The U.S. Securities and Exchange Commission unanimously agreed to issue for public comment proposed rules that would implement recent legislative reforms enacted in response to accounting scandals. The proposed rules will require public companies to report on their internal controls, codes of ethics, and the financial expertise of their audit committees.
Specific proposed requirements:
- Companies would have to report the number and names of the "financial experts" on their audit committees, as well as their independence from management.
- Companies would need to disclose whether they have adopted a code of ethics for their principal executive and senior financial officers and, if not, give their reasons for not doing so. Most U.S. companies would also be required to disclose either on Form 8-K or on their Internet Web sites any changes to, or waivers of, such code of ethics.
- The annual reporting of internal controls would need to include management's conclusions about the effectiveness of the company's internal controls and procedures for financial reporting as of the end of the company's most recent fiscal year. Companies would need to state that their auditor has attested to, and reported on, management's assessment. The proposed rules would also require companies to conduct quarterly evaluations of their internal controls and procedures for financial reporting.
- Corporate officers, directors, and persons acting under the direction of an officer or director, would be prohibited from taking any action to fraudulently influence, coerce, manipulate or mislead the auditor of their financial statements for the purpose of rendering those financial statements materially misleading.
The topics of the rule proposals are all matters the SEC is required to address under the Sarbanes-Oxley Act. The Commission expects to post the rule proposals on its Web site shortly. The rules are expected to be finalized by early next year
Separately, SEC Chairman Harvey Pitt told reporters the Commission is very close to naming the five members of the new Public Company Accounting Oversight Board, and it expects to meet the October 28 deadline set by the Sarbanes-Oxley Act.