SEC Proposes Disclosures About Ethics and Controls

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.

-Rosemary Schlank

You may like these other stories...

In need of CPE credits? Well, if you are an enrolled agent or CPA, you could earn as much as 18 credits by attending one of five IRS Nationwide Tax Forums this summer.The IRS Nationwide Tax Forums are three-day events that...
Russia races to dodge sanctions by adapting law to FATCARussia is in a race against the clock to adapt its laws to the Foreign Account Tax Compliance Act (FATCA) and save its banks from financial sanctions, Peter Hobson of...
The following list highlights 10 apps that that may be of interest to you, your clients, or your clients' clients. They were featured during a session of AWEBLive!, the 12-hour CPE marathon, and presented by Gregory L....

Upcoming CPE Webinars

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.
May 1
This material focuses on the principles of accounting for non-profit organizations’ expenses. It will include discussions of functional expense categories, accounting for functional expenses and allocations of joint costs.