(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 Proposes Sarbanes-Oxley Act Rules

The SEC proposed rules to implement provisions of the Sarbanes-Oxley Act. Proposals concerning Sections 404, 406 and 407 of the Act would require public companies to disclose information about internal control reports, company codes of ethics and audit committee financial experts. Proposed rule changes dealing with provisions of Section 303 would prohibit actions designed to improperly influence auditors.

Issuer and Management Disclosures

As proposed, companies would be required to include several new disclosures in their Exchange Act filings. Pursuant to Section 407, a company would be required to disclose the number and names of the financial experts serving on the company's audit committee and that they are independent of management, as determined by the company's board of directors. This proposal expands on the statutory mandate, which did not require the identification of such experts or the independence discussion.

With regard to Section 406, a company would be required to disclose whether the company has adopted a code of ethics for the company's principal executive officer and senior financial officers and any reasons for not doing so. This also expands on the statutory language, which applied only to senior financial officers. Companies must also amendments to and any waivers from the code of ethics relating to any of those officers disclose on a current basis.

Pursuant to Section 404, a company would be required to file, in its annual report, an internal control report of management stating 1) management's responsibilities for establishing and maintaining adequate internal controls and procedures for financial reporting for the company, 2) management's conclusions about the effectiveness of the company's internal controls and 3) procedures for financial reporting as of the end of the company's most recent fiscal year that the company's registered public accountant has attested to and reported on and 4) management's evaluation of the company's internal controls and procedures for financial reporting. Similar rules were also proposed with regard to registered investment companies under Sections 407 and 406, dealing with financial experts and codes of ethics. Under Section 405 of the Sarbanes-Oxley Act, the internal control report requirements of Section 404 do not apply to investment companies. The Commission also voted to propose rule amendments to implement Section 303 of the Sarbanes-Oxley Act.

Influence on Audits

Section 303(a) prohibits an issuer's officers, directors, and persons acting under the direction of an officer or director, from taking any action to fraudulently influence, coerce, manipulate or mislead the auditor of the issuer's financial statements for the purpose of rendering those financial statements materially misleading. Comments on all proposals should be received by the Commission within 30 days of their publication in the Federal Register.

The proposing releases will be published in a forthcoming REPORT .