California Law Beefs Up Disclosure Requirements
Ground-breaking new state legislation will soon require certain corporations doing business in California to disclose more information, including the names of their independent auditors. The information will be made available for public viewing by the end of 2004 through an online system. The new state law was signed late last month by California Governor Gray Davis, but has not yet been widely publicized.
According to a statement issued by the Governor, the new law, known as the "California Corporate Disclosure Act" (AB 55), will require corporations to disclose twice a year:
- The name of the company's independent auditor.
- Any significant loans to corporate directors at a preferential rate.
- Annual compensation of each director and the top five paid executives.
- Any bankruptcy filed by the corporation, its directors or officers within the previous 10 years.
- Any fraud convictions or SEC violations by the corporation's directors and top officers during the past 10 years.
- Any violations of banking and security law over $10,000 during the previous 10 years.
Companies subject to the new state law will pay a $5 fee. Half the revenue will be dedicated to building an online system for public viewing of the information, and the other half will be used to create a fund for victims of corporate fraud. "Increasing the amount of information available should bolster investor confidence and help protect Californians," said Governor Davis.
California has been a leader in setting state regulations affecting the accounting profession. It has already passed laws governing accounting practices (AB 270), the retention of audit documents (AB 2973), and prohibitions against any employee of an accounting firm working for a client within 12 months of providing audit services (AB 2970).