(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.)

Bush Administration Unveils Corporate Governance Initiative

The Bush Administration has revealed a ten-point plan aimed at improving corporate responsibility and shareholder protection by providing better information to investors, holding corporate officers more accountable; and developing a stronger, more independent audit system. The president unveiled the initiative after hearing the recommendations of an administration working group on financial markets consisting of the heads of the SEC, Treasury, the Federal Reserve Board, and the CFTC.

The plan contains two key points for providing better information to investors:

• Public companies should provide investors with quarterly information that enables them to judge a firm's financial performance, condition, and risks. The information should include what "a reasonable investor would find necessary to assess the company's value, without compromising competitive secrets" and should be written in "plain English."

• Investors should have prompt access to critical information. The SEC would expand the list of significant events requiring prompt disclosure between reporting periods. "Investors ought to have access to the kind of information that management would have relied upon for its most significant decisions," noted a senior administration official.

Four parts of the plan center on making corporate officers more accountable. "Reform should begin with accountability, and reform should start at the top," the president said in announcing the plan at a business awards ceremony. These four key points include:

• CEOs should personally vouch each quarter for the accuracy and fairness of their companies' public disclosures, including their financial statements. Currently, CEOs typically sign only a bare-bones certification regarding the annual financial statements.

• CEOs or other officers should not be allowed to profit from erroneous financial statements. Bonuses and other incentive-based forms of compensation would be disgorged in cases of accounting restatements resulting from misconduct.

• The SEC should have the authority to ban individuals from serving as officers or directors of publicly-held corporations if they engage in serious misconduct.

• Corporate leaders should be required to tell the public within two business days of transactions with the company involving the purchase or sale of company stock for personal gain.

The last four points of the initiative center on the audit system.

• The SEC should establish guidelines for audit committees to prohibit an external auditor from performing any other service to an audit client, if the service compromises the independence of the audit. The SEC would also issue prohibitions against the performance by an outside auditor of internal audit functions for the same client. The audit committees would directly report their recommended choice of auditor to the shareholders.

• Under SEC supervision, an independent regulatory board would be established to develop standards of professional conduct and competence. The board would have the ability to monitor, investigate and enforce its ethics principles by punishing individual offenders, if necessary. The board should be represented primarily by members outside the accounting profession, according to an administration official.

• The SEC should exercise broader oversight of FASB to help ensure that accounting standards are more responsive to the needs of investors. The Commission would insure FASB's independence and require prompt promulgation of standards reflecting economic reality rather than compliance with technical requirements.

• A firm's accounting systems should be compared with the best industry practices, not simply against minimum standards. Under this proposal, auditors would be required to compare the quality of a company's financial controls with the best practices of the industry and communicate its findings to the audit committee. In turn, the audit committee would be obligated to discuss these findings and the improvement of practices with management, the board of directors, and the auditor, and to act independently to require necessary improvement.