(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

SEC to Consider Sarbanes-Oxley Act Proposals at Open Meeting

At an open meeting scheduled for October 16, 2002, the SEC will consider rulemaking proposals relating to the Sarbanes-Oxley Act. One proposal would relate to Sections 404, 406 and 407 of the act. The proposed rules to be considered at the meeting would require companies to include specific disclosures mandated by the Sarbanes-Oxley Act in their Exchange Act filings.

Issuer and Management Disclosures

Section 404, which was intended to enhance the quality of reporting and to increase investor confidence, requires that annual reports filed with the SEC must be accompanied by a statement by company management that management is responsible for creating and maintaining adequate internal controls. Management must also present its assessment of the effectiveness of those controls.

Under Section 406, companies must disclose whether they have adopted a code of ethics for senior financial officers and to disclose the reasons if they did not do so. In addition, the act requires immediate disclosure of any change in or waiver of the company's code of ethics. Disclosure may be by filing a Form 8-K with the SEC, by the Internet or by other electronic means.

Section 407 requires the SEC to adopt rules requiring companies to disclose whether their audit committees include among their members at least one financial expert. In defining "financial expert," the act requires the SEC to must consider whether a person understands Generally Accepted Accounting Principles and financial statements, has experience preparing or auditing financial statements, has experience with internal accounting controls and understands audit committee functions.

Influence on Audits

Other proposals to be considered would relate to Section 303 of the Sarbanes-Oxley Act. This provision makes it unlawful for any corporate officer or director, or person acting under their direction, to fraudulently influence, coerce, manipulate, or mislead any accountant engaged in preparing an audit of that company, for the purpose of rendering the audit report misleading.