NYSE Proposes Rules to Calm 'Moments of Madness'

The New York Stock Exchange (NYSE) has drafted proposed rules and recommendations designed to guide the markets past a crisis of confidence that NYSE Chairman Richard Grasso calls "moments of madness" in the days following the Enron collapse. Some of the NYSE's points have already proven controversial with the business community, but Securities and Exchange Commission (SEC) Chairman Harvey Pitt hails them as "a significant step in addressing major concerns raised by the investing public."

Changes for Companies

Key changes proposed for companies listed on the NYSE include the following:

  • Audit committees will have sole responsibility for hiring and firing the company's auditors. Currently, they are the "ultimate" authority, but management is often heavily involved in the process.
  • Independent directors must comprise a majority of the board. Currently, audit committees must have at least three independent directors, but there is no requirement for the entire board.
  • Director independence will require a five-year cooling off period for former employees of the listed company or its independent auditor. Currently, the cooling off period is three years and it does not apply to former employees of the auditor.
  • Listed companies must adopt and publish codes of business conduct and ethics and must promptly disclose any waivers of the codes for directors or executive officers. There are no current requirements in this area.
  • CEOs of listed companies must annually certify they have no reasonable cause to believe the financial information is inaccurate or incomplete. There are no current requirements of this nature on CEOs.
  • Shareholders must be given the opportunity to vote on all equity-based compensation plans. Currently, shareholder approval is required for plans in which officers and directors may participate, but broad-based plans and one-time employment inducements are exempt.

Recommendations for Regulators

The NYSE has also drafted a series of recommendations for Congress and the SEC. These include:

  • Establishing a new private-sector organization, funded separately from the accounting industry itself, to monitor and govern public accountants.
  • Calling for the SEC to evaluate the impact of Regulation FD (Fair Disclosure) on earnings guidance and to consider reforms.
  • Prohibiting relationships between auditors and their clients that would affect the fairness and objectivity of audits.
  • Calling on the SEC to require companies to report complete Generally Accepted Accounting Principles (GAAP)-based financial information before any reference to "pro forma" or "adjusted" financial information.
  • Calling for the SEC to exercise more active oversight of the Financial Accounting Standards Board (FASB) to improve the quality of GAAP and the speed of FASB actions.
  • Asking the SEC to improve disclosures about critical accounting alternatives and assumptions in the management's discussion and analysis (MD&A) portion of reports.
  • Requiring the prompt disclosure of insider transactions.

Separately, the NASDAQ stock exchange announced it will be undertaking a second round of rule changes, and some of these will closely mirror the ones proposed by the NYSE.

Download the NYSE's Press Release, Summary of Proposed Changes, and Full Report.

-Rosemary Schlank

You may like these other stories...

For the first time in the five-year history of Vault.com’s rankings of the top 50 accounting firms to work for in North America, a firm has held the top spot as best accounting employer for two consecutive years....
With tomorrow being Tax Day, you might see some procrastinators at your office filling out forms, printing out paperwork, or getting last-minute tax advice from their accountant so they can meet the IRS’s filing...
You can read volumes on how to manage an accounting practice. But if you want the quick version, just read the following four points. Everything else is just commentary.  (These points come out of the 1997 book, The...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.