On April 7, 2014, the SEC issued a second set of FAQs on the conflict minerals rule which is presented as Frequently Asked Questions 13-21. Most of the new FAQs provide guidance on the Independent Private Sector Audit (IPSA), which very few companies will be required to provide for this first reporting year. But, a couple FAQs give insights into how the “DRC conflict undeterminable” conclusion should be described and how to deal with products with multiple conflict minerals. Not surprisingly, the FAQs do not respond to questions that are part of the still ongoing legal challenge.
Despite this additional guidance, many of the most vexing questions remain and will not be answered before the June 2, 2014 filing date. This leaves reporting companies to exercise their best legal judgments on how to deal with the unanswered questions, some of which are fundamental to what is required and what will be reported.
A brief summary of the new FAQs is provided below, but you will want to review the guidance to understand the limitations of the answers. The numbers below correspond to the numbers of the questions/answers in the FAQs.
13. A non-CPA auditor is permitted to perform the IPSA.
14. If any of the reporting company’s products are “DRC conflict undeterminable,” an IPSA is not required.
15. If a reporting company describes any products as “DRC conflict undeterminable,” and, therefore, does not perform an IPSA, it cannot describe other products as “DRC conflict free.”
16. A product cannot be described as “conflict free” if it contains any conflict mineral whose source was not determined or if it was not possible to determine that the conflict mineral did not benefit or finance an armed group. Importantly, if a product contains a conflict mineral that did benefit or finance an armed group, it must be described as “having not been found to be ‘DRC conflict free.’”
17. The IPSA has 2 distinct objectives: (1) to express whether the design of the due diligence measures conform, in all materials respects, with the criteria of the nationally or internationally recognized framework (currently, the OECD Guidelines), and (2) to express whether the description of the due diligence measures performed is consistent with the process the reporting company actually undertook.
18. The IPSA is not required to opine on the reasonable country of origin inquiry.
19. If a product contains some conflict minerals from recycled or scrap sources and some that are not from recycled or scrap, the disclosure about the conflict minerals from recycled or scrap sources must be reported on the Form SD. The description of the due diligence and other required disclosure about the conflict minerals not from recycled or scrap sources must be reported in the Conflict Minerals Report.
20. Due diligence measures need not necessarily be carried out throughout the entire year covered by the report. And, the due diligence measures for a reporting year may begin before or extend beyond the reporting year.
21. The due diligence measures must be described in sufficient detail in the Conflict Minerals Report to allow the auditor to be able to form an opinion about whether the description is consistent with the measures that the reporting company actually performed, but the design of the due diligence need not be described in full in the Conflict Minerals Report.