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Corporation Finance Director and PCAOB Chair Speak at AICPA Conference
John White, the director of the SEC's Division of
Corporation Finance, reviewed what he characterized as the most significant
rulemaking in the past year --executive compensation disclosure --at the AICPA's
conference on SEC and PCAOB developments. The proposal garnered 22,000 comment
letters in response, the most of any SEC rule proposals, according to White. The
key features of the rulemaking include its principles-based theme, the new
Compensation Disclosure & Analysis and a compensation table that reflects
the total compensation of the named executives as one figure.
White emphasized that Regulation S-K Items 402 (executive
compensation), 404 (transactions with related persons) and 407 (corporate
governance) are disclosure rules and have no goals other than disclosure. The
CD&A, modeled after MD&A, is at the heart of the new rules and reflects
its principles-based theme. CD&A is filed, not furnished, he added, and it
is covered by the CEO and CFO certifications of Sarbanes-Oxley Act section 302.
Registrants must answer six questions in the CD&A. The
SEC's release provides 15 examples of issues that companies might consider for
inclusion in their CD&A. White said the examples are simply guidance and are
not mandatory. The time period that is covered by the CD&A is generally the
last fiscal year, but White said there may be events that have occurred in the
previous fiscal year or in the current year that should be disclosed to provide
context to the CD&A.
When the proxy season is over, White said the staff will
review the quality of the disclosure. Many companies can expect to receive a
"report card," he said.
White was asked why, if the new rules are principles-based,
the release was 436 pages. He said that half of the release was the "back
pages." The release was drafted before his arrival, he added, except for
the nine pages addressing the timing of options grants. White would not respond
to questions about perks because of the principles-based rules that require the
application of judgment in each case.
PCAOB Chairman Mark Olson opened the afternoon session of
the conference. He reviewed some of the areas on which the staff inspections
focus, including a look at whether the audit teams are sufficiently objective
and whether there are strains on individual partner capacity.
The staff looks at how audit teams are complying with their
responsibility to identify the risk of fraud by varying their audit procedures
and through the use of information technology. The staff also assesses the
quality of the concurring partner reviews and whether they reflect a truly
independent and objective assessment.
Olson said he is encouraged by the growth in size and skill
of the accounting firms following the Big Four. This gives small and medium
issuers, in particular, more choices, which is important for the resiliency of
the audit profession.
One of the PCAOB's priorities is to enhance its
coordination with its international counterparts. Coordination is imperative,
Olson said, given that 700 of the firms registered with the PCAOB are in
countries outside the U.S. Oversight bodies must work to minimize the burdens of
duplicative or contradictory regulations while fulfilling their statutory
mandates to investors and the public, according to Olson.
Referring to the increasingly global capital markets, Olson
said he firmly believes that balanced regulation attracts capital and builds
confidence in the markets. He remains optimistic about the strength of the U.S.
markets, due in part to their leadership in financial innovation.
Jacquelyn Lumb
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