SEC Announces Roundtable on IFRS
On February 13, Securities and Exchange Commission Chairman Christopher Cox announced that senior SEC staff members from the Office of the Chief Accountant, the Division of Corporation Finance and the Office of International Affairs will host a roundtable discussion on the “roadmap” for eliminating the need for non-U.S. companies to reconcile financial statements prepared pursuant to International Financial Reporting Standards (IFRS) to U.S. GAAP in filings with the SEC. Conrad Hewitt, SEC Chief Accountant, and John W. White, Director of Corporation Finance, will moderate the roundtable, which will address the effect of implementing the roadmap (and permitting the use of both U.S. GAAP and IFRS) on the capital raising process, issuers, and investors in the U.S. capital markets. Mr. Cox noted that IFRS reporting has been mandatory in the European Union since 2005 and nearly 100 countries currently use, or have a policy of convergence with, IFRS.
SEC Seeks to Curtail Suits Against Accounting Firms
At the February 9 annual “SEC Speaks” conference in Washington, D.C. sponsored by the Practicing Law Institute, the Securities and Exchange Commission’s Chief Accountant, Conrad Hewitt, stated that the SEC is examining whether, and to what extent, to limit the liability of accounting firms from large damage awards in cases brought by investors and companies. The concern is that even a single judgment against one of the “Big Four” accounting firms could put the firm into bankruptcy and result in even greater concentration. Chief Accountant Hewitt noted that five European Union countries have already found ways to limit auditor liability and the European Commission has issued a policy paper advancing the view that the biggest firms should be given new legal protection against damage claims. Some countries have put a monetary cap on legal liability, while others have adopted limits based on the size of the client corporation or the fees generated by the company being audited. On February 12, SEC Commissioner Christopher Cox stated that the consolidation in the accounting industry had prompted both Congress and the SEC to consider ways to “prevent the demise of another firm” and it is in the interest of investors and issuers that there be “healthy competition in the profession.”
Industry groups have been pushing Congress to adopt some of the changes, but so far have not garnered significant support, and critics complain that the remarks from the SEC portend a retrenchment from the post-Enron reforms as those efforts gain traction.
SEC Clarifies Position on Preliminary Proxy Statement Executive Compensation Disclosure
On February 12, the Securities and Exchange Commission provided some guidance regarding the new executive compensation disclosure requirements in proxy statements this year. The guidance states that the Commission will not request a revised preliminary proxy statement nor deem the preliminary filing deficient such that the 10 calendar day waiting period prior to a Company filing a definitive proxy statement does not begin to run, so long as (i) the omitted executive and director compensation disclosure is included in the definitive proxy statement; (ii) the omitted disclosure does not relate to the matter or matters that caused the company to have to file preliminary proxy materials; and (iii) the omitted disclosure is not otherwise made available to the public prior to the filing of the definitive proxy statement.