SEC Committee To Study Complexity; More

The Securities and Exchange Commission has created a new advisory committee to find ways to simplify the U.S. financial reporting system and make information more useful and understandable to the investing public.

Pozen

The SEC Advisory Committee on Improvements to Financial Reporting, led by MFS Investment Management Chairman Robert Pozen, will study the causes of complexity and recommend how to make financial reports clearer and more beneficial to investors, reduce costs and unnecessary burdens for preparers, and better use technology to enhance all aspects of financial reporting.

The group, whose additional 13 to 17 members will be announced in the next few weeks, will begin its work next month after its charter is filed with Congress. It will present its recommendations to the SEC by August 2008.

At a news conference last Thursday, SEC Chairman Christopher Cox said that the group will coordinate its efforts closely with a separate panel formed by Treasury Secretary Henry Paulson to study the sustainability of the accounting firm business model, since some of the issues each will be consider will be “interdependent.” That committee is being led by former SEC chairman Arthur Levitt and former chief accountant Donald Nicolaisen.

The formation of the two panels comes amid efforts by the Treasury and the SEC to improve the attractiveness of U.S. capital markets.

The SEC Financial Reporting Advisory Committee’s first meeting, which is open to the public, is slated for Aug. 2 at the SEC’s main office.

Pozen said the committee will focus on offering better guidance to preparers of financial reports, as well as on providing more user-friendly disclosures to meet the different needs of different types of investors.

Among other items, the committee will examine the current approach to setting financial accounting and reporting standards; the process of regulating compliance by registrants and financial professionals with accounting and reporting standards; the systems for delivering to financial information to investors and how they access that information; and other environmental factors that drive complexity and reduce transparency.

The panel will also consider whether any current accounting and reporting standards impose costs that outweigh the resulting benefits and whether the cost-benefit analysis is likely to be impacted by the growing use of international accounting standards. Cox noted that the committee will include an observer from the International Accounting Standards Board. The group will also study how technology can help address accounting complexity.

The SEC invites comments regarding the commission, and they may be submitted by any of the following methods:

Electronic Statements

Use the Commission’s Internet submission form www.sec.gov/rules/other.shtml; or

Send an e-mail message to rule-comments@sec.gov. Please include File Number 265-24 on the subject line.

Paper Comments

Send paper comments in triplicate to Nancy M. Morris, Federal Advisory Committee Management Officer, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549–1090.

All submissions should refer to File No. 265-24. This file number should be included on the subject line if e-mail is used. Please use only one method. The Commission will post all comments on its Web site www.sec.gov/rules/other.shtml. Comments will also be available for public inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change; the SEC does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly.

For further information, contact: James Kroeker at (202) 551-5360 Deputy Chief Accountant, Office of the Chief Accountant, Securities and Exchange Commission.

Commissioners Appear Before House Committee

mid a flurry of controversial rulemaking, the chairman of the Securities and Exchange Commission appeared on Capitol Hill last week to refute recent criticisms that the agency favors businesses over investors.

In a rare joint appearance on Capitol Hill, Chairman Christopher Cox, along with the SEC’s four other commissioners, all testified June 26 at a hearing before the House Financial Services Committee. Lawmakers questioned Cox and the others during a lengthy session that covered a wide range of topics, including short selling of stocks, proxy access, class-action lawsuits, and the Sarbanes-Oxley Act.

The hearing marked the first time in more than a decade that all five commissioners appeared before Congress at once.

Cox

In response to criticism that the Commission’s actions are slanted in favor of businesses, Cox, said many of the issues the SEC faces “are sometimes trivialized as disputes between business and investors—as if to be pro-investor is to be anti-business, or to be pro-business is to be anti-investor.”

“If a business is investor-friendly,” he said, “The SEC will be friendly to it.”

However, he added, anyone “who seeks to drive a wedge between the interests of the business and the interests of the investors in that business will face a relentless and powerful adversary” in the SEC.

He noted that 98 percent of Commission decisions during his tenure have been the result of unanimous votes—not because the issues “are easy, or because we always agree.” Rather, he said, it’s because the U.S. and global capital markets “depend upon clarity and consistency” in the SEC’s regulatory and enforcement programs.

Frank

Pressed by committee Chairman Barney Frank, D-Mass., about when the SEC will issue a proposal to increase shareholder access to corporate proxy statements, Cox repeated a past response that rules on shareholder proxy access should be in place by this fall, with a proposal potentially coming out later this summer. Frank plans to hold a separate hearing on proxy access.

Questioned on whether legislative action on Sarbanes-Oxley is needed, the consensus among the five commissioners was no. They said difficulties with Section 404 of Sarbanes-Oxley were addressed by the recent SEC guidance and related changes to the standards for auditors.

While a new enforcement policy announced in April has drawn criticism as limiting SEC lawyers’ power to negotiate corporate fines, Cox noted that during the first half of 2007, the SEC imposed nine issuer penalties, compared to a previous high in any calendar year of 11.

Since adopting guidelines on corporate fines in 2006, the SEC has imposed eight penalties of $25 million or more, including the second-highest ever on a corporate issuer, a $400 million fine levied on Fannie Mae.

New Nasdaq FAQs On Equity Compensation

Nasdaq has issued 52 new frequently asked questions related to equity compensation.

The new FAQ guidance, found on the Nasdaq Web site covers general questions related to exchange rules on shareholder approval of equity compensation, the applicability of the rules to plans adopted prior to the approval of the rules and to foreign private issuers, formula and evergreen plans, the materiality of amendments, exceptions to the requirement, issues related to mergers and acquisitions, inducement grants, and private placements, among others.