Member Article

On January 23, 2003, the Securities and Exchange Commission (the “SEC”) published new rules under Section 407 of the Sarbanes-Oxley Act of 2002 that will require public companies to disclose whether they have at least one “audit committee financial expert” serving on their audit committees. This Client Alert does not cover the rules recently adopted under Section 407 of the Sarbanes-Oxley Act that apply to registered investment companies. Summary of New Rules If the company has an audit committee financial expert, then the company must disclose the name of the expert and whether the person is independent of management. In determining whether an audit committee member is independent, domestic companies will need to refer to the definition of independence contained in the listing standards of the NYSE, AMEX and the NASD, even if the company’s securities are not listed on the NYSE or AMEX or quoted on Nasdaq. The SEC has recently proposed rules that would standardize the definition of independence used by the NYSE, AMEX and the NASD. Foreign private issuers are not required to disclose whether an audit committee financial expert is independent until the proposed independence standard is finalized. If the company does not have an audit committee financial expert on the audit committee, then the company must disclose that it does not have an audit committee financial expert on the audit committee and explain why it does not have an audit committee financial expert on the audit committee. Compliance Dates The required disclosures must be made for public companies, other than small business issuers, in their annual reports for fiscal years ending on or after July 15, 2003. Small business issuers (those U.S. and Canadian issuers with less than $25 million in annual revenues and public float) are required to make the disclosures in their annual reports for fiscal years ending on or after December 15, 2003.