CORPORATE OVERSIGHT AND ACCOUNTING REFORM: AN OVERVIEW OF THE SARBANES-OXLEY ACT OF 2002
By Brent Eller and Marcus Williams
[July 2002]

On Tuesday, July 30, President Bush signed into law the Sarbanes-Oxley Act of 2002. The Act, which Congress recently passed in the wake of Enron and a number of other recent corporate governance and accounting scandals, provides for private oversight of accounting firms that perform public company audits and imposes many new obligations on public companies and their officers and directors. Because the Act creates significant additional oversight and enforcement responsibilities for the Securities and Exchange Commission, it provides an additional $98,000,000 in funding to enable the SEC to add at least 200 additional professionals to provide oversight of auditors and audit services and improve investigative and enforcement efforts.

This Advisory Bulletin provides a general overview of many of the Act's key provisions. For additional information or to seek guidance about specific issues, please contact one of Davis Wright Tremaine's (DWT) corporate finance attorneys. The breadth of the Act and the novelty of some of its requirements suggest strongly that the specific requirements to be imposed by the Act will actually be promulgated by the SEC in administrative regulations. Watch for additional DWT Advisory bulletins as these regulations are proposed and finalized. Also, we are currently developing a concise guide to public company compliance with the major provisions of the Act.

CORPORATE RESPONSIBILITY

Public Company Audit Committees

Amending the Securities Exchange Act of 1934, the Sarbanes-Oxley Act provides that within 270 days after its enactment, the SEC must establish rules prohibiting the listing by a national securities exchange or national securities association of any security of an issuer that does not comply with the following requirements:

• The issuer's audit committee must be directly responsible for the appointment, compensation, and oversight of the work of any registered public accounting firm employed by the issuer to prepare or issue an audit report or perform related work. The auditor must report directly to the audit committee.
  
• Each audit committee member must be an independent director. To be considered independent, the audit committee member may not, other than in his or her capacity as a board or committee member, accept any compensation from the issuer or be an affiliated person of the issuer or any subsidiary of the issuer.
  
• The audit committee must establish procedures for the receipt, retention and treatment of accounting- and audit-related complaints and the confidential, anonymous submission by the issuer's employees of concerns regarding questionable accounting or auditing matters.
  
• The audit committee must have the authority to engage independent counsel and other advisers.
  
• The issuer must provide funding, as determined by the audit committee, to compensate the audit firm and any advisers employed by the audit committee.
  

Corporate Responsibility for Financial Reports

Under the Act, the SEC must establish rules requiring, for each company that files periodic reports under Section 13 or 15(d) of the Exchange Act, that the principal executive officer and principal financial officer certify in each annual or quarterly report filed under those sections that:

• the signing officer has reviewed the report;
  
• based on the officer's knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made not misleading;
  
• based on the officer's knowledge, the financial statements and other financial information in the report fairly present in all material respects the issuer's financial condition and results of operations;
  
• the signing officers are responsible for establishing and maintaining internal controls;
  
• the signing officers have designed internal controls to ensure that material information relating to the issuer and its consolidated subsidiaries is made known to such officers;
  
• the signing officers have evaluated the effectiveness of those internal controls within 90 days prior to the report;
  
• the signing officers have presented in the report their conclusions about the effectiveness of those internal controls based on their evaluation;
  
• the signing officers have disclosed to the issuer's auditors and audit committee all significant deficiencies in the design or operation of internal controls, any material weaknesses in internal controls, and any fraud that involves management or other employees who have a significant role in the issuer's internal controls; and
  
• the signing officers have indicated in the report whether or not there were significant changes in internal controls or other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions taken with respect to significant deficiencies and material weaknesses.
  

These rules are required to be effective within 30 days after the Act becomes law; accordingly, issuers whose fiscal year is the calendar year must make the required disclosures and certifications beginning with their quarterly reports for the period ending September 30, 2002.

Forfeiture of Bonuses and Profits

The Act provides that if an issuer must prepare an accounting restatement due to its material noncompliance, as a result of misconduct, with any financial reporting requirement under the securities laws, the chief executive officer and chief financial officer of the issuer must reimburse the issuer for any bonus, incentive-based or equity-based compensation received by that person from the issuer during the 12 months following the first public issuance or filing of the document embodying the financial reporting requirement, and for any profits realized from the sale of securities of the issuer during that 12-month period.

Prohibition of Insider Trading During Pension Fund Blackout Periods

Except as otherwise provided by SEC rules, the Act prohibits directors and executive officers of an issuer from trading in securities of the issuer during any blackout period, if the director or officer acquired the security in connection with his or her service or employment as a director or executive officer. Any profit received by a person who engages in a prohibited trade shall be recoverable by the issuer.

For purposes of this rule, a "blackout period" is any period of more than three consecutive business days in which 50 percent or more of the participants or beneficiaries under the issuer's "individual account plans" (401(k) and other defined contribution pension plans, except for single-participant plans) are prohibited from trading in equity securities held in the plan. The SEC may adopt regulations to exclude from this definition regularly scheduled periods in which participants may not trade in the issuer's equity if they are incorporated in the plan and timely disclosed to the issuer's employees.

If a director or executive officer is subject to this prohibition with respect to a blackout period, the issuer must timely notify the director or officer and the SEC of the blackout period. In addition, the plan administrator must notify the affected plan participants and beneficiaries of the blackout period, normally not less than 30 days prior to commencement.

Loans to Directors and Executive Officers Prohibited

The Act amends the Exchange Act to make it unlawful for any issuer, directly or indirectly (including through a subsidiary) to extend or maintain credit, arrange for the extension of credit, or renew an extension of credit, in the form of a personal loan to or for any director or executive officer of that issuer. The Act exempts existing extensions of credit so long as they are not materially modified or renewed after the enactment of the Act, as well as certain consumer loans that are made in the ordinary course of the issuer's consumer credit business.

Fair Funds for Investors

The Act provides that if the SEC obtains an order requiring disgorgement against a person for a violation of securities laws, rules or regulations thereunder, any civil penalty obtained from such person may, at the SEC's direction, be added to the disgorgement fund for the benefit of victims of the violation.

Rules of Professional Responsibility for Attorneys

The Act requires the SEC to issue rules within 180 days that set forth minimum standards of professional responsibility for attorneys appearing and practicing before the SEC. These rules must include provisions requiring an attorney to report to the company's chief legal counsel or CEO any evidence of a material violation of securities law, a breach of fiduciary duty, or similar violation by the company or any agent of the company. If the counsel or CEO does not respond appropriately, the attorney must report the evidence to the company's audit committee, another committee comprised solely of outside directors, or the company's board of directors.

ENHANCED FINANCIAL DISCLOSURES

Disclosures in Periodic Reports

The Act amends Section 13 of the Exchange Act to add the following requirements for periodic reports filed by public companies:

• Each financial report that contains financial statements and that is required to be prepared in accordance with (or reconciled to) GAAP must reflect all material correcting adjustments that have been identified by a registered public accounting firm in accordance with GAAP and the SEC's rules and regulations.
  
• Within 180 days after enactment of the Act, the SEC must issue final rules providing that each annual and quarterly report required to be filed with the SEC must disclose all material off-balance sheet transactions that may have a material current or future effect on the issuer's financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues and expenses.
  
• Within 180 days after enactment of the Act, the SEC must issue final rules providing that pro forma financial information included in any report filed with the SEC, or in any public disclosure or release, shall be presented in a manner that does not contain an untrue statement of a material fact or omit to state a material fact necessary to make the pro forma financial information not misleading, and reconciles it with the financial condition and results of operations of the issuer under GAAP.
  

Disclosures of Transactions Involving Management and Principal Stockholders

Section 16(a) of the Exchange Act currently requires an officer or director of an issuer, or a 10 percent beneficial owner of any registered class of an issuer's equity securities (a "principal stockholder"), to file an initial statement of beneficial ownership at the time the security is registered on a national securities exchange, by the effective date of a registration statement filed under the Exchange Act, or within 10 days after such person becomes a beneficial owner, director or officer. The reporting person also must report ownership and changes in ownership within ten days after the close of any calendar month in which a purchase or sale occurs.

The Act amends Section 16(a) by eliminating the calendar month-based reporting system for changes in ownership described above. Instead, the Act requires that an officer, director, or principal stockholder file a statement within two business days after the date of any transaction that results in a change in ownership (or such other time as the SEC may establish by rule). This statement must indicate the filer's ownership of the issuer's equity securities at the date of filing and any changes in ownership that have occurred since the filer's most recent filing. Beginning within one year after enactment of the Act, these statements will be required to be filed electronically on the SEC's EDGAR (Electronic Data Gathering and Retrieval) database and on the issuer's corporate website (if the issuer maintains a corporate website) not later than the end of the business day following the filing. This amendment to Section 16(a) is effective 30 days after enactment of the Act.

Management Assessment of Internal Controls

The SEC is required to prescribe rules requiring each annual report required of an issuer under Section 13 or 15(d) of the Exchange Act to contain an internal control report. This report must state management's responsibility for establishing and maintaining an adequate internal control structure and financial reporting procedures and must contain an assessment, as of the end of the issuer's most recent fiscal year, of the effectiveness of the issuer's internal control structure and financial reporting procedures. Each registered public accounting firm that prepares or issues the issuer's audit report must attest to, and report on, the assessment made by the issuer's management.

Code of Ethics for Senior Financial Officers

The SEC must issue rules requiring each issuer to disclose in its Exchange Act reports whether or not (and if not, the reason therefor) the issuer has adopted a code of ethics for its senior financial officers. The SEC must propose rules on this subject within 90 days after enactment of the Act and must issue final rules within 180 days after enactment.

Disclosure of Audit Committee Financial Expert

The SEC must issue rules requiring each issuer to disclose in its periodic reports under the Exchange Act whether or not (and if not, the reason therefor) the issuer's audit committee has at least one member who is a "financial expert" (as defined by the SEC). The SEC must propose rules on this subject within 90 days after enactment of the Act and must issue final rules within 180 days after enactment.

Enhanced Review of Periodic Reports

The SEC is required to review on a regular and systematic basis (not less than once every three years) the disclosures made by each issuer reporting under Section 13 of the Exchange Act that has a class of securities listed on a national exchange or traded on an automated quotation facility of a national securities association.

Real Time Issuer Disclosures

The SEC may adopt rules requiring an issuer reporting under Section 13 or 15(d) of the Exchange Act to disclose to the public, on a rapid and current basis, additional information concerning material changes in the issuer's financial condition or operations. These disclosures must be made in plain English and may include trend and qualitative information and graphic presentations.
In June 2002 the SEC promulgated a series of proposed rule amendments that would have expanded the range of events and circumstances that would require the filing of a Current Report on Form 8-K, and proposed reducing to two days the five- to fifteen-day timeline currently applicable to Form 8-K filings. While the passage of the Act will likely delay implementation of those rule amendments, issuers should expect the Congressional mandate to strengthen support for significant modification of the Form 8 K filing requirements.

PUBLIC COMPANY ACCOUNTING OVERSIGHT

The Act establishes a Public Company Accounting Oversight Board under the oversight of the Securities and Exchange Commission. The Oversight Board will be established by regulation within 270 days after the Act becomes law. The Oversight Board's general duties include:

• registering public accounting firms that prepare audit reports for public companies;
  
• establishing standards for public company audit reports;
  
• inspecting registered public accounting firms;
  
• investigating and conducting disciplinary proceedings concerning registered public accounting firms and persons associated with those firms; and
  
• enforcing the Act, the Oversight Board's rules, professional standards, and the securities laws relating to audit reports and accountants' obligations and liabilities.
  

Board Composition; SEC Oversight; Funding

The Oversight Board will consist of five members appointed by the SEC. Only two members may be current or former certified public accountants, and an accountant may serve as the chairperson of the Oversight Board only if he or she has not practiced accountancy in the five years prior to being appointed to the Oversight Board. Board members will serve full-time and may not engage in other professional or business activities. Each Board member will serve a five-year term, except that the initial Board members will have staggered terms. No person may serve more than two terms as a Board member.

The SEC will have supervisory and enforcement authority for the Oversight Board and generally will approve and amend its rules. Sanctions imposed by the Oversight Board are subject to SEC review and may be modified by the SEC. Finally, in certain cases the SEC may censure or impose limitations on the Oversight Board, or censure or remove any Board member.

The Oversight Board's operations will be funded by annual accounting support fees imposed upon public companies, and by direct assessments on public auditing firms registered with the SEC as described below. Issuer fees will be based on the issuers' average monthly equity market capitalization.

Accounting Firm Registration

Beginning 180 days after the SEC determines that the Oversight Board has the capacity to carry out its duties under the Act, only a "registered public accounting firm" may prepare or issue, or participate in the preparation or issuance of, any public company audit report.¹ Registration requires the firm to submit, at a minimum, the following information:

• the names of the issuers for which the firm prepared or issued audit reports during the preceding calendar year and for which the firm expects to prepare or issue audit reports during the current calendar year;
  
• the annual fees received by the firm from each issuer for audit services, other accounting services, and non-audit services;
  
• other current financial information for the firm's most recently completed fiscal year, as requested by the Oversight Board;
  
• a statement of the firm's quality control policies for its accounting and auditing practices;
  
• a list of all accountants associated with the firm who participate in or contribute to the preparation of audit reports;
  
• information relating to criminal, civil, or administrative actions or disciplinary proceedings pending against the firm or any associated person in connection with any audit report; and
  
• copies of any disclosure filed by an issuer with the SEC during the preceding calendar year which discloses accounting disagreements between the issuer and the firm in connection with an audit report prepared by the firm for the issuer.
  

Each registered public accounting firm must also consent to cooperate with any request for testimony or the production of documents made by the Oversight Board. Firms will be required to file annual reports with the Oversight Board to update the information contained in their registration application. All registration applications and annual reports will be made available for public inspection, although the Oversight Board will not disclose confidential or proprietary information.

Auditing, Quality Control, and Independence Standards; Inspections

The Oversight Board will establish auditing and attestation, quality control, and ethics standards to be used by registered public accounting firms in preparing and issuing audit reports. The Oversight Board may fulfill this responsibility by adopting standards proposed by one or more professional groups of accountants or advisory groups.

The Oversight Board is required to inspect registered public accounting firms to assess their compliance with the Act, the Oversight Board's rules, the SEC's rules, and professional standards. Firms that regularly provide audit reports for more than 100 issuers are to be inspected annually, and other firms are to be inspected at least once every three years, in each case unless the Oversight Board adopts rules providing for different inspection schedules. The Oversight Board's written inspection reports will be transmitted to the SEC, the appropriate state regulatory authorities, and, subject to certain confidentiality limitations, will be made available to the public.

Investigations and Disciplinary Proceedings

The Oversight Board will establish investigating and disciplinary procedures for registered public accounting firms and their associated persons. The Oversight Board will have the power to require testimony by the firm or any associated person with respect to any relevant or material matter and to require the production of audit work papers and other documents in the possession of the firm or any other person (including a client of the firm). The Oversight Board will also be able to request that the SEC subpoena the testimony of, or production of documents by, any person if the Oversight Board considers such testimony or documents to be relevant or material. If a firm or associated person does not cooperate with an Oversight Board investigation, the Board may suspend or revoke the firm's registration, suspend or bar the associated person from being associated with a registered public accounting firm, or impose other, lesser sanctions.

Disciplinary proceedings by the Oversight Board will not be public, unless the Oversight Board orders otherwise for good cause and the parties to the proceeding agree. The sanctions that the Oversight Board may impose include the following:

• temporary suspension or permanent revocation of a firm's registration;
  
• temporary or permanent suspension or bar of a person from further association with a registered public accounting firm;
  
• temporary or permanent limitation on the activities, functions, or operations of such firm or person;
  
• civil money penalties for each violation of up to $100,000 for a natural person or $2,000,000 for an entity ²;
  
• censure;
  
• required additional professional education or training; or
  
• any other appropriate sanction provided for in the Oversight Board's rules.
  

The first three of the sanctions and penalties listed above may only be imposed for intentional, knowing, or reckless violations or repeated negligent violations. Sanctions imposed by the Oversight Board are reported to the SEC, any appropriate state regulatory authority, and the public.

Accounting Standards

Under Section 19(a) of the Securities Act of 1933 and Section 13(b) of the Securities Exchange Act of 1934, the SEC has the authority to prescribe accounting standards for reports required under the Securities Act and the Exchange Act. The Act amends the Securities Act to provide that, for purposes of carrying out its accounting standards-setting authority under the Securities Act and the Exchange Act, the SEC may recognize as "generally accepted" any accounting principles established by a standard setting body that the SEC determines is capable of improving the accuracy and effectiveness of financial reporting and the protection of investors under the securities laws and that meets certain other criteria established by the Act. This standard setting body is to be funded in the same manner as the Oversight Board, through support fees paid by issuers.

AUDITOR INDEPENDENCE

Limitations on Non-Audit Services; Preapproval Requirement

The Act amends the Exchange Act to provide that a registered public accounting firm (and, to the extent determined appropriate by the SEC, any associated person) that performs an audit required by the Exchange Act, by SEC rules promulgated under the Exchange Act, or, beginning 180 days after the commencement of the operations of the Oversight Board, by the rules of the Oversight Board, may not at the same time perform any of the following non-audit services:

• bookkeeping or other services related to the client's accounting records or financial statements;
  
• financial information systems design and implementation;
  
• appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
  
• actuarial services;
  
• internal audit outsourcing services;
  
• management functions or human resources;
  
• broker or dealer, investment adviser, or investment banking services;
  
• legal services and expert services unrelated to the audit; and
  
• any other service the Oversight Board determines, by regulation, is impermissible.
  

Non-audit services other than those listed above, including tax services, may be performed by the auditor only if they are approved in advance by the issuer's audit committee. ³

Audit Partner Rotation; Conflicts of Interest

The Act provides that a registered public accounting firm may not provide audit services to an issuer if the lead or coordinating audit partner, or the audit partner responsible for reviewing the audit, has performed audit services for the issuer in each of the five previous fiscal years of the issuer. In addition, a firm may not provide audit services if a CEO, controller, CFO, chief accounting officer, or any person serving in an equivalent position for the issuer, was employed by that audit firm and participated in any capacity in the audit of the issuer during the preceding year.

Auditor Reports to Audit Committees

Under the Act, an audit firm must provide timely reports to the issuer's audit committee of the critical accounting policies and practices to be used by the auditor, all alternative treatments of financial information within generally accepted accounting principles ("GAAP") that have been discussed with management of the issuer, ramifications of the use of such alternatives, and the treatment preferred by the auditing firm, and all other material written communications between the auditing firm and the issuer's management.

Regulations

The SEC is required to issue regulations to carry out the foregoing provisions within 180 days after the enactment of the Act.

ANALYST CONFLICTS OF INTEREST

The Act amends the Exchange Act by adding a new section that addresses securities analysts and their research reports. Under this new section, the SEC, or a registered securities association or national securities exchange, if authorized and directed by the SEC, must adopt, within one year after the enactment of the act, rules to address securities analysts' conflicts of interest. These rules are meant to foster public confidence in securities research by restricting prepublication clearance or approval of research reports by broker or dealer employees who are engaged in investment banking activities or are not directly responsible for investment research, limiting the supervision and compensatory evaluation of analysts to broker or dealer employees who are not engaged in investment banking activities, and by prohibiting retaliation by broker or dealer employees who are engaged in investment banking activities against an analyst who prepares an unfavorable research report. These rules also are intended to define periods during which brokers or dealers who participate in a public offering of securities as underwriters or dealers should not cover those securities, establish safeguards to ensure that analysts are separated from the review, pressure, or oversight of persons involved in investment banking activities, and address other issues that the SEC or such association or exchange determines are appropriate.

ENHANCED CRIMINAL PENALTIES

Corporate and Criminal Fraud Accountability Act of 2002

Title VIII of the Act, called the "Corporate and Criminal Fraud Accountability Act of 2002," provides that any person who knowingly alters, destroys, or falsifies any record, document or other tangible object with the intent to impede, obstruct, or influence the investigation or administration of any matter within the jurisdiction of any United States department or agency or any bankruptcy case is to be fined, imprisoned for up to 20 years, or both. This title also provides for fines and/or imprisonment for up to 10 years for any accountant who knowingly and willfully fails to maintain all audit or review workpapers relating to a public company audit for five years after the end of the fiscal period covered by the audit or review, or who knowingly and willfully violates any rule or regulation promulgated by the SEC relating to the retention of relevant records relating to such an audit or review. In addition, this title provides that any person who defrauds or attempts to defraud shareholders of publicly traded companies may be fined, imprisoned for up to 25 years, or both.

This title also provides that any liability for violation of federal or state securities laws or any regulation or order issued thereunder, or any common law fraud, deceit or manipulation in connection with the purchase or sale of a security, will not be dischargeable in bankruptcy if such liability results from a federal or state judicial or administrative proceeding, a settlement agreement entered into by the debtor, or a court or administrative order.

Furthermore, this title changes the statute of limitations for securities fraud claims from four years to the earlier of two years after discovery of the facts constituting the violation, or five years after the violation. This change applies to proceedings commenced after the enactment of the Act.

Finally, this title provides protection to "whistleblowers" by prohibiting retaliatory action against an employee of a publicly traded company who provides information, otherwise assists in an investigation, or participates in a proceeding regarding conduct the employee reasonably believes constitutes federal mail fraud, wire fraud, or bank fraud or violates any SEC rule or regulation or any provision of federal law relating to fraud against shareholders. If an employer takes retaliatory action against a whistleblower employee, the employee is to be made whole, including reinstatement, back pay with interest, and compensation for special damages, including litigation costs, expert witness fees, and reasonable attorney fees.

White-Collar Crime Penalty Enhancements

The Act increases a number of penalties for white-collar crimes, including the following:

• As discussed above, the chief executive officer and chief financial officer of an issuer are required to include in the issuer's periodic report a statement certifying that the report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act and that the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the issuer. An executive who certifies any such statement knowing that the periodic report does not meet these requirements is subject to fines of up to $1,000,000 and/or imprisonment of up to 20 years. If the executive willfully makes this false certification, the maximum fine is increased to $5,000,000 and the maximum prison term is increased to 20 years.
  
• Anyone who attempts or conspires to commit a fraud offense (under Federal law) is subject to the same penalties as one who actually commits the offense.
  
• The maximum sentences for mail and wire fraud (not involving a financial institution) are increased from five years to 20 years.
  
• The maximum criminal penalties for a willful violation of the reporting and disclosure requirements under ERISA are increased from fines of up to $5,000 and/or imprisonment of up to one year for individuals and fines of up to $100,000 for entities to fines of up to $100,000 and/or imprisonment of up to 10 years for individuals and fines of up to $500,000 for entities.
  

Corporate Fraud Accountability

The Act amends the Exchange Act to provide that if the SEC determines in the course of an investigation involving possible securities law violations by an issuer or any of its directors, officers, partners, controlling persons, agents, or employees that it is likely that the issuer will make extraordinary payments to any of these persons, the SEC may petition a court for an order requiring the issuer to escrow these payments for 45 days. The court may extend this period for up to an additional 45 days. If the issuer or any of these persons is charged with a securities law violation before the order expires, the court may permit the order to remain in effect until the legal proceedings are concluded.

The Act also permits the SEC, in any cease-and-desist proceeding under the Exchange Act or the Securities Act, to issue an order prohibiting any person who has violated Section 10(b) of the Exchange Act or Section 17(a)(1) of the Securities Act, or the rules and regulations promulgated thereunder, from acting as an officer or director of a public company. The Act increases the maximum criminal penalties for persons who willfully violate the Exchange Act or who willfully and knowingly make or cause to be made a false or misleading statement of material fact in any filing made under the Exchange Act from fines of up to $1,000,000 and/or imprisonment of up to 10 years for individuals and fines of up to $2,500,000 for entities to fines of up to $5,000,000 and/or imprisonment of up to 20 years for individuals and fines of up to $25,000,000 for entities.

CONCLUSION

The Sarbanes-Oxely Act of 2002 represents an important step in Congress' attempt to address a wide variety of perceived misdeeds by and among issuers, their audit firms, and investment banking and securities firms. While the reforms appear to be both sweeping and specific, the vast majority of the Act's provisions will require the adoption of administrative rules by the SEC, many of which will not likely be effective for some time.

However, it is important to note that a number of the Act's requirements - including the modification of the filing requirements for Section 16 reporting persons, the CEO and CFO certification requirements for financial statements included in Exchange Act reports, and various accountability provisions, will go into effect in the very near future. Accordingly, we urge you to contact your Davis Wright Tremaine corporate finance attorney to address specific questions about the Act and the supporting regulations.

FOR FURTHER INFORMATION, PLEASE CONTACT THE AUTHORS:

Brent Eller
brenteller@dwt.com
(206) 628-7786

Marcus Williams
marcuswilliams@dwt.com
(503) 778-5370

This Corporate Finance Advisory Bulletin is a publication of the Business Transactions/Corporate Finance Group of Davis Wright Tremaine LLP. Our purpose in publishing this Advisory Bulletin is to inform our clients and friends of developments in business, corporate finance and securities laws. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.

FOOTNOTES:

1Foreign public accounting firms are also subject to the Act and the rules of the Oversight Board and SEC to the same extent as any domestic public accounting firm. The Oversight Board may, by rule, determine that a foreign public accounting firm that does not issue audit reports but plays a substantial role in preparing and furnishing audit reports for particular issuers should be subject to the Oversight Board's registration and oversight requirements under the Act.

2These limits are increased to $750,000 and $15,000,000 per violation, respectively, in the case of intentional, knowing, or reckless violations or repeated negligent violations.

3This preapproval is not required if (i) the total amount of non-audit services provided to the issuer by the auditor is not more than five percent of the total amount paid by the issuer to the auditor in that fiscal year, (ii) the issuer did not recognize at the time of the audit that the services were non-audit services, and (iii) the services are promptly brought to the attention of the audit committee and are approved prior to the completion of the audit.

return to Advisory Bulletins main page