Yesterday, SEC Chair Jay Clayton, SEC Chief Accountant Sagar Teotia and Corp Fin Director William Hinman posted a “Statement on Role of Audit Committees in Financial Reporting and Key Reminders Regarding Oversight Responsibilities.” As the year draws to a close, given the vital role of audit committees in the financial reporting system, the Statement is intended to provide “observations and reminders on a number of potential areas of focus for audit committees. Issuers and independent auditors also should be mindful of these considerations with an eye toward ensuring that audit committees have the resources and support they need to fulfill their obligations.”
Happy New Year Everyone!
Recently, SEC Chief Accountant Sagar Teotia hinted at possible forthcoming changes to the auditor independence rules, remarking that, in connection with the recent changes related to lending relationships, the SEC “also received comments on other aspects of auditor independence rules. In conjunction with that feedback, the Chairman directed the staff to formulate recommendations to the Commission for possible additional changes to the auditor independence rules for potential rulemaking.” However, the nature of the potential changes remained something of a mystery. The proposal to amend the auditor independence rules has now been released. According to the press release issued today, the proposal is intended to modernize aspects of the independence rules to minimize the potential for “relationships and services that would not pose threats to an auditor’s objectivity and impartiality [to] trigger non-substantive rule breaches or potentially time consuming audit committee review of non-substantive matters.” It is important to keep in mind that violations of the auditor independence rules can have serious consequences not only for the audit firm, but also for the audit client. For example, an independence violation may cause the auditor to withdraw its audit report, requiring the audit client to have a re-audit by another audit firm. As a result, in most cases, inquiry into the topic of auditor independence should be a menu item on the audit committee’s plate. The comment period will be open for 60 days.
Reuters is reporting that the next SEC Commissioner will be Caroline Crenshaw, who is expected to be the Democratic nominee to fill the spot currently held by Robert Jackson. He is expected to leave the SEC next year.
Happy holidays everyone!
Corp Fin has posted two new CF Disclosure Guidance Topics. Topic No. 7, Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2, supersedes SLBs 1 and 1A and relates to the process for submission of requests for confidential treatment, not under the new streamlined approach adopted earlier this year (although the Topic does take up the new process for extensions), but rather under the old alternative approach that still lives but is now rarely used. Topic No. 8, which relates to Intellectual Property and Technology Risks Associated with International Business Operations, provides helpful guidance regarding disclosures that Corp Fin believes companies should consider with respect to intellectual property and technology risks that could arise in connection with international operations, especially in locations where protection of intellectual property may be a bit dicey. The new topics make clear that they are just that—staff guidance—and have no legal force or effect nor do they alter or amend applicable law or create new or additional obligations. Nevertheless, the new guidance, especially Topic No. 8 regarding IP risk disclosure, provides useful checklists of issues to consider and is definitely worth a look.
Happy holidays everyone!
SEC proposes new accredited investor definition and new rules for disclosure of payments by resource extraction issuers
At an open meeting this morning, the SEC proposed changes to the definition of “accredited investor,” as well as new rules relating to disclosure of payments by resource extraction issuers. As discussed below, Commissioners Robert Jackson and Allison Lee dissented on both of these proposals. Notably, the responses of all the Commissioners to these proposals highlighted their sharply divergent views on the role of government and the fundamental purposes of the securities laws. Both proposals will be open for comment for 60 days.