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On May 20, the SEC published its adopted rules related to Section 303 of the Sarbanes-Oxley Act of 2002, which prohibit
officers and directors from "coercing, manipulating,
misleading, or fraudulently influencing" their outside auditor. The original proposal was published Oct. 18th but only differs slightly from the adopted rule.
Key components, details, effective dates and contact information is outlined below:
Basic Concepts
The new rules supplement existing rules (Regulation 13B-2) that address the falsification of books, records and accounts, and false or misleading statements — or omissions to make certain statements — to accountants.
New rule specifically prohibits officers and directors, and persons acting under their direction, "from coercing, manipulating, misleading, or fraudulently influencing the auditor of the issuer's financial statements when the officer, director or other person knew or should have known that the action, if successful, could result in rendering the issuer's financial statements materially misleading."
The new rule also provides examples of actions that improperly influence an auditor that could result in "rendering the issuer's financial statements materially misleading." That paragraph also clarifies that such actions should not occur at any time that the auditor is called upon to exercise professional judgment related to the issuer's financial statements.
Types of Conduct
Types of conduct that the Commission believes could constitute improper influence may include some of the following:
Offering or paying bribes or other financial incentives, including offering future employment or contracts for non-audit services,
Providing an auditor with an inaccurate or misleading legal analysis,
Threatening to cancel or canceling existing non-audit or audit engagements if the auditor objects to the issuer's accounting,
Seeking to have a partner removed from the audit engagement because the partner objects to the issuer's accounting,
Blackmailing, and
Making physical threats.
Effective Date
Effective date will be 30 days after publication in the Federal Register. An estimated effective date according to a SEC spokesperson was June 30th.
Questions
For further information, issuers whould contact SEC Chief Counsel Robert Burns or Associate Chief Accountant Michael Kigin at (202) 942-4400.
You can also try Associate Chief Accountant David Estabrook in the Division of Enforcement at (202) 942-4510.
Complete Text
As listed in the sidebar, above right, the complete text of the rule is available at the SEC's Web site, and includes extensive information on definition of terms, comments received to the original proposal, and more.
NOTE: Please note that this is a summary of a proposed SEC rule, and should not be construed to be a complete or final rule, nor should it be construed to be legal guidance. Please refer to the SEC's Web site for updated and final rule information.
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