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Corporate Governance Briefing Book: Summer/Fall 2002 [2]
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Corporate Governance Briefing Book: Summer/Fall 2002 [2]
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Records of the Council of Economic Advisers (George W. Bush Administration)
Randall Kroszner's Files
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2014-0373-F
[
]
Thursday, May 28, 2015
FOIA Marker
This is not a textual record. This FOIA Marker indicates that material has been removed
during FOIA processing by George W. Bush Presidential Library staff.
Council of Economic Advisers
Kroszner, Randall (Randy) - Subject Files
Location or
NARA Number:
FRC ID:
OA Number:
Stack: Row: Sect.: Shelf: Pos.:
Hollinger ID:
W
30
14
5
3
5789
18724
2740
2841
Folder Title:
Corporate Governance Briefing Book: Summer/Fall 2002 [2]
Withdrawn/Redacted Material
The George W. Bush Library
DOCUMENT FORM
SUBJECT/TITLE
PAGES
DATE
RESTRICTION(S)
NO.
001
Report
Notes from Bob Collender on Basel Accord
4
N.D.
P5;
002
Report
International Implications of Sarbanes-Oxley
4
09/05/2002
P5;
003
Report
Notes from SEC Chairman Pitt's Speech at the
2
10/10/2002
P5;
Conference
004
Speech
Speech by SEC Chairman
10
10/29/2002
P5;
005
Report
[Report]
2
08/2002
P1/b1; P5;
COLLECTION TITLE:
Council of Economic Advisers
SERIES:
Kroszner, Randall (Randy) - Subject Files
FOLDER TITLE:
Corporate Governance Briefing Book: Summer/Fall 2002 [2]
FRC ID:
5789
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
PI National Security Classified Information [(a)(1) of the PRA]
b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
2014-0373-F
Page 1 of 1
This document was prepared on Tuesday, May 26, 2015
9
09/06/02
Comparison of NASDAQ Rule Proposals to the Sarbanes-Oxley Act of 2002
Sarbanes-Oxley Act Provisions
NASDAQ Proposed Rules
Applicable to NASDAQ Proposed Rules
Stock Options
(1) Require shareholder approval for the adoption
Not applicable.
of all stock option plans and for any material
modification of such plans.
Increase Board Independence
(2) Require a majority of independent directors on
Not applicable.
the board. [Not applicable to "controlled"
companies.]
(3) Require regularly convened executive sessions
Not applicable.
of the independent directors.
(4) Require that a company's audit committee or a
Not applicable.
comparable body of the board of directors review
and approve all related-party transactions.
(5) Prohibit an independent director from receiving
§301 Independence - Criteria: In order to be
any payments (including political contributions) in
independent, an audit committee member may
excess of $60,000 other than for board service and
not, other than in his or her capacity as a member
extend such prohibition to the receipt of payments
of the audit committee, the board of directors, or
by a non-employee family member of the director.
any other board committee, accept any consulting
[An audit committee member may not receive any
advisory, or other compensatory fee from the
compensation except for board or committee
issuer.
service, in accordance with the Act.]
(6) Prohibit a director from being considered
§301 Independence - Criteria: In order to be
independent if the company makes payments to a
independent, an audit committee member may
charity where the director is an executive officer
not, other than in his or her capacity as a member
and such payments exceed the greater of $200,000
of the audit committee, the board of directors, or
or five percent of either the company's or the
any other board committee (i) accept any
charity's gross revenues. [Each member of the
consulting advisory, or other compensatory fee
audit committee must meet the requirements of the
from the issuer or (ii) be an affiliated person of
Act in addition to NASDAQ's requirements.]
the issuer or any subsidiary thereof.
(7) Provide that any relative of an executive officer
§301 Independence - Criteria: In order to be
of an issuer or its affiliates will not be considered
independent, an audit committee member may
independent. [Each member of the audit committee
not, other than in his or her capacity as a member
must meet the requirements of the Act in addition
of the audit committee, the board of directors, or
to NASDAQ's requirements.]
any other board committee, be an affiliated
person of the issuer or any subsidiary thereof.
1
09/06/02
(8) Prohibit former partners or employees of the
§206 Conflicts of Interest: It shall be unlawful for
outside auditors who worked on a company's audit
a registered public accounting firm to perform for
engagement from being deemed independent.
an issuer any audit service required by Title II, if
[Each member of the audit committee must meet
a chief executive officer, controller, chief
the requirements of the Act in addition to
financial officer, chief accounting officer, or any
NASDAQ's requirements.]
person serving in an equivalent position for the
issuer, was employed by that registered
independent public accounting firm and
participated in any capacity in the audit of that
issuer during the 1-year period preceding the date
of the initiation of the audit.
(9) Apply a three-year "cooling off" period to
Not applicable.
directors who are not independent due to: (1)
interlocking compensation committees; (2) the
receipt by the director or a family member of the
director of any payments in excess of $60,000
other than for board service; or (3) having worked
on the company's audit engagement.
Strengthen the role of independent directors in
compensation and nomination decisions
(10) Require independent director approval of
Not applicable.
director nominations, either by an independent
nominating committee or by a majority of the
independent directors. A single non-independent
director would be permitted to serve on an
independent nominating committee: (a) if the
individual is an officer who owns or controls more
than 20% of the issuer's voting securities, or (b)
pursuant to an "exceptional and limited
circumstance" exception. [Not applicable to
"controlled" companies.]
(11) Require independent director approval of
Not applicable.
executive officer compensation, either by an
independent compensation committee or by a
majority of the independent directors meeting in
executive session. The CEO may be present at
compensation committee meetings determining
other Section 16 officers' compensation. A single
non-independent director would be permitted to
serve on the compensation committee pursuant to
an "exceptional and limited circumstances"
exception. [Not applicable to "controlled"
companies.]
2
09/06/02
Empower Audit Committees
(12) Require that audit committees have the sole
§301 Responsibilities Relating to Registered
authority to appoint, compensate and oversee the
Public Accounting Firms: The audit committee
outside auditors.
shall be directly responsible for the appointment,
compensation, and oversight of the work of the
outside auditors (including resolution of
disagreements between management and the
auditor regarding financial reporting) for the
purpose of preparing or issuing an audit report or
related work, and the outside auditors shall report
directly to the audit committee.
§301 Funding. Each issuer shall provide for
appropriate funding, as determined by the audit
committee, in its capacity as a committee of the
board of directors, for payment of compensation
(A) to the registered public accounting firm
employed by the issuer for the purpose of
rendering or issuing an audit report and (B) to any
advisers employed by the audit committee.
(13) Require that audit committees approve, in
§201(a) Prohibited Activities: It shall be unlawful
advance, the provision by the auditor of all
for outside auditors to contemporaneously
permissible non-audit services, as set forth in the
provide audit services and any non-audit service,
Act.
including:
1- bookkeeping or other services related to
the accounting records or financial
statements of the audit client,
2- financial information systems design and
implementation,
3- appraisal or valuation services, fairness
opinions, or contribution-in-kind reports,
4- actuarial services,
5- internal audit outsourcing services,
6- management functions or human
resources,
7- broker or dealer, investment adviser, or
investment banking services,
8- legal services and expert services
unrelated to the audit, and
9- any other service that the Public Company
Accounting Oversight Board (the
"Oversight Board") determines, by
regulation is impermissible.
Preapproval Required for Non-Audit Services:
Outside auditors may engage in any non-audit
services, including tax services, that is not
described in paragraphs (1) - (9) above, only if
3
09/06/02
preapproved by the audit committee in
accordance with §202.
§201(b) Exemption Authority: The Oversight
Board may grant exemptions to §201(a).
§202 Preapproval Requirements: All auditing and
non-audit services shall be preapproved by the
audit committee, subject to a de minimus
exception for non-audit services amounting to
less than 5% of the fees paid to the outside
auditors if the non-audit services were not
recognized by the issuer to be non-audit services
at the time of engagement and such services are
promptly brought to the audit committee's
attention and approved prior to the completion of
the audit by the audit committee. Approval by the
audit committee of non-audit services shall be
disclosed to investors in SEC periodic reports.
(14) Require that audit committees have the
§301 Authority to Engage Advisers: Each audit
authority to engage and determine funding for
committee shall have the authority to engage
independent counsel and other advisers, as set
independent counsel and other advisers, as it
forth in the Act.
determines necessary to carry out its duties.
§301 Funding. Each issuer shall provide for
appropriate funding, as determined by the audit
committee, in its capacity as a committee of the
board of directors, for payment of compensation
(A) to the registered public accounting firm
employed by the issuer for the purpose of
rendering or issuing an audit report and (B) to any
advisers employed by the audit committee.
(15) Require that audit committees establish
§301 Complaints. Each audit committee shall
procedures for complaints, as set forth in the Act.
establish procedures for: (A) the receipt,
retention, and treatment of complaints received
by the issuer regarding accounting, internal
accounting controls or auditing matters and (B)
the confidential, anonymous submission by
employees of the issuer of concerns regarding
questionable accounting or auditing matters.
(16) Prohibit audit committee members from being
§301 Independence Criteria: In order to be
considered independent if they are an affiliated
independent, an audit committee member may
person, of the issuer or any subsidiary, as set forth
not, other than in his or her capacity as a member
in the Act.
of the audit committee, the board of directors, or
any other board committee (i) accept any
consulting advisory, or other compensatory fee
4
09/06/02
from the issuer or (ii) be an affiliated person of
the issuer or any subsidiary thereof.
(17) Prohibit audit committee members from
§301 Independence - Criteria: In order to be
receiving any non-director compensation, as set
independent, an audit committee member may
forth in the Act.
not, other than in his or her capacity as a member
of the audit committee, the board of directors, or
any other board committee (i) accept any
consulting advisory, or other compensatory fee
from the issuer or (ii) be an affiliated person of
the issuer or any subsidiary thereof.
(18) Provide that an audit committee member
§301 Independence - Criteria: In order to be
owning or controlling 20% or more of the
independent, an audit committee member may
company's voting securities will not be considered
not, other than in his or her capacity as a member
independent.
of the audit committee, the board of directors, or
any other board committee (i) accept any
consulting advisory, or other compensatory fee
from the issuer or (ii) be an affiliated person of
the issuer or any subsidiary thereof.
(19) Require that all audit committee members be
Not applicable.
able to read and understand financial statements at
the time of their appointment rather than "within a
reasonable period of time" thereafter.
(20) Require that in selecting the financial expert
§407(a) Disclosure of Audit Committee Financial
required on the audit committee, the issuer must
Expert - Rules Defining "Financial Expert": The
consider whether such person has, through
SEC shall issue rules requiring each issuer,
education and experience as a public accountant or
together with SEC periodic reports, to disclose
auditor or a principal financial officer, comptroller
whether or not, and if not, the reasons therefore,
or principal accounting officer of an issuer or from
the audit committee of that issuer is comprised of
a position involving the performance of similar
at least 1 member who is a financial expert as
functions, sufficient financial expertise in the
defined by the SEC.
accounting and auditing areas specified in the Act.
$407(b) Disclosure of Audit Committee Financial
Expert - Considerations: In defining the term
"financial expert," the SEC shall consider
whether the person has, through education and
experience as a public accountant or auditor or a
principal financial officer, comptroller, or
principal accounting officer of an issuer, or from
a position involving the performance of similar
functions (1) an understanding of generally
accepted accounting principles and financial
statements, (2) experience in (A) the preparation
or auditing of financial statements of generally
comparable issuers, and (B) the application of
such principles in connection with the accounting
5
09/06/02
for estimates, accruals, and reserves, (3)
experience with internal accounting controls, and
(4) an understanding of audit committee
functions.
(21) Limit the time that a non-independent
§301 Independence - In General: Each member
director, as defined under NASDAQ's rule 4200,
of the audit committee of the issuer shall be a
may serve on the audit committee pursuant to
member of the board of directors of the issuer,
"exceptional and limited circumstances" to two
and shall otherwise be independent.
years, and prohibit that person from serving as the
Criteria: In order to be independent, an audit
chair of the audit committee. All audit committee
committee member may not, other than in his or
members, including those appointed pursuant to
her capacity as a member of the audit committee,
the "exceptional and limited circumstances"
the board of directors, or any other board
exception, must comply with the independence
committee (i) accept any consulting advisory, or
requirements of the Act.
other compensatory fee from the issuer or (ii) be
an affiliated person of the issuer or any subsidiary
thereof.
Exemption Authority: The SEC may exempt from
the criteria of being considered independent a
particular relationship with respect to audit
committee members, as the SEC determines
appropriate in light of the circumstances.
(22) Conform the audit committee requirements
Not applicable. The Act does not differentiate
for issuers that file reports under SEC Regulation
between S-B and regular filers.
S-B to those of other issuers.
Mandate Director Continuing Education
(23) Mandate continuing education for all
Not applicable.
directors, pursuant to rules to be developed by the
NASDAQ Listing and Hearing Review Council
and approved by the NASDAQ Board.
Mandate Accelerated Disclosure of Insider
Transactions
(24) NASDAQ is continuing to explore a
§403 Disclosures of Transactions Involving
requirement for accelerated disclosure of insider
Management and Principal Stockholders:
transactions that would harmonize and reinforce
Directors, officers and 10% or greater
the provisions of the Act.
shareholders shall file Section 16 reports at the
end of the 2ⁿᵈ business day of a transaction
involving a change in equity ownership.
Provide Transparency With Respect to Non-
U.S. Companies
(25) Require that non-U.S. issuers disclose
The Act does not exempt foreign issuers from the
exemptions that are permissible under the Act or
audit committee requirements.
rules promulgated thereunder to NASDAQ's
corporate governance requirements, at the time the
6
09/06/02
exemption is received and on an annual basis
thereafter, as well as any alternative measures
taken in lieu of the waived requirements.
(26) Require that non-U.S. issuers file with the
Not applicable.
SEC and NASDAQ all interim reports filed in
their home country, and, at a minimum, file with
the SEC and NASDAQ a semi-annual report.
Conform and Clarify the Applicability of
Certain Quantitative Listing Standards to Non-
U.S. Companies
(27) Require that non-U.S. issuers satisfy the
Not applicable.
SmallCap initial and continued listing
requirements for bid price and market value of
publicly held shares that are currently applicable to
domestic issuers.
(28) Require that the underlying shares of
Not applicable.
SmallCap issuers with listed ADRs satisfy the
same publicly held shares and shareholder
requirements that are applicable to domestic
issuers.
Codes of Conduct
(29) Require all companies to have a code of
§406(a) Code of Ethics Disclosure: The SEC
conduct addressing, at a minimum, conflicts of
shall issue rules to require each issuer together
interest and compliance with applicable laws, rules
with SEC periodic reports, to disclose whether or
and regulations, with an appropriate compliance
not, and if not, the reason therefore, such issuer
mechanism and disclosure of any waivers to
has adopted a code of ethics for senior financial
executive officers and directors. Waivers can only
officers, applicable to its principal financial
be granted by independent directors. The code
officer and comptroller or principal accounting
of conduct must be publicly available.
officer, or persons performing similar functions.
406(b) Changes in Code of Ethics: The SEC
shall revise its regulations concerning matters
requiring prompt disclosure on Form 8-K to
require the immediate disclosure, by means of
filing of such form, dissemination by the Internet
or by other electronic means, by any issuer of any
change in or waiver of the code of ethics for
senior financial officers.
406(c) Definition: The "code of ethics" means
such standards as are reasonably necessary to
promote (1) honest and ethical conduct, including
the ethical handling of actual or apparent conflicts
of interest between personal and professional
relationships, (2) full, fair, accurate, timely, and
7
09/06/02
understandable disclosure in the periodic reports
required to be filed by the issuer, and (3)
compliance with applicable governmental rules
and regulations.
Other Proposals
(30) Harmonize the NASDAQ rule on the
Not applicable.
disclosure of material information with SEC
Regulation FD.
(31) Clarify that a material misrepresentation or
Not applicable.
omission by an issuer to NASDAQ may result in
the company being delisted.
(32) Require that a going concern qualification in
Not applicable.
an audit opinion be disclosed through the issuance
of a press release.
(33) Clarify that NASDAQ will presume that a
Not applicable.
change of control will occur, for purposes of the
shareholder approval rules, once an investor
acquires 20% of an issuer's outstanding voting
power, unless a larger ownership and/or voting
position is held on a post-transaction basis by
unaffiliated investors.
(34) Clarify the authority of NASDAQ to deny re-
Not applicable.
listing to an issuer based upon a corporate
governance violation that occurred while that
issuer's appeal of the delisting was pending.
(35) Prohibit loans from issuers to officers or
§402 Prohibition on Personal Loans to
directors, as set forth in the Act.
Executives: It shall be unlawful for any issuer,
directly or indirectly, including through any
subsidiary, to extend or maintain credit, to
arrange for extension of credit, or to renew an
extension of credit, in the form of a personal loan
to or for any director or executive officer of that
issuer. [Exceptions permitted.]
8
Nasdaq Enforcement of Listing Standards
The Listing Qualifications ("LQ") Department is responsible for assuring that all
Nasdaq listed companies fully meet the quantitative and qualitative listing
standards upon their initial listing and thereafter.
The LQ Department has 61 employees, including six attorneys. The Department
head has 28 years of experience as a securities regulator.
Each of the approximately 3,800 listed companies is assigned to a listing analyst.
Analysts are responsible for reviewing all (approximately 35,000 annually)
documents filed with the SEC by these companies as part of our program to
monitor on-going compliance with our listing standards.
Analysts also coordinate with Nasdaq's Market Watch Department, which is
charged with monitoring real-time trading in Nasdaq securities and reviewing all
press releases by Nasdaq issuers.
Analysts are also responsible for responding to corporate governance inquiries
from issuers. In the twelve months ended June 30, 2002, the Department
responded to 225 requests for written interpretations and to countless telephone
inquiries. This underscores the importance placed on corporate governance
compliance by both Nasdaq and its issuers.
To further support Nasdaq's regulatory program, the Listing Investigations
Department was formed in 1997. Listing Investigations' principal functions
involve scrutinizing disclosures and financial reports issued by listed companies
and investigating conduct that raises public interest concerns such as alleged
financial fraud, revenue recognition issues and other accounting irregularities.
The Department's activities have led numerous issuers to issue corrected financial
statements and contributed to over 80 delistings.
Listing Investigations employs highly skilled investigators with significant
experience in accounting, financial analysis and securities law. The Department
head has 27 years of SEC experience, most recently as Associate Director of
Enforcement. The staff also includes two former SEC Branch Chiefs and the
former Chief Accountant for the SEC's Division of Enforcement.
The Nasdaq enforcement program is very active. There were 755 regulatory
delistings between January 2000 and June 2002. 93 of these were based solely on
qualitative issues such as corporate governance violations, filing delinquencies or
other public interest concerns (e.g., financial fraud, misleading disclosures or
close association with individuals or entities with significant regulatory histories).
In June 2002, the SEC's inspections group advised Nasdaq that its listing
qualifications program was "operating in an effective and efficient manner."
10
11
SEC Announces Public Company Accounting Oversight Board Founding Members
Page 1 of 4
AND MCMXXXIV EXCHANGE COMMISSION
Home Previous Page
U.S. Securities and Exchange Commission
Commission Announces Founding Members of
Public Company Accounting Oversight Board
FOR IMMEDIATE RELEASE
2002-153
Washington, D.C., October 24, 2002 - The Securities and Exchange
Commission today announced the selection of Judge William H. Webster to
be chairman, and Kayla J. Gillan, Daniel L. Goelzer, Willis D. Gradison Jr.,
and Charles D. Niemeier to be founding members of the Public Company
Accounting Oversight Board.
The Board, established by the Sarbanes-Oxley Act of 2002, will oversee the
audits of the financial statements of public companies through rigorous
registration, standard setting, inspection and disciplinary programs. The Act
requires the Commission, in consultation with the Secretary of Treasury
and the Chairman of the Federal Reserve Board, to select the members of
the Board.
The Commission received approximately 450 nominations and applications
for the five available Board positions.
SEC Chairman Harvey L. Pitt said: "The individuals selected to serve on the
Board clearly meet and exceed all the requirements in the Act - they are
individuals of high integrity and reputation who have demonstrated a
commitment to serving the interests of investors, and they understand the
financial reporting process. They are each committed to meaningful reform.
In addition, they bring to the Board a combination of investor advocacy,
regulatory and legal experience. The Commission looks forward to working
with the new Board members as they develop the Board's programs and
begin operations."
"We have been pleased by the expressions of interest and willingness to
serve on the Board," said Chief Accountant Robert K. Herdman. "Many
prominent people of unquestioned integrity and ability were nominated for
the Board, making the decision difficult but, at the same time, extremely
rewarding. The President and Congress have set out an aggressive program
for reform of the accounting profession, and the new Board's first task is to
implement that program. Wisely, the Act also provides the Board with the
ability to perceive the need for, and implement, even more reform."
http://www.sec.gov/news/press/2002-153.htm
10/28/02
SEC Announces Public Company Accounting Oversight Board Founding Members
Page 2 of 4
Biographical Notes
William H. Webster (Chairman, term to expire 2007) - Judge Webster's
entire career reflects his commitment to public service and dedication to
protecting the American public. Judge Webster served as U.S. Attorney for
the Eastern District of Missouri, then as a U.S. District Court judge. He
subsequently was elevated to the U.S. Court of Appeals for the Eighth
Circuit. During his service on the bench, Judge Webster was Chairman of
the Judiciary Conference Advisory Committee on the Criminal Rules and
was a member of the Ad Hoc Committee on Habeas Corpus and the
Committee of Court Administration. He resigned from the Court in 1978 to
become the Director of the Federal Bureau of Investigation under President
Jimmy Carter. In 1987, he was sworn in as the Director of Central
Intelligence under President Ronald Reagan. In this position, he headed the
Intelligence Community (which includes all foreign intelligence agencies of
the United States) and directed the Central Intelligence Agency.
Since his departure from the CIA, Judge Webster has been asked many
times, by many people and organizations, to examine the status quo and
recommend reforms. The City of Los Angeles Police Commission called on
Judge Webster after the riots in the early 1990s. He was appointed by IRS
Commissioner Charles Rossotti to investigate allegations of taxpayer abuse
of the IRS' Criminal Investigation Division. Most recently, Judge Webster
was asked to investigate the security policies and procedures of the FBI
following the discovery of Special Agent Robert Hanssen's espionage
activity. As a member of the legal community, Judge Webster has served as
Chairman of the American Bar Association's Corporation, Banking and
Business Law Section. In 1997, the ABA asked Judge Webster to lead an
examination of the "pay to play" practice of directing political contributions
to elected officials to influence the award of municipal bond contracts.
Judge Webster is currently a partner in the international law firm Milbank,
Tweed, Hadley & McCloy LLP, where he practices international corporate,
banking, trade and administrative law and has led teams of Milbank
attorneys conducting numerous internal investigations for the independent
directors of several boards of directors of Fortune 500 companies. He has
served on a number of audit committees, including Anheuser-Busch
Companies Inc., Pinkerton Inc. and Maritz Inc.
Judge Webster has been highly praised for his integrity and commitment to
public service. He has been recognized with many awards, including the
2002 American Bar Association Medal (the highest honor the ABA can
bestow), the 2001 Justice Award of the American Judicature Society, the
Presidential Medal of Freedom, the National Security Medal, and he is an
Honorary Fellow of the American College of Trial Lawyers.
Daniel L. Goelzer (Term to expire 2006) - Goelzer served as the General
Counsel of the Securities and Exchange Commission for more than seven
years, making him the longest serving General Counsel in the history of the
agency. During his tenure as General Counsel, Goelzer represented the SEC
http://www.sec.gov/news/press/2002-153.htmn
10/28/02
SEC Announces Public Company Accounting Oversight Board Founding Members
Page 3 of 4
and the interests of investors through the performance of duties in the
areas of appellate litigation, rulemaking, and regulation of the securities
markets. He has testified before Congress on these issues and assisted in
drafting legislation. As both a lawyer and a Certified Public Accountant, he
was a constant source of advice and counsel on legal, regulatory, and
congressional issues pending before the Commission. Since leaving the
Commission, Goelzer has been in the private practice of law, focusing on
securities law and financial institution regulation. He is the author of several
articles on matters related to corporate governance and the securities laws.
Early in his career, Goelzer was a member of the audit staff of Touche Ross
& Co.
Kayla J. Gillan (Term to expire 2005) - Gillan recently became the vice
president of Independent Fiduciary Services, after serving six years as the
chief legal adviser to the California Public Employees' Retirement System
(CalPERS) and to its 13-member Board of Trustees. She drafted CalPERS'
U.S. Corporate Governance Core Policies and Guidelines, a treatise on
corporate governance practices, which is widely cited and has been
incorporated within the national and international curriculum on this
subject. Gillan interacts not only with corporate boards and executives, but
also investment advisers and institutional investors, including pension,
labor and mutual funds. She is a frequent speaker and author on corporate
governance issues; and an active advocate for shareholder and investor
interests.
Willis D. Gradison, Jr. (Term to expire 2004) - Gradison is a former nine-
term Congressman from Ohio. While in Congress, he served as the Ranking
Member of the House Budget Committee and as the Ranking Member on
the Health Subcommittee of the House Ways and Means Committee. Prior
to entering Congress, Gradison served as an Assistant to the Secretary of
Health, Education and Welfare, an Under Secretary of the Treasury, and
Mayor of Cincinnati. He has been the Chairman of the Board of Directors of
the Federal Home Loan Bank of Cincinnati, an investment broker and
corporate director. Since leaving Congress, he has been president of the
Health Insurance Association of America, a member of the audit committee
for Project HOPE, and served on other charitable foundations. Gradison
currently is the Senior Public Policy Counselor at Patton Boggs.
Charles D. Niemeier (Term to expire 2003) - Niemeier is the Chief
Accountant in the Commission's Division of Enforcement and co-chairman
of the Commission's Financial/Fraud Task Force. In these roles, he
coordinates, monitors and advises the Division staff as they conduct
accounting and financial reporting investigations and initiate enforcement
and disciplinary proceedings. Under his leadership, last year the
Commission brought a record 160 financial fraud, reporting, and accounting
cases, including cases involving misleading earnings press releases and
misleading disclosures in the Management Discussion and Analysis (MD&A)
sections of corporate reports. As both an attorney and a Certified Public
Accountant, Niemeier has legal and public accounting experience dealing
with complex accounting, auditing, and financial reporting issues.
http://www.sec.gov/news/press/2002-153.htmf
10/28/02
SEC Announces Public Company Accounting Oversight Board Founding Members
Page 4 of 4
http://www.sec.gov/news/press/2002-153.htm
Home I Previous Page
Modified: 10/25/2002
http://www.sec.gov/news/press/2002-153.htm
10/28/02
12
President's Ten-Point Plan
1. Each investor should have quarterly access to the information needed to judge a firm's
financial performance, condition, and risks.
2. Each investor should have prompt access to critical information.
3. CEOs should personally vouch for the veracity, timeliness, and fairness of their
companies' public disclosures, including their financial statements.
4. CEOs or other officers should not be allowed to profit from erroneous financial
statements.
5. CEOs or other officers who clearly abuse their power should lose their right to serve in
any corporate leadership positions.
6. Corporate leaders should be required to tell the public promptly whenever they buy or
sell company stock for personal gain.
7. Investors should have complete confidence in the independence and integrity of
companies' auditors.
8. An independent regulatory board should ensure that the accounting profession is held to
the highest ethical standards.
9. The authors of accounting standards must be responsive to the needs of investors.
10. Firms' accounting systems should be compared with best practices, not simply against
minimum standards.
On July 9, 2002 the President called on Congress to give the Administration new powers
to enforce corporate responsibility and to improve oversight of corporate America,
including:
Tough new criminal penalties for mail and wire fraud
Strengthened laws to crack down on obstruction of justice
New authority for the SEC to freeze improper payments to corporate executives
when a company is under investigation.
Also on July 9, 2002, the President, by Executive Order, created the Corporate Fraud
Task Force. Headed by Deputy Attorney General Larry Thompson, the Task Force
includes, among others, US Attorneys, the FBI and SEC to oversee the investigation and
prosecution of financial fraud, accounting fraud and other corporate criminal activity, and
to provide enhanced inter-agency coordination of regulatory and criminal investigations.
On July 30, the President signed the Sarbanes-Oxley Act of 2002, the most far-reaching
reform of American business practices since the time of Franklin D. Roosevelt. The
legislation included action on all of the President's proposals, and gave important new
tools to prosecutors and regulators to improve corporate responsibility and protect
America's shareholders and workers. Among other reforms, the legislation:
Created a new accounting oversight board to police the practices of the
accounting profession
Strengthened auditor independence rules
Increased the accountability of officers and directors
Enhanced the timeliness and quality of financial reports of public companies
Barred insiders from selling stock during blackout periods when workers are
unable to change their 401(k) plans.
Since that time, substantial additional progress has been made to achieve each of the
President's goals:
The Securities and Exchange Commission has hired 50 new personnel to help
fulfill its mission to enforce the securities law. And significantly more help is on
the way.
The SEC required the CEOs and CFOs of the largest 947 public companies to
personally certify the accuracy and fairness of their companies' public filings
through the prior fiscal year. The overwhelming majority of executives
successfully filed their personal certifications. Going forward, all public filings
will require CEO and CFO personal certifications. This should help restore
accountability and responsibility to corporate suites and boardrooms.
Complementing the SEC's efforts, many corporations, investor groups and others
in the private sector have responded to the President's call for reform by re-
evaluating their own corporate governance practices. For example, at the
President's urging, the New York Stock Exchange and NASDAQ have taken
meaningful steps to revise their listing standards.
The Corporate Fraud Task Force's Record of Accomplishment
The Justice Department, SEC and other Task Force members have aggressively
responded to the President's call to action. Enron, Worldcom, Adelphia and ImClone are
among the cases that are being overseen and directed by members of the Corporate Fraud
Task Force.
Since the Task Force was formed in July 2002, investigations have begun into more than
a hundred new corporate fraud cases.
More than 150 defendants have already been charged with civil and/or criminal
wrongdoing.
Convictions have been obtained or pleas are pending in 46 cases.
Enhanced coordination among civil and criminal authorities is bringing about significant
increases in "real-time enforcement."
Since the Task Force was created, fully 90% of the prosecutions brought by DOJ for
corporate fraud offenses were accomplished with the active assistance of SEC
investigators and analysts.
Department of Justice Accomplishments
Since the beginning of the Administration, the Department of Justice has initiated
investigation into more than 400 matters involving possible corporate fraud - including
falsification of corporate financial information, self-dealing by corporate insiders and
obstruction of justice related to these offenses.
During the same period, more than 500 defendants have been charged with corporate
fraud-related offenses. Convictions have been obtained or pleas are pending in more than
200 cases.
SEC Accomplishments
Fiscal year to date, the SEC has filed a record 156 actions for financial reporting and
issuer disclosure violations, 51 percent higher than were filed in all of fiscal 2000.
During this same period, the SEC has sought to throw 107 unfit officers and directors out
of corporate boardrooms - almost 3 times the number that were sought in fiscal 2000. As
the President stated in his Ten Point Plan in March, corporate officers and directors must
assume personal responsibility for their companies' financial statements.
The SEC is aggressively using its enforcement powers to make corporate wrongdoers
accountable for their actions. During this fiscal year to-date, the SEC has sought to
recover compensation, bonuses and stock options paid to 25 corporate wrongdoers - that
is 39% more than in the prior fiscal year.
The SEC has sought temporary restraining orders, seeking immediate relief to prevent
irreparable harm to investors, in 47 cases since the start of this fiscal year, and has sought
57 asset freezes to prevent dissipation of assets that may be used to compensate
defrauded investors. Both of these figures reflect more than a 30% increase over fiscal
year 2001.
###
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Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
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b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
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an agency [(b)(2) of the FOIA]
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financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
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A. Closed by Executive Order 13526 governing access to national
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security information.
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Court Sealed - The document is withheld under a court seal and is not subject to
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International Implications of Sarbanes-Oxley
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P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
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P4 Release would disclose trade secrets or confidential commercial or
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financial information [(a)(4) of the PRA]
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information [(b)(4) of the FOIA]
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b(6) Release would constitute a clearly unwarranted invasion of
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personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
C. Closed in accordance with restrictions contained in donor's deed
the Freedom of Information Act.
of gift.
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15
Sarbanes. Oxley (2002)
H.R. 3763-20
care should have known, of such suspension or bar, to
permit such an association, without the consent of the
Board or the Commission.
(d) REPORTING OF SANCTIONS.-
(1) RECIPIENTS.-If the Board imposes a disciplinary sanc-
tion, in accordance with this section, the Board shall report
the sanction to-
(A) the Commission;
(B) any appropriate State regulatory authority or any
foreign accountancy licensing board with which such firm
or person is licensed or certified; and
(C) the public (once any stay on the imposition of
such sanction has been lifted).
(2) CONTENTS.-The information reported under paragraph
(1) shall include-
(A) the name of the sanctioned person;
(B) a description of the sanction and the basis for
its imposition; and
(C) such other information as the Board deems appro-
priate.
(e) STAY OF SANCTIONS.-
(1) IN GENERAL.-Application to the Commission for review,
or the institution by the Commission of review, of any discipli-
nary action of the Board shall operate as a stay of any such
disciplinary action, unless and until the Commission orders
(summarily or after notice and opportunity for hearing on the
question of a stay, which hearing may consist solely of the
submission of affidavits or presentation of oral arguments) that
no such stay shall continue to operate.
(2) EXPEDITED PROCEDURES.-The Commission shall estab-
lish for appropriate cases an expedited procedure for consider-
ation and determination of the question of the duration of
a stay pending review of any disciplinary action of the Board
under this subsection.
SEC. 106. FOREIGN PUBLIC ACCOUNTING FIRMS.
(a) APPLICABILITY TO CERTAIN FOREIGN FIRMS.-
(1) IN GENERAL.-Any foreign public accounting firm that
prepares or furnishes an audit report with respect to any issuer,
shall be subject to this Act and the rules of the Board and
the Commission issued under this Act, in the same manner
and to the same extent as a public accounting firm that is
organized and operates under the laws of the United States
or any State, except that registration pursuant to section 102
shall not by itself provide a basis for subjecting such a foreign
public accounting firm to the jurisdiction of the Federal or
State courts, other than with respect to controversies between
such firms and the Board.
(2) BOARD AUTHORITY.-The Board may, by rule, determine
that a foreign public accounting firm (or a class of such firms)
that does not issue audit reports nonetheless plays such a
substantial role in the preparation and furnishing of such
reports for particular issuers, that it is necessary or appro-
priate, in light of the purposes of this Act and in the public
interest or for the protection of investors, that such firm (or
class of firms) should be treated as a public accounting firm
H.R. 3763-21
(or firms) for purposes of registration under, and oversight
by the Board in accordance with, this title.
(b) PRODUCTION OF AUDIT WORKPAPERS.-
(1) CONSENT BY FOREIGN FIRMS.-If a foreign public
accounting firm issues an opinion or otherwise performs mate-
rial services upon which a registered public accounting firm
relies in issuing all or part of any audit report or any opinion
contained in an audit report, that foreign public accounting
firm shall be deemed to have consented-
(A) to produce its audit workpapers for the Board
or the Commission in connection with any investigation
by either body with respect to that audit report; and
(B) to be subject to the jurisdiction of the courts of
the United States for purposes of enforcement of any
request for production of such workpapers.
(2) CONSENT BY DOMESTIC FIRMS.-A registered public
accounting firm that relies upon the opinion of a foreign public
accounting firm, as described in paragraph (1), shall be
deemed—
(A) to have consented to supplying the audit
workpapers of that foreign public accounting firm in
response to a request for production by the Board or the
Commission; and
(B) to have secured the agreement of that foreign public
accounting firm to such production, as a condition of its
reliance on the opinion of that foreign public accounting
firm.
(c) EXEMPTION AUTHORITY.-The Commission, and the Board,
subject to the approval of the Commission, may, by rule, regulation,
or order, and as the Commission (or Board) determines necessary
or appropriate in the public interest or for the protection of inves-
tors, either unconditionally or upon specified terms and conditions
exempt any foreign public accounting firm, or any class of such
firms, from any provision of this Act or the rules of the Board
or the Commission issued under this Act.
(d) DEFINITION.-In this section, the term "foreign public
accounting firm" means a public accounting firm that is organized
and operates under the laws of a foreign government or political
subdivision thereof.
SEC. 107. COMMISSION OVERSIGHT OF THE BOARD.
(a) GENERAL OVERSIGHT RESPONSIBILITY.-The Commission
shall have oversight and enforcement authority over the Board,
as provided in this Act. The provisions of section 17(a)(1) of the
Securities Exchange Act of 1934 (15 U.S.C. 78q(a)(1)), and of section
17(b)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78q(b)(1))
shall apply to the Board as fully as if the Board were a "registered
securities association" for purposes of those sections 17(a)(1) and
17(b)(1).
(b) RULES OF THE BOARD.-
(1) DEFINITION.-In this section, the term "proposed rule"
means any proposed rule of the Board, and any modification
of any such rule.
(2) PRIOR APPROVAL REQUIRED.-No rule of the Board shall
become effective without prior approval of the Commission in
accordance with this section, other than as provided in section
103(a)(3)(B) with respect to initial or transitional standards.
17
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Freedom of Information Act - [5 U.S.C. 552(b)]
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P2 Relating to the appointment to Federal office [(a)(2) of the PRAJ
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an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
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personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
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PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
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Deed of Gift Restrictions
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security information.
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P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
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P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
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information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
Court Sealed - The document is withheld under a court seal and is not subject to
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b(1) National security classified information [(b)(1) of the FOIA]
P2 Relating to the appointment to Federal office [(a)(2) of the PRA]
b(2) Release would disclose internal personnel rules and practices of
P3 Release would violate a Federal statute [(a)(3) of the PRA]
an agency [(b)(2) of the FOIA]
P4 Release would disclose trade secrets or confidential commercial or
b(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
b(4) Release would disclose trade secrets or confidential or financial
P5 Release would disclose confidential advise between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
b(6) Release would constitute a clearly unwarranted invasion of
P6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
b(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
PRM. Personal record misfile defined in accordance with 44 U.S.C.
b(8) Release would disclose information concerning the regulation of
2201(3).
financial institutions [(b)(8) of the FOIA]
b(9) Release would disclose geological or geophysical information
Deed of Gift Restrictions
concerning wells [(b)(9) of the FOIA]
A. Closed by Executive Order 13526 governing access to national
Records Not Subject to FOIA
security information.
B. Closed by statute or by the agency which originated the document.
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19
Talking points from International Organization of Securities
Commissions (IOSCO) Recent Announcements
Main point:
The IOSCO recently published principles to be followed by securities regulators in the areas
of disclosure, auditor independence, and auditor oversight. The principles outlined match
closely with those outlined in the President's Ten Point Plan and mandated by the Sarbanes-
Oxley Act of 2002.
The IOSCO is a group of securities regulators which acts to create consensus standards of
regulation. Structurally, the IOSCO has a Presidents' Committee, which is made up of
Presidents or heads of securities regulatory bodies, regional committees and a technical
committee.
On October 18, 2002, the IOSCO released statements of general principles to guide
securities regulators in dealing with three critical areas necessary for investor confidence in
securities markets.
Disclosure
Auditor independence
Auditor oversight
The principles outlined by IOSC documents match closely with those outlined in the
President's Ten Point Plan and mandated by the Sarbanes-Oxley Act of 2002. While few
specifics are presented, general guidelines include:
Disclosure: Provision of timely, accurate and thorough information is critical to
allowing investors to make informed decisions. Some suggestions of timeliness are
offered (using the US as example). Simultaneous disclosure for firms listed in
multiple jurisdictions, timely and fair dissemination are examples of other topics
addressed as issues of concern.
Auditor independence: Public confidence in financial reports depends largely on their
views of auditors. Auditor independence and independent audit committees of boards
of directors are important contributors to public confidence. Further, internal
compliance systems are required within auditing firms.
Auditor oversight: effective oversight of the auditing profession and of independent
audits is critical to the reliability and integrity of the financial reporting process. Some
jurisdictions have attempted peer-on-peer review policies, which have largely failed.
Oversight of auditors is performed by several agents, including management, audit
committees, and public and private bodies. However, an independent public body is
critical to oversee the quality of implementation of auditing, independence, ethical
standards and quality control of audits.
Final Communiqué of the XXVIIth Annual Conference of the International Organisation of Sect... Page 1 of 3
Organisation internationale des commissions de valeurs
International Organization of Securities Commissions
Organización Internacional de Comisiones de Valores
Organização Internacional das Comissões de Valores
DICU-IOSCO
OICU-IOSCO
PRESS RELEASE
18 October 2002
The Technical Committee of the International Organization of
Securities Commissions today issued statements of principles to
guide securities regulators in dealing with three critical areas
necessary for investor confidence in securities markets. The
principles describe essential features of regulatory systems requiring
transparency and disclosure by listed entities; the independence of
external auditors; and the need for public oversight of the audit
function.
In announcing publication of these three important principles, the
Technical Committee Chairman, Mr. David Knott, stated that
"Investor confidence is fundamental to the successful operation of
the world's financial markets. That confidence depends on investors
having credible and reliable financial information when making
decisions about capital allocation".
The approval of these key principles at the international level
constitutes a specific response to some of the securities regulatory
issues highlighted by the bankruptcy of Enron and other high-profile
business failures around the world.
Information should be disclosed on a timely basis - whether in
connection with an initial public offering or listing - periodically or
continuously, and in a form or manner either prescribed by
accounting standards, regulations, listing rules or law, together with
the information that is provided by the management under the
principles of fair presentation. The Technical Committee has
therefore developed a set of complementary disclosure principles to
the International Disclosures Standards adopted by the Organization
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in September 1998.
Independent audits and effective oversight of the accounting
profession are critical to the reliability and integrity of the financial
reporting process.
The Technical Committee recognizes that, while regulations on
auditor independence exist in many individual jurisdictions, these
regulations may differ in approach, scope, terminology and
substance. Accordingly, it has set forth principles relating to external
auditor independence and the role played by the governance
structure of an entity in monitoring and safeguarding the
independence of its external auditor. The Technical Committee has
also developed a list of general principles for oversight of audit firms
and auditors, which audit financial statements of companies whose
securities are publicly traded in the capital markets. Auditors should
be subject to oversight by an independent body that acts and is
perceived to act in the public interest.
IOSCO is a world-wide forum for securities regulators that promotes
cooperation and high standards of regulation in order to maintain
fair, efficient and sound markets. IOSCO currently regroups 171
members from more than 100 jurisdictions.
A copy of the following three papers can be downloaded from the
IOSCO Internet Home Page (www.iosco.org) or obtained from the
IOSCO General Secretariat:
1. Principles for Ongoing Disclosure ad Material Development
Reporting by Listed Entities;
2. Principles of Auditor Independence and the Role of
Corporate Governance in Monitoring an Auditor's
Independence;
3. Principles for Auditor Oversight.
For more information contact:
Mr. Philippe Richard
Secretary General
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IOSCO
Tel: (3491) 417 55 49
Fax: (3491) 555 93 68
E-mail: [email protected]
Web Page: www.iosco.org
OICV / IOSCO
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10/29/02
20
ORGANIZATION FOR INTERNATIONAL INVESTMENT
INTERNATIONAL BUSINESS INVESTING IN AMERICA
TODD M. MAIAN, EXECUTIVE DIRECTOR
August 19, 2002
Jonathan G. Katz
Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Re: Petition for Rulemaking Relating to the Sarbanes-Oxley Act of 2002
Dear Mr. Katz:
The Organization for International Investment ("OFII") is the leading business
association in the United States representing the interests of U.S. subsidiaries of nearly
100 international companies (membership list attached). Many of these international
companies are "foreign private issuers" under Commission rules and are required to file
Form 20-F or Form 40-F and other reports with the Commission, often as a result of a
listing of their securities on the New York Stock Exchange or another market. These
companies are therefore subject to many of the provisions of the Sarbanes-Oxley Act of
2002 ("Sarbanes-Oxley"), which was signed into law on July 30, 2002.
Our members fully support the intent of the U.S. Congress and the Commission to
enhance investor protection. In particular, Sarbanes-Oxley is an important legislative
initiative aimed at increasing the accuracy and reliability of corporate disclosures made
pursuant to the federal securities laws.
The purpose of this letter, however, is to petition the Commission to take prompt action
to exempt foreign private issuers from certain provisions of Sarbanes-Oxley that
became immediately effective and that may be inconsistent with the laws or practices of
these issuers' home jurisdictions.
A secondary purpose of this letter is to request that the Commission, in implementing
those provisions of Sarbanes-Oxley that contemplate rulemaking by the Commission,
consider appropriate exemptions or accommodations for foreign private issuers.
Jonathan G. Katz
Secretary
August 19, 2002
Page 2
I. Traditional Commission Accommodation of Foreign Private Issuers
The Commission has for many years, as a matter of policy, encouraged foreign private
issuers to enter the U.S. capital and securities markets as "reporting companies" under
the Securities and Exchange Act of 1934 (the "1934 Act"). The Commission has
implemented this policy by providing foreign private issuers with a number of
accommodations to foreign practices and polices where such accommodations would
not be inconsistent with the protection of U.S. investors. These accommodations
include:
- interim reporting on the basis of home country and stock exchange practice
rather than mandated quarterly reports;
- exemption from the proxy rules and the insider reporting and short swing profit
recovery provisions of Section 16;
- aggregate executive compensation disclosure rather than individual disclosure,
if so permitted in an issuer's home country;
- use of home country accounting principles with a reconciliation to U.S. generally
accepted accounting principles, with acceptance of certain International
Accounting Standards; and
- acquiescence in New York Stock Exchange and National Association of
Securities Dealers corporate governance standards that are tailored to the needs
of foreign private issuers.
As of the end of 2001, more than 1300 foreign private issuers from 59 countries had
become reporting companies in reliance on the Commission's accommodations.
II. Foreign Private Issuers and the Immediately Effective Provisions of Sarbanes-
Oxley
The majority of the requirements of Sarbanes-Oxley become effective only after the
adoption of rules by the Commission or by the newly-created Public Company
Accounting Oversight Board. Certain of these rules must be adopted within 30 days
from enactment, while others may be adopted over periods of up to one year.
However, certain provisions of Sarbanes-Oxley became effective immediately upon the
President's signature of the law on July 30, 2002. These provisions include a
prohibition on loans to directors and executive officers (§402) and a forfeiture by certain
officers of compensation and securities-related profits in the event of certain
restatements (§304).
Jonathan G. Katz
Secretary
August 19, 2002
Page 3
OFII submits that these immediately-effective provisions represent an unfair,
unnecessary and highly intrusive interference with the home country standards
applicable to foreign private issuers.
Sarbanes-Oxley does not by its terms distinguish U.S. from foreign reporting
companies. There appears little doubt, however, that Congress was primarily focusing
on U.S. companies in the hearings and debate that resulted in the new law. For
example, in remarks submitted on July 25, 2002 for inclusion in the Congressional
Record, Senator Enzi stated that "[f]oreign issuers are not part of the current problems
being seen in the U.S. capital markets." He went on to state his belief that it was not the
intent of the conferees "to export U.S. standards disregarding the sovereignty of other
countries as well as their regulators." He also stated his belief that the conferees
intended to permit the Commission "wide latitude" in using its authority to deal with
"technical matters such as the scope of the definitions and their applicability to foreign
issuers."
Senator Enzi also referred to the Commission's historical deference to the home
countries of foreign private issuers to prescribe corporate governance standards.
Indeed, it is highly unlikely that more than 1300 foreign private issuers would have
voluntarily submitted themselves to the 1934 Act's reporting requirements if they had
believed that in so doing they would have subjected themselves to the intrusive
requirements referred to above.
III. Prohibition on Personal Loans
The need for prompt exemptive action by the Commission is clearest in the case of the
prohibition in Section 402 of Sarbanes-Oxley on loans to directors and executive
officers.
Overnight, it has become unlawful for a foreign reporting company "directly or indirectly"
to make any "extension of credit," to "arrange" for any extension of credit, or to "renew"
an extension of credit, where the credit is in the form of a "personal loan," to any
"director or executive officer," wherever in the world that person may be located.
Section 402 has a particularly intrusive and dramatic effect on foreign companies.
Sarbanes-Oxley does not recognize, for example, the safeguards afforded by foreign
regulatory schemes relating to such loans. Nor does it make provision for legal or
contractual obligations of foreign private issuers to their directors or executive officers to
extend, arrange, renew or modify loans.
Also, the technical terms of the prohibition are set forth in terms of U.S. legal concepts.
For example, many U.S. lawyers are recommending to their U.S. clients that the
prohibition on "arranging" be applied on the basis of the definition of that term for the
Jonathan G. Katz
Secretary
August 19, 2002
Page 4
Federal Reserve's Regulation T - a prohibition that applies to U.S. broker-dealers and
many of the interpretations of which are decades old.
Moreover, the exceptions to the prohibition that were intended by Congress to mitigate
the effect of the prohibition are again set forth in terms of U.S. legal concepts. Whether
a loan qualifies as a "non-personal" loan or as "consumer credit" is defined in terms of
the U.S. statutory scheme.
Finally, the exception for bank or margin loans is set forth in terms of U.S. issuers. An
"insured depository institution" may make a loan to a director or executive officer in
accordance with current U.S. restrictions on loans to "insiders," but a foreign bank may
not make such a loan because its deposits are not FDIC-insured. A broker-dealer
registered with the Commission may make a margin loan to an "employee," but routine
margin loans extended by a foreign private issuer to a director or executive officer in
accordance with home country practice would not qualify for the exception. Additionally,
a loan to purchase the foreign company's stock may be exactly the type of loan that is
customary in many countries.
Loans to directors and executive officers are already the subject of Commission
disclosure requirements under Item 7B of Form 20-F. Moreover, while we cannot
generalize as to all reporting foreign private issuers, such loans are frequently the
subject of home country regulation. In Germany, for example, the Stock Corporation
Law requires that extensions of credit to members of the board of managers be
approved by the supervisory board as to amount, interest rate and repayment terms.
This includes extensions of credit to family members and certain other related persons.
Loans by financial services companies are subject to a separate statutory regulatory
scheme.
We do not believe the Commission can provide any meaningful relief in this area short
of a blanket exemption for foreign private issuers along the lines of the exemptions
currently provided in Rule 3a12-3(b), i.e., by adding "§13(k)" to the references in that
rule, and we hereby petition the Commission to provide such an exemption.
IV. Forfeitures of Compensation and Securities-Related Profits
Another immediately effective provision of Sarbanes-Oxley (§304) requires the chief
executive and chief financial officers of a reporting company to reimburse the company
for bonuses, incentives or equity-based compensation and for profits realized from the
sale of securities in the event the company is "required" to prepare an "accounting
restatement" due to material noncompliance, "as a result of misconduct," with any
financial reporting requirement under the securities laws.
Section 304 has a particularly harsh and intrusive effect on foreign companies.
Consider, for example, a restatement by a foreign private issuer as a result of its
Jonathan G. Katz
Secretary
August 19, 2002
Page 5
noncompliance with home country financial reporting requirements. Given that the
Commission's financial reporting requirements for a foreign private issuer are defined in
terms of the issuer's home country financial reporting requirements, Section 304 would
create a private right by the issuer of action for reimbursement under U.S. law by the
issuer against its chief executive and chief financial officers as a result of a violation of
home country requirements.
Home country shareholders might seek to enforce the reimbursement obligation in
home country courts, further compounding the intrusive effect of Section 304. U.S.
stockholders might also seek to enforce the obligation in U.S. courts, perhaps by
serving them while they are temporarily present in the United States.
Moreover, the officers of foreign private issuers may have contractual employment or
compensation claims that a court in the issuer's home country would regard as superior
to the claims of Section 304. This could result in the issuer's being required by the
foreign court to make the officers whole for any amount a U.S. court might require them
to pay, with the possibility of a further reimbursement claim by yet another stockholder.
As in the case of the prohibition on loans, we do not believe the Commission can
provide any meaningful relief in this area short of a blanket exemption for foreign private
issuers by adding "§304 of the Sarbanes-Oxley Act of 2002" to the references in Rule
3a12-3(b), and we hereby petition the Commission to provide such an exemption.
V. Commission Rulemaking
We recognize that the Commission is facing an unprecedented rulemaking burden as a
result of Sarbanes-Oxley. By some measures, it must propose and adopt more than 24
sets of rules over the next several months, and another 20 if one takes into
consideration the rules of the Public Company Accounting Oversight Board that the
Commission is required to approve.
In formulating its rule proposals, we urge the Commission to consider making
appropriate accommodation for foreign private issuers in the following areas:
- In its current rulemaking project under §302 of Sarbanes-Oxley, the
Commission should consider exempting individual officers of foreign private
issuers from the certification requirements. Such an exemption is particularly
called for where, under home country law, the responsibility for the accuracy of
disclosure documents is borne by a collective body rather than individuals.
- Moreover, the Commission should make clear that Form 6-K reports will not be
subject to the §302 certification requirements. First, Form 6-K reports are not
"quarterly" reports as specified in §302. More importantly, unlike Form 20-F
Jonathan G. Katz
Secretary
August 19, 2002
Page 6
reports, reports on Form 6-K represent disclosures made in accordance with
home country rather than U.S. requirements.
- The "fair presentation" certification requirement under $302 should in any event
not apply to the financial information included solely for the purpose of
reconciling financial statements to U.S. generally accepted accounting principles.
- Foreign private issuers should not be required to adopt the corporate
governance standards that apply to U.S. companies. Any such requirement
would risk direct conflicts with foreign law (as in the case, for example, of
accommodating audit committees within a two-tier board structure or dealing with
a legal requirement that outside auditors be appointed by the stockholders). We
believe investor protection would be adequately served by a requirement, such
as that recently recommended by the New York Stock Exchange's committee on
Corporate Accountability and Listing Standards, that companies disclose any
differences in corporate governance standards.
- Accounting firms should be permitted to perform non-audit services for foreign
private issuers as permitted in the home country.
- The Commission should consider other appropriate exemptions for foreign
private issuers from the provisions of Section 10A that were added by Sarbanes-
Oxley.
- Codes of ethics for senior financial officers, and related disclosures, should be
required only if required in the home country.
- Internal control assessments, related officer certificates and related auditor
attestations and reports, should be required only if required in the home country.
We intend to urge the Public Company Accounting Oversight Board (the "Board") to
make similar accommodations for foreign private issuers in the rules that Sarbanes-
Oxley requires it to adopt. We also intend to offer comments on rules proposed by the
Commission as well as the Board.
VI. Addressing Foreign Concerns Regarding Sarbanes-Oxley
It has surely not escaped the Commission's attention that the application of Sarbanes-
Oxley to foreign private issuers has become the subject of considerable concern outside
the United States. We believe the Commission has the opportunity to demonstrate that
much of this concern is unwarranted.
The Commission can do so by reaffirming its policy of providing accommodations for
foreign private issuers where compliance with U.S. law would represent an unwarranted
Jonathan G. Katz
Secretary
August 19, 2002
Page 7
intrusion onto home country laws or practices and would not be necessary for the
protection of investors. We believe the areas specified above relating to loans and
forfeitures are two such areas where exemptive action is clearly warranted by these
standards. The prompt granting of such exemptions will have a calming effect among
foreign private issuers as well as their regulators. The calming effect will be enhanced
as the Commission demonstrates during the rulemaking process a continuing
commitment to making appropriate accommodation for foreign private issuers.
We also note that foreign concern about Sarbanes-Oxley is undoubtedly having a
chilling effect on foreign private issuers' willingness to enter the U.S. capital and
securities markets. Such a result is unfortunate, especially given both major
exchanges' efforts to foster foreign listings and to implement responsible corporate
governance standards. Again, prompt Commission action as requested in this letter
would be particularly effective in alleviating the concerns of foreign private issuers about
entering the U.S. capital and securities markets.
Please do not hesitate to contact me regarding this petition for rulemaking or regarding
any aspect of Sarbanes-Oxley and its impact on foreign issuers.
Todd M. Malan
Executive Director
CC: Hon. Harvey L. Pitt, Chairman
Hon. Cynthia A. Glassman, Commissioner
Hon. Harvey J. Goldschmid, Commissioner
Hon. Paul Atkins, Commissioner
Hon. Roel Campos, Commissioner
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