees may sit on the audit committee of a foreign issuer if the employee is selected or named to the board of directors or audit committee pursuant to home country legal or listing requirements One member of the audit committee may be a shareholder,

22、 or representative of a shareholder or group, owning more than 50% of the issuers voting securities, if the “compensation” part of the independence requirement is satisfied, the member in question has only observer status, and is not a voting member or the chair of the audit committee, or an executi

23、ve officer of the issuer One member of the audit committee may be a representative of a foreign government or foreign governmental entity, if the “compensation” requirement is satisfied and the member is not an executive officer,STATUTORY AUDITOR EXEMPTION,An exemption from the independence and audi

24、tor oversight requirements of the proposed rule also would be provided for boards of auditors or statutory auditors of foreign issuers that fulfill the remaining requirements of the proposed rule, if: those boards operate under legal or listing provisions that are intended to provide oversight of th

25、e outside auditors that is independent of management; their membership excludes executive officers; and such board or body, to the extent permitted by law, is responsible for the appointment and retention of the outside auditor A foreign issuer availing itself of any of these exemptions would be req

26、uired to disclose its reliance upon the exemptions and its assessment of whether, and if so, how such reliance may materially adversely affect the ability of its audit committee to act independently or satisfy other requirements of the proposed rule,ACCOMODATIONS - CONTINUED,For both U.S. and foreig

27、n issuers: An instruction to the rules would clarify that audit committee responsibility for hiring, retention, compensation and oversight of the independent auditors relates to allocation of this responsibility as between the audit committee and management and is not intended to conflict with any r

28、equirement under the issuers governing law, documents or home country requirements that requires shareholders to elect, approve or ratify the selection of the independent auditor One member of the audit committee need not be independent for 90 days after effectiveness of an IPO or Exchange Act regis

29、tration statement Membership on a parent companies board will not by itself prevent an otherwise independent board member from being considered an independent director of a subsidiary The proposed rule would require exchanges to provide companies with an opportunity to cure any defects in audit comm

30、ittee requirements before de-listing is considered, and a delayed implementation date for the rule itself is anticipated,CEO AND CFO CERTIFICATION OF FINANCIAL REPORTS,On August 27, the SEC adopted Exchange Act rules required to implement Section 302 of SOX, which requires a public companys CEO and

31、CFO to certify the contents of the companys quarterly and annual reports. The CEO and CFO must certify that: he or she has reviewed the report; based on his or her knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to ma

32、ke the statements made, in light of the circumstances under which such statements were made, not misleading; based on his or her knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition and results of

33、 operations of the issuer as of, and for, the periods presented in the report;,CEO AND CFO CERTFICATION CONTINUED,The CEO and CFO are responsible for establishing and maintaining disclosure controls and procedures (a newly-defined term reflecting the concept of controls and procedures related to dis

34、closure) for the issuer; have designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which the periodic report is being prepared; have evaluated the effectiveness of the issuers disclosure controls and procedures

35、within 90 days of the date of the report; and have presented in the report their conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation,CERTIFICATION - CONT.,The CEO and CFO also must certify that they have disclosed to the companys auditors an

36、d to the audit committee of the board of directors (or persons fulfilling the equivalent function): All significant deficiencies in the design or operation of internal controls (a pre-existing term relating to internal controls regarding financial reporting) which could adversely affect the issuers

37、ability to record, process, summarize and report financial data and have identified for the companys auditors any material weaknesses in internal controls; Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuers internal controls; an

38、d Whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.,PRO FORMA (NON-GAAP

39、) FINANCIAL INFORMATION,SOX directs the SEC to issue final rules by January 26, 2003, providing that any public disclosure or release by an issuer of “pro forma financial information” in any periodic or other report filed with the SEC or in any other public disclosure or release, shall be presented

40、in a manner that: Is not false or misleading; and Reconciles with the financial condition and results of operations of the issuer under generally accepted accounting principles (GAAP) On January 15, in Exchange Act Release 34-47226, SEC adopted rules under Section 401(b) that apply to the public dis

41、closure or release of information that includes a “non-GAAP financial measure” Under new Regulation G, the two statutory requirements above will apply when an issuer discloses or releases material information that includes a non-GAAP financial measure,NON-GAAP FINANCIAL MEASURES,A “non-GAAP financia

42、l measure” is a numerical measure of a companys financial performance that: Excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet

43、 or statement of cash flows (or equivalent statements) of the company; or Includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so calculated and presented Statistical and operating measures are not covered More detail

44、ed requirements apply to the use of non-GAAP financial measures included in filings with the SEC, including filings by foreign issuers on Form 20-F Non-GAAP measures used by a foreign issuer would have to be reconciled to the GAAP used in the preparation of the issuers primary financial statements,L

45、IMITED EXEMPTION FOR FOREIGN ISSUERS,Regulation G includes a limited exemption for foreign issuers where: The securities of the issuer are listed or quoted on a securities exchange or inter-dealer quotations system outside the United States; The non-GAAP financial measure and the most comparable GAA

46、P financial measure are not calculated and presented in accordance with US GAAP; and The disclosure is made by or on behalf of the issuer outside of the United States or included in a written communication that is released by or on behalf of the issuer outside the United States The exemption is avai

47、lable even if one or more of the following circumstances are present: a written communication is released in the United States as well as outside the United States, so long as the communication is released in the United States contemporaneously with or after the release outside the United States and

48、 is not otherwise targeted at persons located in the United States; foreign journalists, U.S. journalists or other third parties have access to the information; the information appears on one or more web sites maintained by the issuer, so long as the web sites, taken together, are not available excl

49、usively to, or targeted at, persons located in the United States; or the information is submitted to the Commission under cover of a Form 6-K,DISCLOSURE OF CHANGES IN FINANCIAL CONDITION AND OPERATIONS,SOX Section 409 amended the Exchange Act to require public companies to disclose “on a rapid and c

50、ontinuous basis such additional information concerning material changes in the financial condition or operations of the issuer as the Commission determines by rule, is necessary or useful for the protection of investors and the public interest. The SEC implemented Section 409 by amending its Form 8-

51、K disclosure requirements to require public companies to furnish to the SEC releases or announcements disclosing material non-public information about completed annual or fiscal periods within five business days of their release Public disclosure of such information orally, telephonically, by Web ca

52、st, broadcast or similar means will not require a filing if such presentation occurs within 48 hours of a related release or announcement that is submitted on Form 8-K, the presentation is broadly accessible to the public and if a Web cast, it is published on the companys Web site,ENHANCED MD AVAILA

53、BILITY,Pursuant to SOX, on January 23, 2003, in Exchange Act Release No. 47235, the SEC adopted rules relating to: Disclosure of whether a public companys audit committee includes at least one director who is an “audit committee expert,” as defined by SEC rules, and if not, why not (SOX Section 407)

54、; and Disclosure of whether the public company has a code of ethics for senior financial officers (SOX Section 406) As adopted, each of these rules applies to domestic and foreign issuers. In the case of foreign issuers, the rules clarify that the expertise required of the audit committee expert rel

55、ates to the issuers home country GAAP rather than U.S. GAAP All of the SECs rule proposals and final rules are publicly available on the SECs Web site, under Proposed Rules and Final Rules, respectively,ADDITIONAL SOX PROVISIONS AFFECTING SEC REPORTING ISSUERS,Requires an issuers financi

56、al statements filed with the SEC to reflect all material correcting adjustments identified by a registered public accounting firm in accordance with generally accepted accounting principles or the rules of the SEC Provides that if there is a material restatement of an issuers reported financial resu

57、lts due to the material noncompliance of the company, as a result of misconduct, the CEO and CFO shall reimburse the issuer for any bonus or incentive or equity-based compensation received within the 12 months following the filing of the financial statements subsequently required to be restated Proh

58、ibits personal loans to executive officers and directors of the issuer, subject to limited exceptions Each of these provisions applies to domestic and foreign reporting issuers,SOX ATTORNEYS OBLIGATION TO REPORT ILLEGAL ACTS,In compliance with Section 307 of SOX, on January 29, 2003, in Exchange Act

59、 Release No. 47276, the SEC issued rules that set forth minimum standards of professional conduct for attorneys appearing and practicing before the SEC in any way in the representation of issuers. The standards require an attorney to report “evidence of a material violation of securities laws or breach of fiduciary duty or similar violation by the company or any agent thereof” to the chief legal counsel and the chief executive officer of the company (or the equivalent); and if they do not respond appropriately to the evidence, require the attorney to report the evidence to the a