SEC Proposes Rules on Disclosure of Internal Controls, Codes of Ethics and Financial Experts on Audit

CLIENT MEMORANDUM SEC PROPOSES RULES ON DISCLOSURE OF INTERNAL CONTROLS, CODES OF ETHICS AND FINANCIAL EXPERTS ON AUDIT COMMITTEES 1The Securities and Exchange Commission (“SEC”) recently proposed rules to implement Sections 404, 406 and 407 of the Sarbanes-Oxley Act of 2002 (the “Act”) that would require public companies to include the following disclosures in their annual reports filed with the SEC under the Securities Exchange Act of 1934 (the “Exchange Act”): The number and names of the company’s audit committee members that the board of directors has determined are “financial experts,” and whether they are independent of management, whether or not (and if not, why not) the company has adopted a code of ethics governing its chief executive officer and senior financial officers, and a management report assessing the effectiveness of the company’s internal controls and procedures for financial reporting and an accountant attestation of such report. The SEC has requested comments on these proposed rules on or before November 29, 2002. The Act requires the SEC to issue final rules regarding the disclosure of codes of ethics and audit committee “financial experts” by January 26, 2003. Absent any special transition provisions, these rules could therefore apply to fiscal year 2002 annual reports. Rules regarding the internal control report would be effective beginning with annual reports filed for fiscal years ending on or after ...