In order to increase levels of reliability and credibility in the reporting of financial statements and to promote improved disclosure regarding the functioning of corporate audit committees, the Securities and Exchange Commission (the "SEC") has adopted new rules for public companies. The new requirements for reporting companies are summarized as follows:
Interim financial statements must be reviewed by independent auditors before quarterly reports are filed with the SEC.
This new requirement for independent auditor review of financial statements contained in quarterly reports filed with the SEC begins with filings for the fiscal quarter ending on or after March 15, 2000.
Proxy statements must contain a report from the company's audit committee disclosing the level of review and discussion of certain matters with management and the company's auditors and whether or not the audit committee recommended to the Board that the audited financial statements be included in the company's annual report.
Proxy statements must disclose whether the company's audit committee has a written charter. A copy of such a charter must be filed as an Appendix to the company's annual proxy statement at least once every three years.
If securities are listed on the NYSE or AMEX, or quoted on NASDAQ, the company must disclose information about any audit committee members who are not "independent" as that term is defined by new NYSE, AMEX, or NASDAQ rules.
If securities are neither listed on the NYSE or AMEX nor quoted on NASDAQ, the company must disclose, if it has an audit committee, whether audit committee members are "independent" as that term is defined by new NYSE, AMEX, or NASDAQ rules.
Compliance with these SEC requirements regarding disclosure in proxy statements begins with all proxy statements and information statements relating to shareholder voting occurring after December 15, 2000.
New Requirements For Corporate Audit Committees NYSE, AMEX and NASDAQ Rules
The SEC's new rules coincide with changes adopted by the NYSE, AMEX, and NASDAQ. Such changes include: (i) a more rigorous definition of "independence" for audit committee members; (ii) new requirements regarding the number and competency of audit committee members; and (iii) a new requirement that all companies adopt written charters for their audit committees.
One of the new responsibilities of the audit committee is to receive a formal, written statement from the outside auditors as to their independence and also to question the auditors regarding anything that would appear to be relevant to their objectivity.
The audit committee must be comprised of at least three independent directors. Under the new rules, the following persons are NOT considered to be independent:
Directors employed by the corporation;
Directors with certain "business relationships" with the corporation; and
Directors who have immediate family members that have been employed by the corporation in the previous three years.
This is only a partial list of the new requirements. Please review the entire text of the revisions to the rules as found in the following sections of their respective rules listings:
NYSE Section 303
AMEX Section 121
NASDAQ Numerous rules, but most relevant are:
Rule 4200(a)(15) and Rule 4310(c)(26)
The NYSE, AMEX and NASDAQ all require a formal, written audit committee charter to be adopted by the Board of Directors of the company by June 14, 2000. Compliance with all other requirements as to the composition of the audit committee must be by June 14, 2001.
Please feel free to contact any of the attorneys at Buchanan Ingersoll, including the ones listed below, if you have any questions regarding these new rules.
Pittsburgh
Lewis U. Davis, Jr.
David A. Grubman
Joseph S. Cancilla
Philadelphia
Joseph P. Galda
Brian S. North
Harrisburg
Bradley J. Gunnison
Please note that the changes adopted by the SEC, NYSE, AMEX and NASDAQ do not necessarily apply to Small Business Issuers. If your company qualifies as a Small Business Issuer, please refer to the text of the new rules or call any of the attorneys at Buchanan Ingersoll Professional Corporation.