In the next three weeks, the Securities and Exchange Commission will release its long-anticipated study on off-balance-sheet accounting, and may in the next week issue promised guidance on internal control reporting, according to separate remarks by top SEC officials.
Nicolaisen
Speaking at a recent meeting of the American Academy of Actuaries, SEC Chief Accountant Donald Nicolaisen said in “the month of May” the SEC would make public its findings on off-balance-sheet accounting. At a separate conference at Baruch College, Deputy Chief Accountant Scott Taub reportedly made the same promise.
The Sarbanes-Oxley Act of 2002 included a requirement that the SEC study off-balance-sheet accounting, which has figured prominently in the massive corporate collapses that spawned Congressional intervention and the subsequent rule-making activity.
According to reports, Taub told his audience the study will address special-purpose entities, as well as consolidation, transfer of financial assets, contingencies and guarantees, pensions, and leasing. The latter topic will be of great interest to many public companies; in April over 20 percent of the internal control weakness disclosures tracked by Compliance Week were related to lease accounting issues (see story above, right).
The SEC in 2003 heightened disclosure requirements associated with off-balance-sheet accounting as required by Sarbanes-Oxley.
Separately, the chief accountant of SEC’s Division of Corporation Finance, Carol Stacey, told an audience at California State University College of Business and Economics that the SEC was targeting May 16 as the delivery date for further guidance on Sarbanes-Oxley Section 404 internal control reporting requirements. That’s the same date already targeted by the Public Company Accounting Oversight Board for issuing its guidance.
Both agencies promised new guidance on internal controls reporting following SEC’s roundtable in mid-April, where constituents where invited to air their questions and concerns following the first wave of securities filings to include internal controls reports.
Advisory Committee To Test SEC Definition Of “Smaller Public Company”
The SEC’s Advisory Committee on Smaller Public Companies has published its proposed agenda, indicating its intention to review whether the SEC should change the way it defines “small” for purposes of securities rules.
The first item on the committee’s agenda is to review the definition of “smaller public company.” In addition, the committee plans to review first-quarter 2005 internal control reports focusing on how the size and characteristics of a company related to its reporting of effective vs. ineffective internal control.
Other areas for study include corporate governance standards, impact of other statutory requirements and commission regulations on smaller companies, disclosure requirements, and capital formation. The committee also plans to explore accounting principles with an eye on defining whether principles should apply equally to companies of all sizes.
Rules Get Approval From SEC To Make Research More Independent
The SEC has approved rule changes proposed by the New York Stock Exchange and the National Association of Securities Dealers to create greater separation between securities brokers and research, to make research more independent and therefore more reliable for investors.
The rule changes prohibit research analysts from attending or participating in road shows related to investment banking services and require certain communication about investment banking transactions to be fair, balanced and not misleading. These are the key tenets of the “global settlement” implemented in 2003 that affected nearly a dozen leading brokerage houses.
Now that they are adopted, the rules apply to all registered members, brokers and/or dealers of the NYSE and NASD. According to the NYSE, that takes in about 90 percent of all customer accounts in U.S. capital markets.
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