(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 Expected to Adopt Internal Control Rules

The SEC is expected to approve rules that were proposed in connection with the Sarbanes-Oxley Act at an open meeting scheduled for May 27, 2003. The rules would require a public company, other than registered investment companies, to include in their annual reports a report of management on the company's internal control over financial reporting.

Under the rules, the registered public accounting firm that audited the company's financial statements included in the annual report would be required to issue an attestation report on management's assessment of the company's internal control over financial reporting. Companies would be required to file the registered public accounting firm's attestation report as part of the annual report. In addition, the rules add a requirement that management evaluate, as of the end of each fiscal quarter, any change in the company's internal control over financial reporting that occurred during such quarter that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting.

The Commission will also consider whether to adopt amendments to the rules and forms under the Securities Exchange Act and the Investment Company Act to require issuers to provide the certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act as exhibits to the periodic reports to which they relate. In addition, the agency will consider whether to adopt new Rule 3a-8 under the Investment Company Act that would provide a non-exclusive safe harbor from the definition of investment company for certain bona fide research and development companies.