Regulatory
Enhancing Oversight of Internal Control Over Financial Reporting: Understanding Challenges, Exploring Value (Audit Committee Roundtable Highlights - Spring 2005)
This twelve-page publication provides an overview of the emerging
practices regarding the oversight of S-O 404 compliance, as discussed
by audit committee members during ACI's Spring 2005 roundtables series.
Note: Visit the 404 Institute for the latest developments regarding Internal Control Over Financial Reporting.
NYSE Proposes Amendments to Corporate
Governance Listing Standards
On August 3, 2004, the New York Stock Exchange (NYSE) submitted
for approval amendments to its corporate governance listing standards.
The amendments were proposed in order to address a number of issues
prompting questions and requests for interpretive guidance since
the listing standards were first approved in November 2003. One
of the proposed amendments would require audit committees at listed
companies to “meet to review and discuss” annual and
quarterly financial statements, and “review the company’s
specific Management’s Discussion & Analysis disclosures.” Other
proposed amendments would more accurately reflect how the applicable
look-back periods should be applied; change the substance of the
independence standards regarding affiliations with a listed company’s
internal or external auditor, and other areas of the corporate
governance listing standards. These amendments were approved by
the Securities and Exchange Commission on November 3, 2004.. The
listing standards approved in November 2003 are accessible below
under the section titled "U.S. Stock Exchange Final Corporate
Governance Listing Standards."
SEC Approves Auditing Standard No. 2 -- An Audit of Internal
Control Over Financial Reporting Performed in Conjunction with an
Audit of Financial Statements.
On June 17, 2004, The Securities and Exchange Commission approved,
the Public Accounting Oversight Board's (PCAOB's) Auditing Standard
No. 2, “An Audit of Internal Control Over Financial Reporting
Performed in Conjunction with An Audit of Financial Statements.” This
Auditing Standard governs the independent auditor’s audit,
and reporting, on management’s assessment of the effectiveness
of internal control over financial reporting. Paragraphs 55 through
59 of this proposed Auditing Standard address the external auditor’s
responsibility, as part of its audit of internal control over financial
reporting, to evaluate the effectiveness of the audit committee’s
oversight of the company’s external financial reporting and
internal control over financial reporting. The PCAOB's Auditing
Standard No. 2 and a related Briefing Paper, PCAOB and SEC Questions
and Answers, SEC approval and KPMG's Defining Issues related to
this topic can be accessed as follows:
U.S. Stock Exchange Final Corporate Governance Listing Standards
SEC Approves NYSE, NASDAQ Strengthening of Corporate Governance
Listings -- November 2003
On November 4, 2003, the Securities and Exchange Commission (SEC)
approved new rules proposed and adopted by the New York Stock Exchange
(NYSE) and the Nasdaq Stock Market, Inc. (NASDAQ) requiring strengthening
of their corporate governance listing standards. These standards
will generally be effective by the first annual shareholders meeting
after January 31, 2004 but not after October 31, 2004.
The SEC's approval results in new requirements regarding board
composition, structure and process, and other corporate governance
matters initially proposed by the NYSE and NASDAQ late in 2002
and later amended during 2003 based on feedback from the SEC, the
public, and internal committees. These new listing standards also
address the definition of director independence, the composition
and responsibilities of the audit committee, the requirement for
an audit committee charter and the requirement for independent
directors and independent committees. The requirement for independent
directors and independent committees includes a requirement that:
a majority of board members be independent; executive sessions
of independent directors are held; and independent oversight of
executive compensation and director nominations exist. These requirements
were also impacted by the final rules issued by the SEC during
2003 in accordance with the Sarbanes-Oxley Act of 2002, however,
these requirements go beyond the SEC's rules.
The SEC press release approving the new rules, the final NYSE
and NASDAQ exchange listing standards, and KPMG's Defining
Issues related to this topic can be accessed as follows:
SEC
Press Release Approving the New Rules (November 4, 2003)
SEC
Release: NYSE and NASDAQ Final Corporate Listing Standards (November
4, 2003)
KPMG's Defining Issues -- New Corporate-Governance
Listing Standards (November 2003)
View documents including summary and analysis of the new exchange
listing standards below from the law firm of Weil, Gotshal & Manges
LLP, including a Memorandum containing an executive summary, as well
as a November 4, 2003 "Special Alert" of its newsletter, titled, "The
Corporate Charter."
SEC Approves Amex Enhanced Corporate Governance Listings --
December 2003On December 1, 2003, the Securities and Exchange Commission (SEC) approved
new rules proposed and adopted by the American Stock Exchange (Amex)
which enhance its corporate governance listing standards. These standards
will generally be effective by the first annual shareholders meeting
after January 31, 2004 but not after October 31, 2004.
These new listing standards, among other things, requires each issuer
listed on the Amex to comply with the standards for audit committees
mandated by Section 10A(m) of the Securities Exchange Act of 1934 and
Rule 10A-3 there under. The rule change also includes provisions relating
to board independence and independent committees, codes of conduct and
other corporate governance issues. Amex has amended its original proposal
to harmonize it with the rule changes recently approved by the SEC for
the NYSE and NASDAQ.
The final Amex listing standards can be accessed as follows:
Amex Final Listing Standards
-- "Spotlight" (December 1, 2003)
NYSE Releases Listing Standards FAQ
On January 29, 2004, the New York Stock Exchange (NYSE) released its
“NYSE Listed Company Manual Section 303A Corporate Governance
Listing Standards Frequently Asked Questions” (FAQs), which
was further updated on February 13, 2004. This 18-page document
contains, in a question-and-answer format, information about the
NYSE’s recently revised corporate governance listing standards,
including: transition periods; disclosure and certifications; independence
determination; non-management director communications requirements;
compensation committee requirements; audit committee requirements;
code of business conduct and ethics requirements; and foreign private
issuer disclosure. The updates to the FAQ in February represent
guidance for foreign private issuers, and clarification of independence
determination rules. Most U.S. NYSE listed companies must comply
with the new Section 303A requirements by the company's first annual
meeting after January 15, 2004, but no later than October 31, 2004.
ACI Updates Corporate Accountability Reforms Comparison
KPMG's Audit Committee Institute (ACI) has updated as of March 31,
2004, a side-by-side comparison of select elements of the Sarbanes-Oxley
Act of 2002 and the NYSE, NASDAQ, and Amex stock exchange corporate governance
listing standards approved by the Securities and Exchange Commission
in November / December 2003. This summary of select elements is meant
to provide high-level overview of elements of the new requirements that
impact audit committees and reflects the status of these issues. The
comparison was distributed at the Spring 2004 Audit Committee Roundtable
series.
GAO Study on the Potential Effects of Mandatory Audit Firm Rotation
The Sarbanes-Oxley Act of 2002 (the Act) required the United States
General Accounting Office (GAO) to study the potential effects of requiring
rotation of the public accounting firms that audit public companies registered
with the Securities and Exchange Commission (SEC).
The required GAO study, issued in November 2003, states that mandatory audit
firm rotation “may not be the most efficient way to strengthen auditor
independence and improve audit quality considering the additional financial
costs and the loss of institutional knowledge of the public company's previous
auditor of record, as well as the current reforms being implemented.”
The GAO recommended that the SEC and the Public Company Accounting
Oversight Board closely monitor and evaluate the effectiveness
of the reforms under the
Sarbanes-Oxley Act for enhancing auditor independence and audit quality.
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