(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 Audit Proposals

At an open meeting scheduled for November 19, 2002, the SEC will consider whether to propose amendments to implement Section 802 of the Sarbanes-Oxley Act. These proposed rules would specify the information that must be retained by auditors for a five-year period subsequent to the completion of an audit or review of a registrant's financial statements. In particular, the proposed rules would specify that auditors should retain workpapers and other documents that form the basis of the audit or review and memoranda, correspondence, communications, other documents, and records, including electronic records, which are created, sent or received in connection with the audit or review and contain conclusions, opinions, analyses or financial data related to the audit or review.

Auditor Independence Proposals

The agency will also decide whether to propose amendments to its existing requirements regarding auditor independence to enhance the independence of accountants that audit and review financial statements and prepare attestation reports filed with the SEC. The proposals would be issued pursuant to Section 208(a) of the Sarbanes-Oxley Act.

The rules under consideration would 1) revise existing regulations related to auditor independence and the performance of non-audit services for audit clients which would impair an accounting firm's independence, 2) require that an issuer's audit committee pre-approve all audit and non-audit services provided to the issuer by the auditor of an issuer's financial statements, 3) prohibit partners on the audit engagement team from providing audit services to the issuer for more than five consecutive years, 4) prohibit an accounting firm from auditing an issuer's financial statements if certain members of management of that issuer had been members of the accounting firm's audit engagement team within the one-year period preceding the commencement of audit procedures, 5) require that the auditor of an issuer's financial statements report certain matters to the issuer's audit committee, including critical accounting policies used by the issuer and 6) require disclosures to investors of information related to the audit and non-audit services provided by, and fees paid by the issuer to, the auditor of the issuer's financial statements.

In addition, under the proposals to be considered, an accountant would not be independent from an audit client if any partner, principal or shareholder of the accounting firm who is a member of the engagement team received compensation based directly on any service provided or sold to that client. This would apply to all services other than audit, review and attestation services.

Money Laundering Report to Be Considered

The SEC will also consider at the open meeting a recommendation to issue a report to Congress on applying the anti-money laundering requirements of the Bank Secrecy Act to investment companies, jointly with the Department of the Treasury and the Federal Reserve Board, as required by Section 356(c) of the USA PATRIOT Act. The proposed report would recommend regulations to apply the requirements of the Bank Secrecy Act to investment companies, including certain unregistered investment companies.