The U.S. Securities and Exchange Commission voted on January 8th to publish for comment new proposals that would set the rules for oversight of auditors by audit committees -- and it agreed to put real teeth into the new rules. Any U.S. public company that doesn't follow the rules will be delisted. Limited exceptions were agreed upon for non-U.S. companies.
Specifically, companies will not be permitted to list their securities on a national exchange if they are not in compliance with the following requirements of the Sarbanes-Oxley Act:
- Each member of the audit committee of the issuer must be independent according to certain specified criteria.
- The audit committee must be directly responsible for the appointment, compensation, retention and oversight of the audit firm.
- The audit committee must establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters.
- The audit committee must have the authority to engage independent counsel and other advisors, as it determines necessary to carry out its duties.
- The company must provide appropriate funding for the audit committee.
Concessions made for non-U.S companies relate to practices consistent with foreign laws and customs. Examples include allowing non-management employees to serve as audit committee members, allowing shareholders to select or ratify the selection of auditors, and allowing alternative structures such as boards of auditors to perform auditor oversight functions where such structures are provided for under local law.
The proposed rule would also update the SEC's current disclosure requirements regarding audit committees to include disclosure of the use of any exemptions to the recommendations and updates to the audit committee independence disclosure in proxy statements.
The full text of detailed releases will be posted to the SEC Web site as soon as they are available.