On June 12, 2002, the Securities and Exchange Commission (SEC) proposed rules designed to improve corporate reporting and restore investor confidence. The proposed rules would require senior executives to vouch for their company's reports, and they would expand the types of events that must be reported as they occur, rather than weeks or months later. Many of these reforms were discussed and/or announced during post-Enron Congressional hearings. The release of SEC's proposal is the first step toward implementation of the reforms, which include key provisions of President Bush's ten-point plan announced in March 2002.
Highlights of the SEC's proposed rules:
- CEOs and CFOs would need to personally certify that they have read the company's annual and quarterly reports and the reports are accurate and complete.
- Form 8-K would need to be filed in two business days instead of the current five to 15 days.
- A Form 8-K would need to be filed if and when a company:
- Enters into (or ends) a material agreement not made in the ordinary course of business.
- Terminates (or reduces) a business relationship with a customer that constitutes a specified amount of the company's revenues.
- Becomes responsible for a direct or contingent financial obligation that is material to the company.
- Exits activities that result in a material write-off or restructuring.
- Sustains any material impairment.
- Becomes aware of a change in a rating agency decision, issuance of a credit watch or change in a company outlook.
- Is delisted from an exchange or quotation system, or receives a notice that it does not comply with a listing standard.
- Receives notice that its current or previously-engaged independent accountant is withdrawing a previously issued audit report or that the company may not rely on a previously issued audit report.
- Imposes any material limitation, restriction or prohibition regarding the company's employee benefit, retirement and stock ownership plans.
- Loses a director for reasons other than a disagreement or removal for cause.
- Appoints or loses a principal officer or elects new directors.
- Makes a material amendment to a company's certificate of incorporation or bylaws.
The Commission invites public comment on the proposed rules. Comments should be received within 60 days of publication of the proposed rules in the Federal Register.