International Journal of Disclosure and Governance Volume 2 Number 1

The US Sarbanes–Oxley Act of 2002: Summary and update for non-US issuers

Alexander F. Cohen* and D. Jamal Qaimmaqami Received: 26th October, 2004

*Latham & Watkins, 99 Bishopsgate, London EC2M 3XF, UK; Tel: +44(0) 7710 1014; E-mail: [email protected]

Alexander F. Cohen is a partner in the London time, the US Securities and Exchange office of Latham & Watkins. Latham & Watkins Commission (SEC) has issued a host of rules operates as a limited liability partnership world- under the Act. wide with affiliates in the UK and Italy, where the Many companies have found it difficult practice is conducted through an affiliated multi- enough coping with the mass of new national partnership. regulations and requirements that the Act has spawned. But the largest challenge lies D. Jamal Qaimmaqami is an associate in the London office of Latham & Watkins. ahead — namely, the implementation of the internal control provisions of Sarbanes–

ABSTRACT Oxley. For foreign private issuers (a term KEYWORDS: US Sarbanes–Oxley Act of that covers most non-US issuers, other than 2002, audit committees, foreign private governments), those provisions take full issuers, internal control effect for fiscal years ending on or after 15th July, 2005. This paper summarises the key aspects of the US This paper will summarise the internal Sarbanes–Oxley Act of 2002 (‘the Act’), as it control rules that will take effect in 2005. It applies to foreign private issuers. The authors focus will also outline the other key portions of first on internal control and lay out the requirements Sarbanes–Oxley relevant to foreign private of Section 404 of the Act as well as the Public issuers, as they apply today. Company Accounting Oversight Board’s Auditing Standard No. 2 (governing internal control audits). BACKGROUND The paper also highlights the provisions of the Act covering central topics such as chief executive and chief Who is subject to Sarbanes–Oxley? financial officer certification, non-GAAP financial The Sarbanes–Oxley Act applies to all measures, off-balance sheet and other MD&A dis- issuers — including foreign private issuers closure, standards relating to listed company audit — that: committees, auditor independence rules, attorney conduct and liability. + have registered securities under the 1934 Act; INTRODUCTION + are required to file reports under Section On 30th July, 2002, President Bush signed 15(d) of the 1934 Act; or the US Sarbanes–Oxley Act of 2002 (here- + have filed a registration statement under International Journal of Disclosure and Governance, inafter ‘the Act’, ‘Sarbanes–Oxley’ or ‘the the 1933 Act that has not yet become Vol. 2, No. 1, 2005, pp. 81–106 1 Henry Stewart Publications, Sarbanes–Oxley Act’) into law. Since that effective. 1741–3591

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This means, for example, that any foreign the independence requirements appli- private issuer that has listed its securities in cable to audit committee members. In the United States, or issued securities to the addition, foreign private issuers may have public in the United States whether or not a statutory board of auditors or statutory it is listed (such as in a registered exchange auditors established pursuant to home offer for high-yield bonds) is subject to the country law or listing requirements. Sarbanes–Oxley Act. A foreign private issuer that has not sold securities to the KEY PROVISIONS OF SARBANES– public in the United States, or that is OXLEY AND RELATED SEC exempt from Exchange Act registration by RULEMAKING virtue of Exchange Act Rule 12g3-2(b) is not subject to the requirements of the Section 404: Internal control over Sarbanes–Oxley Act. Accordingly, when the financial reporting authors refer below to ‘issuers’ and ‘foreign Section 404 of Sarbanes–Oxley directs the private issuers’ they mean those companies SEC to issue rules requiring an issuer’s that are subject to Sarbanes–Oxley. annual report to contain an internal control report (1) stating management’s responsi- Exceptions for the benefit of foreign bility for establishing and maintaining an private issuers adequate internal control structure and The Sarbanes–Oxley Act does not generally procedures for financial reporting and (2) distinguish between domestic US and for- containing an assessment, as of the end of eign private issuers. In its implementing the issuer’s most recent fiscal year, of the rules, however, the SEC has made a effectiveness of the issuer’s internal control number of exceptions for the benefit of structure and procedures for financial foreign private issuers. These include: reporting. In addition, Section 404 requires an issuer’s independent auditor to attest to, + Internal control implementation date. As and report on, management’s assessment, in noted above, the internal control provi- accordance with standards adopted by the sions of the Act do not take full effect US Public Company Accounting Oversight for foreign private issuers until fiscal Board (PCAOB). (Section 404 provides, years ending on or after 15th July, 2005. however, that the attestation cannot be a By contrast, domestic US issuers that are separate engagement of the auditor.) ‘accelerated filers’ must comply for fiscal The SEC has accordingly adopted new years ending on or after 15th November, Rules 13a-15 and 15d-15 under the 2004. Exchange Act, and new Item 15 of Form + Quarterly certifications. Unlike domestic 20-F, and the PCAOB has adopted Audit- US issuers, foreign private issuers are not ing Standard No. 2.2 required to provide Section 302 or 906 Rules 13a-15 and 15d-15 require a for- certification on a quarterly basis. eign private issuer: + Non-GAAP financial measures. Foreign private issuers that are listed outside the + to maintain internal control over finan- United States are exempt in certain cases cial reporting;3 from the restrictions on the use of + to evaluate (with the participation of the non-GAAP financial measures provided chief executive officer (CEO) and chief by Regulation G. financial officer (CFO)) the effectiveness + Audit committee independence. Foreign pri- of internal control as of the end of each vate issuers have certain exemptions from fiscal year;4 and

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+ to evaluate (with the participation of authorised acquisition, use or disposition the CEO and CFO) any change in its of the issuer’s assets that could have a internal control that occurred during the material effect on the financial state- fiscal year that has materially affected, or ments.7 is reasonably likely to materially affect, the issuer’s internal control over financial Management’s annual assessment of, reporting.5 and report on, internal control: Item 15 of Form 20-F A foreign private issuer must comply with In an issuer’s annual report on Form 20-F, the above rules in connection with its management must provide a report on the annual report on Form 20-F for the first issuer’s internal control over financial report- fiscal year ending on or after 15th July, ing that contains, among other things:8 2005.6 + a statement of management’s responsi- Definition of internal control over bility for establishing and maintaining financial reporting adequate internal control over financial For the purposes of Rules 13a-15 and 15d- reporting; 15, and Item 15 of Form 20-F (as well as + a statement identifying the framework the Section 302 certification discussed used by management to evaluate the below), ‘internal control over financial effectiveness of the issuer’s internal con- reporting’ is defined as a process designed trol over financial reporting; by, or under the supervision of, the issuer’s + management’s assessment of the effec- CEO and CFO, and effected by the issuer’s tiveness of the issuer’s internal control board of directors, management and other over financial reporting as of the end of personnel, to provide reasonable assurance the most recent fiscal year, including a regarding the reliability of financial report- statement as to whether or not the ing and the preparation of financial state- issuer’s internal control over financial ments for external purposes in accordance reporting is effective. The statement with generally accepted accounting princi- must also include disclosure of any ples. The term includes those policies and material weakness in the issuer’s internal procedures that: control over financial reporting identified by management. Management is not + pertain to the maintenance of records permitted to conclude that the issuer’s that in reasonable detail accurately and internal control over financial reporting is fairly reflect the transactions and dispo- effective if there are one or more material sitions of the assets of the issuer; weaknesses in internal control;9 and + provide reasonable assurance that trans- + a statement that the independent auditor actions are recorded as necessary to per- that audited the financial statements mit preparation of financial statements included in the annual report has issued in accordance with generally accepted an attestation report on management’s accounting principles, and that receipts assessment of the issuer’s internal control and expenditures of the issuer are being over financial reporting (the independent made only in accordance with authori- auditor’s attestation report must also be sations of management and directors of provided in the annual report). the issuer; and + provide reasonable assurance regarding In addition, a foreign private issuer must prevention or timely detection of un- also include:

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+ an attestation report of the independent + be relevant to an evaluation of internal auditor on management’s assessment of control over financial reporting. the issuer’s internal control over financial reporting; and Auditor independence15 + disclosure of any change in its internal Although management may coordinate its control that occurred during the fiscal evaluation of internal controls with that ff year that has materially a ected, or is of its auditors, it cannot compromise the ff reasonably likely to materially a ect, the auditors’ independence. Auditors may assist issuer’s internal control over financial 10 management in documenting internal con- reporting. trols, but management must be actively involved in the documentation process. In With the exception of the disclosure of addition, management cannot delegate its changes in internal control over financial responsibilities to assess internal control to ff reporting, which took e ect as of 14th the auditor. August, 2003, a foreign private issuer need not comply with the above requirements of Item 15 until its annual report on Form Material weaknesses 20-F for its first fiscal year ending on or Management may not determine that an after 15th July, 2005.11 issuer’s internal control over financial reporting is effective if it identifies one or more material weakness in the issuer’s inter- Framework for evaluation 16 The SEC has not required the use of a nal control. The term ‘material weakness’ particular framework. It has, however, for these purposes has the same meaning as under the auditing standards of the specified that management’s evaluation must 17 be based on a recognised control framework PCAOB. established by a body or group that has followed due-process procedures, including Method of evaluation a broad distribution of the framework for The SEC has not specified a method or public comment.12 The Committee of procedures to be followed in the evalu- Sponsoring Organizations of the Treadway ation.18 An issuer must, however, maintain Commission’s Internal Control — Integrated ‘evidential matter, including documenta- Framework, the Canadian Institute of Char- tion’ to provide reasonable support for tered Accountant’s The Guidance on Assessing management’s assessment of the issuer’s Control, and the Institute of Chartered internal control over financial reporting.19 Accountants in England and Wales’ Turnbull The assessment must be based on proce- Report are all approved frameworks.13 dures sufficient both to evaluate design and The framework must:14 to test operating effectiveness.20 Controls that are subject to assessment include:21 + be free from bias; + permit reasonably consistent qualitative + controls over initiating, recording, and quantitative measures of an issuer’s processing and reconciling account bal- internal control; ances, classes of transactions and disclo- + be sufficiently complete so that those sure and related assertions included in relevant factors that would alter a con- the financial statements; clusion about the effectiveness of an + controls related to the initiation and issuer’s internal controls are not omitted; processing of non-routine and non- and systematic transactions;

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+ controls related to the selection and and the effect of the acquisition on the application of appropriate accounting issuer’s internal control).27 policies; and + Qualifications: Management may not + controls related to the prevention, qualify its conclusion about the effective- identification and detection of fraud. ness of an issuer’s internal control, and may not conclude that internal control is The SEC has cautioned that inquiry alone effective if a material weakness exists. generally will not provide an adequate basis Instead, management may state that con- for management’s assessment.22 trols are ineffective for specific reasons.28 + Initial internal control report: Management Changes in internal control need not disclose changes or improve- There is no explicit requirement in the ments made in preparation for the first rules under Section 404 to disclose the internal control report, although the reasons for any changes in internal control SEC has cautioned that if the issuer were (as opposed to the existence of those to identify a material weakness it should changes).23 The SEC has cautioned, how- consider carefully whether that fact ever, that an issuer must consider whether should be disclosed, as well as changes the antifraud provisions of the US federal made in response to the material weak- securities laws would require that disclosure, ness.29 together with other information about the + Subsequent internal control reports: After an circumstances surrounding the change.24 issuer’s first management report on inter- nal control, it is required to identify and Certain internal control issues disclose material changes in internal con- In June 2004, the SEC issued answers to trol in its annual report on Form 20-F. certain frequently asked questions regarding This would include discussing a material management’s report over internal control change (including an improvement) even (the ‘2004 FAQ’).25 Under the 2004 FAQ: if it was not in response to an identi- fied significant deficiency or material + Equity investees: An issuer must have weakness.30 controls over the recording of amounts + Compliance with law: Although general related to its investment that are legal compliance is not part of internal recorded in its consolidated financial control (as opposed to compliance with statements, although it need not evaluate laws relating to the preparation of finan- the recording of transactions into the cial statements), an issuer must evaluate investee’s accounts.26 whether it has adequate controls to + Material business combinations: If an issuer ensure that the effect of non-compliance consummates a material business combi- with law is recorded in the issuer’s nation during a fiscal year and is unable financial statements. An evaluation of to conduct an assessment of the acquired compliance with law is instead required business’s internal control during the as part of management’s evaluation of period between the consummation date disclosure controls and procedures. In and the date of management’s assessment, particular, management must evaluate it may omit an assessment of the whether the issuer adequately monitors acquired business’s internal control for compliance and has appropriate disclosure not more than one year from the date controls and procedures to ensure that of acquisition (and must make certain required disclosure of legal or regulatory disclosures about the acquired business matters is provided.31

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+ Disclosure of significant deficiencies: An deficiency exists ‘when the design or opera- issuer must identify and publicly disclose tion of a control does not allow the com- all material weaknesses. If management pany’s management or employees, in the identifies a significant deficiency, it is normal course of performing their assigned not obligated to disclose publicly the functions, to prevent or detect misstate- existence or nature of the significant ments on a timely basis’.39 deficiency. If, however, management Auditing Standard No. 2 provides that a identifies a significant deficiency that, control deficiency should be classified as when combined with other significant a ‘significant deficiency’ if ‘by itself or in a deficiencies, is determined to be a combination with other control deficien- material weakness, management must cies, it results in more than a remote likeli- disclose the material weakness (and the hood of a misstatement of the company’s significant deficiency to the extent annual or interim financial statements that is needed to understand the material weak- more than inconsequential will not be pre- ness). In addition, if a material change vented or detected’.40 In addition, a ‘sig- is made to either internal control or nificant deficiency should be classified as a disclosure controls and procedures in material weakness if, by itself or in combi- response to a significant deficiency, the nation with other control deficiencies, it issuer should disclose the change and results in more than a remote likelihood that consider whether a discussion of the a material misstatement in the company’s significant deficiency is needed.32 annual or interim financial statements will not be prevented or detected’.41 Internal control audits: Auditing Auditing Standard No. 2 mandates that Standard No. 233 an auditor must communicate in writing to Auditing Standard No. 2 sets out the the audit committee all significant deficien- PCAOB’s rules for internal control audits cies and material weaknesses of which the (the PCAOB chose to refer to an ‘audit’ auditor is aware.42 In addition, the auditor rather than an ‘attestation’).34 The PCAOB must communicate to management, in writ- stated that the objective of the internal ing, all control deficiencies of which the control audit is to form an opinion as to auditor is aware that have not previously whether management’s assessment of the been communicated in writing to manage- effectiveness of the issuer’s internal control ment and notify the audit committee of is fairly stated in all material respects.35 The such a communication.43 auditor’s conclusion will therefore relate directly to whether the auditor can agree Identifying significant deficiencies with management that internal control is Auditing Standard No. 2 identifies a effective.36 In this connection, the auditor number of circumstances that ‘because of needs to evaluate management’s assessment their likely significant negative effect on process (to ensure that management has an internal control are significant deficiencies appropriate basis for its conclusion) and to as well as strong indicators that a material test the effectiveness of internal control.37 weakness exists’.44 These include:45

Significant deficiencies and material + ineffective oversight by the audit com- weaknesses mittee of the issuer’s external financial Under Auditing Standard No. 2, both reporting and internal control. As part of management and the auditor may identify evaluating the control environment, an deficiencies in internal control.38 A control auditor must assess the effectiveness of

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the audit committee’s oversight and must Disclosure controls and procedures: communicate to the board of directors if 1934 Act Rules 13a-15 and 15d-15; Item it concludes that oversight is ineffective; 15 of Form 20-F + material misstatement in the financial statements not initially identified by the Definition issuer’s internal control. Failure to detect In addition to internal control, the SEC’s the misstatement is ‘a strong indicator implementing rules under the Act have that the company’s internal control’ is introduced the concept of ‘disclosure con- ineffective; and trols and procedures’.54 For these purposes + significant deficiencies that have been (as well as for the Section 302 certification communicated to management and the discussed below), disclosure controls and audit committee, but that remain uncor- procedures are controls and other proce- rected after reasonable periods of time. dures of an issuer that are designed to ensure that information required to be Auditor’s report disclosed by the issuer in the reports that it Under Auditing Standard No. 2, the audi- files or submits under the Exchange Act is tor’s report includes two opinions: one on (1) timely recorded, processed, summarised management’s assessment of internal control and reported and (2) accumulated and com- and one on the effectiveness of internal municated to the issuer’s management, to control.46 allow for timely decisions about disclosure.55 An auditor may express an unqualified The SEC has stated that while there is opinion if it has identified no material substantial overlap between the concepts of weaknesses.47 If the auditor cannot perform disclosure controls and procedures and all of the necessary procedures, the auditor internal control over financial reporting, may either qualify or disclaim an opinion.48 there are some elements of each term that If an overall opinion cannot be expressed, are not subsumed within the other.56 In Auditing Standard No. 2 requires the particular, ‘disclosure controls and proce- auditor to explain why.49 dures will include those components of The auditor’s report may disclose only internal control over financial reporting that material weaknesses, although if an aggre- provide reasonable assurances that trans- gation of significant deficiencies constituted actions are recorded as necessary to permit a material weakness, then disclosure would preparation of financial statements in accord- be required.50 Auditing Standard No. 2 ance with generally accepted accounting does not permit a qualified opinion on the principles’.57 In contrast, disclosure controls effectiveness of internal control in the event and procedures would not necessarily in- of a material weakness; instead, the auditor clude disposition or safeguarding of assets, must express an ‘adverse opinion’.51 The which would remain components of auditor may express an unqualified opinion internal control.58 on management’s assessment (but not on the effectiveness of internal control) so long Requirements as management properly identifies the The regime governing disclosure controls material weakness and concludes that inter- and procedures is similar to that for internal nal control was not effective.52 If, however, control. Accordingly: the auditor and management disagree about the existence of the material weakness, + as of the end of each fiscal year, the then the auditor would render an adverse issuer’s management, with the participa- opinion on management’s assessment.53 tion of the CEO and CFO, must make

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an evaluation of the effectiveness of the make the statements made, in light of the issuer’s disclosure controls and proce- circumstances under which such state- dures;59 and ments were made, not misleading; + the issuer must disclose the conclusions + based on the officer’s knowledge, the of its CEO and CFO regarding the financial statements, and other financial effectiveness of the disclosure controls information included in the annual and procedures based on their review as report, fairly present in all material of the end of the period to which the respects the financial condition, results of report relates.60 operations and cash flows of the issuer; + the CEO and CFO are responsible for There is, however, no required audit of establishing and maintaining ‘disclosure disclosure controls and procedures. controls and procedures’ [and ‘internal control over financial reporting’]65 for Certification requirements the issuer and have: Sarbanes–Oxley contains two overlapping — designed such disclosure controls and certifications that must be provided by an procedures, or caused such disclosure issuer’s CEO and CFO (or persons per- controls and procedures to be forming similar functions): the Section 302 designed under their supervision, to certification and the Section 906 certifica- ensure that material information tion. Section 302 amends the Exchange relating to the issuer, including its Act, whereas Section 906 amends the US consolidated subsidiaries, is made federal criminal code. known to them by others within those entities; Section 302 — [designed such internal control over Section 302(a) of the Sarbanes–Oxley Act financial reporting, or caused such directs the SEC to adopt rules requiring internal control over financial re- CEO and CFO certification of each ‘annual porting to be designed under their or quarterly report’ filed by issuers. In supervision, to provide reasonable response, the SEC has adopted new 1934 assurance regarding the reliability of Act Rules 13a-14 and 15d-14 and the text financial reporting and the prepa- of a certification for Form 20-F.61 ration of financial statements for external purposes in accordance Section 302 certification text: 1934 Act with generally accepted accounting Rules 13a-14, 15d-14; Form 20-F principles;]66 Rules 13a-14 and 15d-14 require a foreign ff private issuer’s annual report on Form 20-F — evaluated the e ectiveness of the (but not its current reports on Form 6-K)62 issuer’s disclosure controls and pre- to include separate certifications by the sented in the annual report their ff issuer’s CEO and CFO.63 The certifications conclusions about the e ectiveness must state that:64 of the disclosure controls and proce- dures, as of the end of the period + the officer has reviewed the annual covered by the report based on such 67 report; evaluation; and + based on the officer’s knowledge, the — disclosed in the report any change in annual report does not contain any the issuer’s internal control over untrue statement of a material fact or financial reporting that occurred dur- omit to state a material fact necessary to ing the period covered by the report

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that has materially affected, or is Section 906 reasonably likely to materially affect, the issuer’s internal control over Section 906 certification text; Exchange Act financial reporting; and Rules 13a-14(b) and 15d-14(b) + the CEO and CFO have disclosed, Section 906 added new Section 1350 to the based on their most recent evaluation of US federal criminal code. Section 906 internal control over financial reporting, requires that each ‘periodic report contain- to the issuer’s auditors and the audit ing financial statements’ filed by an issuer committee: must ‘be accompanied by’ a certification by — all significant deficiencies and the issuer’s CEO and CFO that: material weaknesses in the design or operation of internal control over + the periodic report fully complies with financial reporting which are reason- the requirements of Section 13(a) or ably likely to adversely affect the Section 15(d) of the Exchange Act; and issuer’s ability to record, process, + the information contained in the per- summarise and report financial infor- iodic report fairly presents, in all material mation; and respects, the financial condition and — any fraud, whether or not material, results of operations of the issuer. that involves management or other employees who have a significant Although Section 906 is self-implementing, role in the issuer’s internal control the SEC has adopted 1934 Act Rules over financial reporting. 13a-14(b) and 15d-14(b) to require that the Section 906 certification (which may be a The certifications must be included as an joint certification of the CEO and CFO) exhibit to the issuer’s annual report on 68 must be provided, and must be furnished as Form 20-F. Except for the portions of the an exhibit to the relevant periodic report. certifications appearing above in square Because the Section 906 certification is not ff brackets (which do not come into e ect considered ‘filed’ as a technical matter, it until 15th July, 2005), the wording of the would not attract liability under Section 18 certification may not be changed in any of the Exchange Act or be incorporated respect, even if the changes would appear to 69 by reference into the issuer’s subsequent be inconsequential. Securities Act registration statements (unless 70 Violations of Section 302 specifically incorporated by the issuer). As While Section 302 carries no criminal with the Section 302 certification, Section sanctions, false certifications are subject to 906 certification is not required for current SEC enforcement action for violating the reports on Form 6-K.71 Exchange Act and also possibly to both SEC and private litigation alleging viola- Violations of Section 906 tions of the antifraud provisions of the Under Section 906, an officer who certifies Exchange Act (eg Section 10(b) of the a statement ‘knowing that the periodic Exchange Act and Exchange Act Rule report accompanying the statement’ does 10b-5). A false certification also may have not meet the certification can be fined not liability consequences under Sections 11 and more than $1m or imprisoned for not more 12(a)(2) of the Securities Act if the accom- than 10 years, or both. In contrast, an panying report is incorporated by reference officer who ‘willfully’ certifies his or her into a registration statement (eg on Form written statement while ‘knowing’ that the F-3) or into a prospectus. annual report does not ‘comport with all

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the requirements’ of Section 906 can be defined as a numerical measure of financial fined not more than $5m or imprisoned for performance that excludes (or includes) not more than 20 years, or both. The amounts that are otherwise included (or distinction between ‘knowing’ and ‘willful’ excluded) in the comparable measure cal- certification is not set out in the Sarbanes– culated and presented in the financial state- Oxley Act, but in other contexts ‘willfully’ ments under GAAP.77 For a foreign private normally requires a showing that the person issuer, ‘GAAP’ means the local GAAP had specific knowledge of the law he or under which the financial statements were she was violating, whereas ‘knowingly’ does prepared, unless the measure in question is not.72 derived from US GAAP, in which case GAAP means US GAAP for the purposes of Differences between Section 302 and applying the requirements of Regulation G Section 906 certifications to the disclosure of the measure.78 Although the text of the two required cer- The term non-GAAP financial measure tifications overlap, there are some important does not include:79 differences between them. In contrast to the Section 302 certification, the text of the + operating or other financial measures and Section 906 certification does not explicitly ratios or statistical measures calculated provide for the officer to certify as to his using exclusively one or both of (1) or her knowledge. The US Department of financial measures calculated in accord- Justice has confirmed, however, that an ance with GAAP and (2) operating officer may qualify a Section 906 certifica- measures or other measures that are not tion to his or her knowledge because knowl- non-GAAP financial measures; or edge would, in any event, be a necessary + financial measures required to be dis- element of criminal prosecution.73 Further- closed by GAAP, SEC rules or applicable more, whereas the Section 302 certification regulation. is required for any amendment to an annual report on Form 20-F, the SEC has stated Regulation G requires that disclosure of this that Form 20-F amendments do not require sort be accompanied by the most directly a new Section 906 certification.74 comparable financial measure calculated in accordance with GAAP, and a reconcilia- Non-GAAP financial measures tion of the differences between the two.80 Section 401(b) of the Sarbanes–Oxley Act In addition, Regulation G prohibits an requires the SEC to issue rules limiting the issuer from making any non-GAAP finan- use of ‘pro forma’ financial information in cial measure public if it contains a material various ways. In response, the SEC has misstatement or omits to include infor- adopted both a disclosure regulation, Regu- mation needed to make the included lation G, and rules applicable to disclosure measure not misleading.81 in filings with the SEC under Item 10 of A foreign private issuer is exempt from Regulation S-K.75 Regulation G if: 82

Regulation G + its securities are listed or quoted outside Regulation G applies whenever an issuer, or the United States; a person acting on its behalf, ‘publicly + the non-GAAP financial measure being discloses material information’ that includes used is not derived from or based on a a non-GAAP financial measure.76 The term measure calculated and presented in ‘non-GAAP financial measure’ is broadly accordance with US GAAP; and

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+ the disclosure is made outside the United years or there was a similar charge or States. gain within the prior two years; and + the use of titles or descriptions for Regulation S-K, Item 10(e) non-GAAP financial measures that are Distinct from Regulation G, the SEC has the same as, or confusingly similar to, adopted limitations on the use of non- titles or descriptions used for GAAP GAAP financial measures in filings (whether financial measures. annual reports on Form 20-F, or registra- tion statements in connection with offerings Item 10(e) contains an exemption from in the United States or US listings) as these prohibitions for a foreign private new Item 10(e) of Regulation S–K. For the issuer if the non-GAAP financial measure purposes of Item 10(e), the term ‘non- relates to the local GAAP used in the GAAP financial measures’ has the same issuer’s primary financial statements, is meaning as under Regulation G. required or expressly permitted by the Item 10(e) requires that whenever an standard-setter that establishes the local issuer includes a non-GAAP financial GAAP, and is included in the issuer’s measure in an SEC filing it must also annual report for its home jurisdiction.85 include:83 The SEC has cautioned that inclusion of a non-GAAP financial measure may be + a presentation, with equal or greater misleading unless accompanied by disclosure prominence, of the most directly com- as to:86 parable GAAP financial measure; + a reconciliation of the differences + the manner in which management use between the non-GAAP financial the non-GAAP measure to conduct or measure and the most directly compar- evaluate its business; able GAAP financial measure; + the economic substance behind manage- + a statement as to why management ment’s decision to use such a measure; believes the non-GAAP financial + the material limitations associated with measure provides useful information for the use of the non-GAAP financial investors; and measure as compared to the use of the + to the extent material, a statement of the most directly comparable GAAP finan- additional purposes for which manage- cial measure; ment uses the non-GAAP financial + the manner in which management com- measure. pensates for these limitations when using the non-GAAP financial measure; and Furthermore, Item 10(e) prohibits in SEC + the substantive reasons why management filings, among other things:84 believes the non-GAAP financial measure provides useful information to + non-GAAP measures of liquidity that investors. exclude items requiring cash settlement, other than EBIT and EBITDA; The SEC has also stated that ‘earnings’ as + the adjustment of non-GAAP measures used in EBIT and EBITDA is intended to of performance to eliminate or smooth mean net income as presented in the state- items characterised as non-recurring, ment of operations under GAAP, and that unusual or infrequent when the nature of measures that are calculated differently the charge or gain is such that it is should not be characterised as EBIT or reasonably likely to recur within two EBITDA.87 To the extent that EBIT or

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EBITDA are presented as a performance ments that are reasonably likely to be- measure, the term should be reconciled to come material and the triggering events net income and not operating income.88 that could cause them to arise; and + any known events or trends that will, or Off-balance sheet and other MD&A are reasonably likely to, result in the disclosure termination or reduction in availability Section 401(a) of the Sarbanes–Oxley Act to the issuer of these arrangements and requires the SEC to implement rules requir- the course of action the issuer proposes ing issuers to disclose material off-balance to take in response. sheet transactions. The SEC’s rules go beyond off-balance sheet transactions, how- An ‘off-balance sheet arrangement’ is ever, and also address certain topics covered defined to include any transaction, agree- in its prior MD&A initiatives.89 The rules ment or contractual arrangement to which take the form of amendments to Item 5 of an entity unconsolidated with the issuer is a Form 20-F, and accordingly apply to all party and under which the issuer has certain registration statements filed by foreign pri- obligations or interests.92 Because the defi- vate issuers (whether under the Securities nition of ‘off-balance sheet arrangement’ Act or Exchange Act), as well as annual incorporates concepts from US GAAP, for- reports. eign private issuers will need to refer to US GAAP for some of the disclosure items.93 Off-balance sheet arrangements However, the MD&A disclosure should An issuer must disclose, in a separately focus on the primary financial statements in captioned section of MD&A, off-balance the document (while taking reconciliation sheet arrangements that either have, or are to US GAAP into account).94 reasonably likely to have, a current or future material effect on the issuer’s finan- Table of contractual obligations cial condition, results of operations, or For fiscal years ending on or after 15th liquidity.90 To the extent necessary to December, 2003,95 an issuer must also understand these arrangements, the disclo- include in its SEC filings a table of con- sure must include:91 tractual obligations as at the end of the latest balance sheet date, showing the items listed + the nature and business purpose of the in Table 1.96 off-balance sheet arrangements; The term ‘purchase obligations’ means an + the importance to the issuer of the enforceable agreement to purchase goods or off-balance sheet arrangements in respect services that is binding on the issuer and of liquidity, capital resources, market risk that specifies key commercial terms (such as support, credit support or other benefits; quantity and price).97 With the exception + the amount of revenues, expenses and of ‘purchase obligations’, the classifications cash flows arising from these arrange- of categories shown in the table are defined ments; by reference to US GAAP. An issuer that + the nature and amounts of any interests prepares financial statements in accordance retained, securities issued or amounts with non-US GAAP, however, should incurred by the issuer under these include those items of contractual obligation arrangements; in the table that are consistent with the + the nature and amounts of any other classifications used in the GAAP under obligations or liabilities (contingent or which its primary financial statements are otherwise) arising from these arrange- prepared.98

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Table 1: Contractual obligations as at the end of the latest balance sheet date

Contractual obligations Payments due by period

Less than More than Total 1 year 1–3 years 3–5 years 5 years

Long-term debt obligations Capital (finance) lease obligations Operating lease obligations Purchase obligations Other long-term liabilities reflected on the issuer’s balance sheet under the GAAP of the primary financial statements Total

Contingent liabilities and commitments the board103 and may not be an ‘affiliated Although it has issued proposed rules with person’ of the issuer.104 The definition of respect to disclosure requirements for con- affiliated person includes a person that, tingent liabilities and commitments, the directly, or indirectly through one or more SEC has declined to adopt final rules. In intermediaries, controls, is controlled by, or the meantime, the SEC’s existing guidance is under common control with, the speci- on the subject — which suggests a tabular fied person.105 There is, however, a safe format of specified categories99 — is con- harbour for certain non-executive officers trolling.100 and other persons that are 10 per cent or less shareholders of the issuer.106 Standards relating to listed company Foreign private issuers are entitled to audit committees certain exemptions from the independence Section 301 of the Sarbanes–Oxley Act adds prong of Rule 10A-3. For example, the new Section 10A(m) of the Exchange Act. inclusion of a non-management employee Section 10A(m) charges the SEC with representative,107 a non-management affili- creating rules to prohibit the listing of any ated person with only observer status,108 or security in the United States of an issuer a non-management governmental represen- that is not in compliance with certain tative on the audit committee will not substantive standards for audit committees. violate the affiliated person prong of the The SEC has adopted final rules under independence test.109 In addition, issuers Section 301 as 1934 Act Rule 10A-3. Listed involved in an IPO are entitled to certain foreign private issuers must be in compliance exemptions during a transitional period fol- with Rule 10A-3 by 31st July, 2005.101 lowing their public offering.110 Under Rule 10A-3, audit committee Rule 10A-3 also requires that: members each have to be a member of the board of directors and otherwise + the audit committee must be ‘directly independent.102 To be ‘independent’, an responsible’ for the appointment, com- audit committee member is barred from pensation, oversight and retention of accepting any compensatory fees other than the external auditors, who must report in that member’s capacity as a member of directly to the audit committee;111

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+ the audit committee must establish pro- any of the other requirements of Rule cedures for the receipt, retention and 10A-3.119 treatment of complaints regarding accounting, internal controls or auditing Audit committee financial expert matters, and for the confidential, anony- Section 407(a) of the Sarbanes–Oxley Act mous submission by employees of con- directs the SEC to issue rules requiring an cerns regarding questionable accounting issuer to disclose in its periodic reports or auditing matters;112 whether its audit committee has at least one + the audit committee must have the auth- ‘financial expert’, or if not, why not. ority to engage independent counsel and The SEC’s final rules implementing Sec- other advisers as it deems necessary to tion 407(a) use the term ‘audit committee carry out its duties;113 and financial expert’ instead of ‘financial expert’. + the issuer must provide the audit com- The SEC has implemented these rules as mittee with appropriate funding for new Item 16A of Form 20-F. payment of external auditors, advisers Under Item 16A, a foreign private issuer employed by the audit committee and must disclose in its annual report that the ordinary administrative expenses of the issuer’s board of directors has determined audit committee.114 whether or not it has one audit committee financial expert serving on its audit com- These requirements are not intended to mittee, or if not, why not.120 If the issuer conflict with local legal or listing provisions has a two-tier board of directors, the super- (or requirements under the foreign private visory or non-management board would issuer’s organisational documents), and make this determination.121 The issuer instead relate to the allocation of responsi- must also disclose the name of the audit bility between the audit committee and committee financial expert (if any)122 the issuer’s management.115 Accordingly, and whether that person is ‘independent’ the audit committee may recommend or from management.123 An issuer’s board nominate the appointment or compensation of directors must make an affirmative deter- of the external auditor to shareholders if mination as to whether or not it has at these matters are within shareholder com- least one audit committee financial expert, petence under local law,116 and it must be and may not simply fail to reach a con- granted those responsibilities that the board clusion.124 of directors can legally delegate.117 In order to qualify as an audit committee Rule 10A-3 contains a general exemp- financial expert, the audit committee mem- tion for foreign private issuers that have a ber must have the following ‘attributes’:125 statutory board of auditors or statutory auditors established pursuant to home + an understanding of GAAP; country law or listing requirements, which + the ability to assess the general applica- in turn meet various requirements.118 tion of GAAP in connection with the A foreign private issuer relying on Rule accounting for estimates, accruals and 10A-3’s exemption from independence, or reserves; the general exemption noted above, will + experience in preparing, auditing or need to disclose in its annual report its analysing financial statements similar to reliance on the exemptions and an assess- those of the issuer, or actively super- ment of whether this reliance will materi- vising others engaged in these activities; ally adversely affect the audit committee’s + an understanding of internal controls and ability to act independently and to satisfy procedures for financial reporting; and

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+ an understanding of audit committee Auditor independence functions. Title II of the Sarbanes–Oxley Act creates a series of requirements relating to the work In addition, an audit committee financial of external auditors, grouped under the expert must have gained those attributes heading ‘auditor independence’. Title II through:126 establishes new Sections 10A(g) to (l) of the Exchange Act. The SEC has implemented + education and experience as a principal Title II by the adoption of amendments to financial officer, principal accounting S-X Rule 2-01, new S-X Rule 2-07, new officer, controller, public accountant or 1934 Act Rule 10A-2, and new Item 16C auditor, or experience in similar posi- of Form 20-F. tions; Rule 10A-2 provides generally that it is + experience actively supervising these unlawful for an auditor not to be indepen- functions; dent under certain provisions of S-X Rules + experience overseeing or assessing the 2-01 and 2-07. S-X Rules 2-01 and 2-07, performance of companies or public in turn, track — and in some cases expand accountants with respect to the prep- upon — the requirements of Sections aration, auditing or evaluation of finan- 10A(g)-(l), and provide (among other cial statements; or things): + other relevant experience. + that an issuer may not employ a former The term ‘GAAP’ as used in Item 16A partner, principal, shareholder or pro- refers to the body of GAAP used by the fessional employee of an accounting firm issuer in its primary financial statements.127 in a financial reporting oversight role at Accordingly, the audit committee financial the issuer if the individual was a member expert of a foreign private issuer need only of the audit engagement team during be versed in local GAAP, and not in US the one-year period preceding the date GAAP or in reconciliation to US GAAP on which audit procedures commenced (although that experience would, of course, for the fiscal period that included the be useful).128 date of initial employment of the audit Item 16A also contains a liability ‘safe engagement team member by the harbor’ for the audit committee financial issuer;131 expert, under which: + limitations on the non-audit services that an independent auditor may provide;132 + a person who is determined to be an + that an audit partner must not act as the audit committee financial expert is not lead audit partner or concurring partner deemed to be an ‘expert’ for any pur- for more than five consecutive years, pose, such as Section 11 of the Securities and must not provide certain other ser- Act; and129 vices for more than seven consecutive + the designation of a person as an audit years;133 committee financial expert does not + that the audit committee must pre- impose greater duties, obligations or approve the engagement of the auditor liabilities on the person than on other to provide audit and non-audit services audit committee and board members, to the issuer or its subsidiaries, or provide and does not affect the duties, obligations policies or procedures for pre-approval or liabilities of other audit committee of audit and non-audit services (subject and board members.130 to certain de minimis exceptions);134

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+ that no audit partner may earn compen- persons other than full-time permanent sation based on the partner procuring employees of the auditor.142 engagements with the issuer to provide any services other than audit, review or Improper influence on the conduct attest services;135 and of audits + that an auditor must report to the audit Section 303 of the Sarbanes–Oxley Act committee on (1) all critical accounting directs the SEC to issue rules prohibiting policies and practices to be used, (2) all any officer or director of an issuer from alternative treatments of financial infor- taking any action improperly to influence mation within GAAP that have been an auditor for the purpose of rendering discussed with the issuer’s management the issuer’s financial statements materially (as well as the implications of those misleading. alternatives and the auditor’s preferred The SEC has adopted 1934 Act Rules treatment), and (3) all other material 13b2-2(a)-(c), largely tracking the text of written communications between the Section 303. Among other things, the rules auditors and management.136 prohibit an officer or director of an issuer, or any other person acting under the direc- Under new Item 16C of Form 20-F, a tion of an officer or issuer, from taking any foreign private issuer must disclose in its action to ‘coerce, manipulate, mislead or annual report: fraudulently influence’ an auditor engaged in the performance of an audit or review of + under the caption ‘audit fees’, aggregate financial statements of the issuer that are fees billed by the auditor for each of the required to be filed with the SEC if that last two fiscal years for audit services (and person knew or should have known that his services in connection with statutory and or her actions, if successful, could result in regulatory filings);137 rendering the issuer’s financial statements + under the caption ‘audit-related fees’, materially misleading.143 aggregate fees billed by the auditor for The reach of the new rules is quite each of the last two fiscal years for broad. The phrase ‘persons acting under the certain services ‘reasonably related’ to direction’ of an officer or director includes the audit and review of financial state- the issuer’s employees (even if they are not ments, as well as a description of these under the supervision or control of that services;138 officer or director), customers, vendors and + under the caption ‘tax fees’, aggregate even attorneys or other outside advisers fees billed by the auditor for each of the who might be in a position to give out false last two fiscal years for tax services, as or misleading information to the auditor.144 well as a description of these services;139 In addition, the period during which an + under the caption ‘all other fees’, aggre- auditor can be said to be ‘engaged in the gate fees billed by the auditor for each performance of an audit’ has been given a of the last two fiscal years for all other wide interpretation by the SEC. It accord- products and services, as well as a ingly could encompass not only the pro- description of these services;140 fessional engagement period but any other + the pre-approval policies and procedures time the auditor is called upon to make of its audit committee for audit and decisions or judgments regarding the issuer’s non-audit services;141 and financial statements, including, in certain + if greater than 50 per cent, the percent- situations, periods prior to and after the age of hours expended on the audit by retention of the auditor.145

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Rule 13b2-2 also identifies certain types ‘Workpapers’ for these purposes mean of actions which could cause an issuer’s documentation of auditing or review pro- financial statements to be materially mis- cedures applied, evidence obtained and leading, including improperly influencing conclusions reached by the accountant in an auditor: the audit or review engagement.148 Rule 2-06 also provides that memoranda, + to issue or reissue a report on an issuer’s correspondence, communications and other financial statements that is not warranted documents and records (including electronic in the circumstances (due to material records) must be retained whether they violations of generally accepted account- support the auditor’s final conclusions ing principles, generally accepted audit- about the audit or review, or contain ing standards, or other professional or information that is inconsistent with those regulatory standards); conclusions.149 + not to perform audit, review or other procedures required by generally Material correcting adjustments accepted auditing standards or other pro- Section 401(a) of the Sarbanes–Oxley Act fessional standards; adds new Section 13(i) to the Exchange + not to withdraw an issued report; or Act. Under Section 13(i), each financial + not to communicate matters to an report containing financial statements that is issuer’s audit committee.146 prepared in accordance with (or reconciled to) US GAAP and filed with the SEC must Auditor record retention reflect all ‘material correcting adjustments’ Section 802 of the Sarbanes–Oxley Act that have been identified by an issuer’s (which amends the US federal criminal auditors. code) requires any accountant who con- The SEC has not provided guidance on ducts an audit of an issuer to maintain all the question of whether Section 13(i) audit or review workpapers for a period of applies to interim financial statements sub- five years from the end of the fiscal period mitted on Form 6-K. The authors believe in which the audit or review was con- the better view of Section 13(i) is that it cluded. Section 802 also requires the SEC applies only to a foreign private issuer’s to issue rules relating to the retention of annual report on Form 20-F, and not to relevant records such as workpapers and any interim financial statements furnished to other documents that form the basis of the SEC under Form 6-K. Submissions on the review. In response, the SEC has added Form 6-K are not considered ‘filed’ as a new Rule 2-06 to Regulation S-X. technical matter with the SEC, and are not Rule 2-06 requires that, for a period of required to be reconciled to US GAAP. In seven years after an accountant concludes an addition, the SEC has interpreted the Sec- audit or review of an issuer’s financial tion 302 certification requirement — which statements, the accountant must retain also refers to reports filed with the SEC — records relevant to the audit or review, as not applying to Form 6-K submis- including workpapers, which:147 sions.150 As a practical matter, however, an issuer would be likely to face concerns + are created, sent or received in connec- under the antifraud provisions of the US tion with the audit or review; and federal securities laws if it failed to reflect + contain conclusions, opinions, analyses or a material correcting adjustment in an financial data related to the audit or interim financial statement furnished on review. Form 6-K.

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Attorney conduct rules only incidentally to, and in the ordinary Section 307 of the Sarbanes–Oxley Act course of, the practice of law in a requires the SEC to issue rules setting forth jurisdiction outside the United States; or ‘minimum standards of professional conduct + is appearing and practising before the for attorneys appearing and practicing SEC only in consultation with counsel, before the SEC in any way in the represen- other than a non-appearing foreign attor- tation of issuers’. Section 307 also directs ney, admitted or licensed to practice in the SEC to implement rules requiring an a state or other United States jurisdic- attorney to report ‘evidence of a material tion.154 violation of securities law or breach of fiduciary duty or similar violation’ by an If a covered attorney becomes aware of issuer or its agent to the issuer’s CEO or evidence of a ‘material violation’ — which chief legal counsel, and to report the evi- is defined to include a material violation of dence to the audit committee, another US securities law or a breach of fiduciary independent board committee, or the board duty or a similar material violation of any of directors as a whole, if the CEO or chief US federal or state law155 — the Attorney legal counsel ‘does not appropriately Conduct Rules create a duty to report the respond to the evidence’. The SEC adopted matter to the issuer’s chief legal officer final rules under Section 307 as new Part (CLO) or to both the CLO and the 205 Standards of Professional Conduct CEO.156 The CLO must then open an for Attorneys Appearing and Practicing inquiry into the matter and take all reason- Before the Commission in the Represen- able steps to cause the issuer to adopt an tation of an Issuer (the ‘Attorney Conduct appropriate response.157 Unless the attorney Rules’).151 reasonably believes that the CLO’s response The term ‘appearing and practicing’ was adequate, he or she must report the before the SEC is broader than it might first matter ‘up-the-ladder’ to the audit com- appear. It potentially covers any lawyer who mittee, to another independent board com- transacts business with the SEC, represents mittee (if the issuer does not have an audit an issuer in SEC proceedings, provides committee), or to the board of directors as advice on the US securities laws regarding a whole (if there is no independent board any document that the attorney ‘has notice’ committee).158 will be provided to the SEC (including in As an alternative to reporting to the CLO the context of preparing documents to be or CEO, the attorney may refer the matter filed), or advises an issuer whether infor- to the issuer’s qualified legal compliance mation must be included in or filed with committee (QLCC), if one has been set any SEC document.152 The Attorney Con- up.159 A QLCC — which may also be the duct Rules, however, contain an exemption audit committee — is any committee of the for ‘non-appearing foreign attorneys’,153 issuer that includes at least one member of which is defined as an attorney who (1) is the audit committee and two or more himself or herself admitted to practise law in non-employee members of the board of a jurisdiction outside of the United States directors, and that has been duly established and does not hold himself or herself out as by the board of directors with certain practising US federal or state securities or requirements.160 If the attorney reports the other laws, and (2) either: matter to the QLCC, he or she has no further obligations under the Attorney + conducts activities that would constitute Conduct Rules.161 In addition, the CLO appearing and practising before the SEC may refer a reported matter to the QLCC

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in lieu of conducting the required investi- Blackout trading restrictions gation, in which case the QLCC will be Section 306 of the Sarbanes–Oxley Act responsible for responding.162 prohibits directors and executive officers The SEC has also proposed, but not yet from acquiring or transferring company adopted, a ‘noisy withdrawal’ provision, equity securities during pension fund under which a covered attorney would be ‘blackout periods’. The SEC has adopted required to withdraw from representing an new Regulation Blackout Trading Restric- issuer under certain circumstances if there is tions (Regulation BTR) to implement not an appropriate response to the up-the- Section 306. ladder reporting.163 The 60-day comment For a foreign private issuer, a blackout period for the noisy withdrawal proposal period generally means any period of more has expired; the proposal has been the than three consecutive business days during subject of extensive comment by US which the ability to purchase or sell an lawyers. interest in the issuer’s equity securities held in an ‘individual account plan’ (such as a Code of ethics 401(k) plan)168 is temporarily suspended Section 406 of the Sarbanes–Oxley Act with respect to not less than 50 per cent of directs the SEC to issue rules requiring participants or beneficiaries located in the issuers to disclose whether they have United States and: adopted a code of ethics for senior financial officers, or if not, why not. The SEC has + the number of participants and benefici- accordingly adopted new Item 16B of Form aries located in the United States subject 20-F. to the temporary suspension exceeds Item 16B requires the issuer to disclose 15 per cent of the total number of whether it has adopted a code of ethics that employees of the issuer and its consoli- applies to its principal executive officers, dated subsidiaries; or principal financial officers and principal + more than 50,000 participants or ben- accounting officer or controller (or persons eficiaries located in the United States are performing similar functions), and if not, it subject to the temporary suspension.169 must explain why it has not done so.164 The term ‘code of ethics’ means written Regulation BTR prohibits, subject to cer- standards that are reasonably designed to tain exceptions, any director or executive deter wrongdoing and to promote a speci- officer of an issuer from purchasing, selling fied set of principles, such as honest and or otherwise transferring the issuer’s equity ethical conduct and full, accurate and timely securities during any blackout period appli- disclosure.165 The code must be filed as an cable to the securities, if the officer acquires exhibit to the issuer’s annual report on or previously had acquired the securities Form 20-F or posted on the issuer’s web- in connection with his or her service or site, or the issuer must undertake to provide employment as a director or officer.170 to any person upon request, free of charge, Under Regulation BTR, in any case where a copy of the code.166 An issuer must report a director or officer is subject to a blackout any amendment to the code relating to its trading restriction under Section 306 of covered executive officers, as well as the Sarbanes–Oxley, the issuer must, in a name of the person involved and the nature timely way notify each director or officer and date of any waivers (whether explicit and the SEC of the blackout period and or implicit) of the code for its covered provide certain additional information executive officers.167 (including the reasons for the blackout

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period).171 The issuer must file any notice + cash advances to reimburse travel and of this type as an exhibit to its annual report similar expenses while performing on Form 20-F.172 executive duties;182 Subject to a two-year statute of limita- + personal usage of a company credit card tions,173 profits realised by an insider in and company car, and relocation violation of Section 306 (regardless of the expenses required to be reimbursed;183 insider’s intention upon entering into the + ‘stay’ and ‘retention’ bonuses subject to transaction) will be recoverable by the repayment if an employee terminates issuer.174 In addition, if the issuer fails to employment before a designated date;184 institute an action to recover such profits + indemnification advances for litiga- within 60 days after being requested to do tion;185 so by a shareholder, the shareholder can + tax indemnity payments to overseas- then initiate the action to recover on behalf based executive officers;186 of the issuer.175 + loans by a parent or shareholder, that is a foreign private issuer but not subject to Loans to executives Sarbanes–Oxley, to the executive officer Section 402(a) of the Sarbanes–Oxley Act of a wholly-owned subsidiary that is adds new Section 13(k) to the Exchange subject to Sarbanes–Oxley, if the subsidi- Act. Under Section 13(k), it is illegal for an ary has not ‘arranged’ the loan and the issuer to ‘extend or maintain credit, to loan is made by reason of service to the arrange for the extension of credit, or to parent, not the subsidiary;187 and renew an extension of credit, in the form + most ‘cashless’ option exercises.188 of a personal loan to or for any director or executive officer (or equivalent thereof)’ of Forfeiture of bonuses that issuer.176 Section 13(k) covers both Section 304 of the Sarbanes–Oxley Act direct extensions and indirect extensions of provides that if an issuer is required to credit, including through subsidiaries.177 ‘prepare an accounting restatement due to Section 13(k) contains certain exemp- the material noncompliance of the issuer, as tions, including: a result of misconduct’ with any financial reporting requirements under the securities + any loan existing on 30th July, 2003, laws, the CEO and CFO must reimburse unless its terms are materially modified the issuer for: or the loan is renewed;178 + consumer credit and extensions of credit + all bonuses or other incentive-based or under a charge card;179 and equity-based compensation received + certain bank loans.180 from the issuer during the 12-month period following the first public issuance The broad sweep of Section 13(k), coupled or filing with the SEC (whichever is with the absence of SEC guidance, has first) of the financial document embody- raised a number of thorny questions for ing the financial reporting requirement; issuers. In response, a group of 25 law firms and (including Latham & Watkins) has issued a + any profits received from the sale of the paper attempting to interpret Section 13(k) issuer’s securities during that 12-month (the ‘Interpretive Paper’).181 The Interpre- period. tive Paper contends that the following should generally be regarded as permissible It remains unclear whether, among other under Section 13(k): things, the definition of ‘misconduct’

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applies to mistakes as opposed to knowing $5m and 20 years’ imprisonment, and or reckless conduct.189 In the case of for- raises the maximum corporate fine from eign private issuers, it is also not certain $2.5m to $25m;196 how Section 304 will work if the required + gives the SEC the ability, after notice repayment is in conflict with the CEO’s and a hearing, to force an issuer subject or CFO’s rights under local employment to an SEC investigation to put ‘extra- laws.190 ordinary payments’ to directors, officers, partners, controlling persons, agents or Liability issues employees into temporary escrow;197 The Sarbanes–Oxley Act has a wide- + gives the SEC the administrative auth- ranging impact on liability under the US ority to impose a ban on a person from federal securities laws. It creates new US acting as a director or an officer of an federal criminal offences relating to securi- issuer (the so-called ‘officer and director ties, substantially increases the penalties for bar’);198 previously, the SEC could only existing offences and increases the SEC’s impose the officer and director bar by enforcement powers in various ways.191 means of a court order;199 Among other things, the Sarbanes–Oxley + lowers the standard for judicial imposi- Act: tion of the officer and director bar to ‘unfitness’ to serve as an officer and + adds a new section to the US federal director, from ‘substantial unfitness’;200 criminal code outlawing the alteration, + prohibits an issuer from retaliating against destruction or concealment of records to ‘whistleblowing’ employees who provide impede a US federal investigation;192 information or assist an investigation + amends existing law to provide for fines regarding violations of US federal secu- and imprisonment of up to 20 years for rities law, SEC regulations or US federal corruptly altering, destroying or con- law on shareholder fraud; and201 cealing documents with the intent of + amends the US federal bankruptcy laws obstructing an official proceeding;193 to prohibit the discharge in bankruptcy + amends existing law to provide for fines of debts resulting from judgments, settle- and imprisonment of up to 10 years for ments or court orders in cases involving anyone who knowingly takes any action securities fraud.202 to retaliate against a person for providing information to US federal law enforce- CONCLUSION ment officials relating to violations or Weather forecasting is notoriously difficult. potential violations of US federal law;194 While there is no question that internal + creates a new securities fraud crime (with control is a storm on the horizon, it is not penalties of up to 25 years’ imprisonment yet clear just how severe that storm will plus fines) of knowingly executing a prove to be. For most companies, the scheme or artifice to defraud any person authors believe it will be an inconvenient in connection with any security of an tropical depression. But for an unlucky or issuer or to obtain, by means of false or unprepared few, internal control has the fraudulent representations, any money in potential to be a full-scale hurricane. connection with the purchase or sale of a security;195  Latham & Watkins 2005 + increases the maximum individual pen- alty for violations of the Exchange Act REFERENCES from $1m and 10 years’ imprisonment to 1 Sarbanes–Oxley Act, Section 2(a)(7).

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2 Public Company Accounting Oversight date for the disclosure of certain changes Board, An Audit of Internal Control over in internal control over financial reporting. Financial Reporting Performed in Conjunction 12 Management’s Reports on Internal Control with an Audit of Financial Statements, Adopting Release, para. 86,923, at 87,685. PCAOB Release No. 2004-001, PCAOB 13 Ibid. para. 86,923, at 87,685 and n. 67. Rulemaking Docket Matter No. 008, 14 Ibid. para. 86,923, at 87,685. [2003-2004 Transfer Binder] Fed. Sec. L. 15 Ibid. para. 86,923, at 87,685–87,686. Rep. (CCH) para. 87,151 at 89,327 (9th 16 Form 20-F, Item 15(b)(3). March, 2004) [hereinafter Auditing Standard 17 Management’s Reports on Internal Control No. 2 Release]. Adopting Release, para. 86,923, at 87,686. 3 1934 Act, Rules 13a-15(a); 15d-15(a). 18 Ibid. 4 1934 Act, Rules 13a-15(c); 15d-15(c). 19 Form 20-F, Instruction 1 to Item 15. The 5 1934 Act, Rules 13a-15(d); 15d-15(d). SEC has stated that it believes it is import- 6 Management’s Reports on Internal Control ant for the internal control report to over Financial Reporting and Certification of be located near the auditor’s attestation Disclosure in Exchange Act Periodic Reports, report, and that it expects issuers will place Securities Act Release No. 8238, the report and attestation near MD&A Exchange Act Release No. 47986, Invest- disclosure or immediately preceding the ment Company Act Release No. 26068 financial statements. Management’s Reports [2003 Transfer Binder] Fed. Sec. L. Rep. on Internal Control Adopting Release, para. (CCH) para. 86,923, at 87,676, 87,697 86,923, at 87,687. (5th June, 2003) [hereinafter Management’s 20 Management’s Reports on Internal Control Reports on Internal Control Adopting Release], Adopting Release, para. 86,923, at 87,687. as amended by Management’s Report on 21 Ibid. Internal Control over Financial Reporting and 22 Ibid. Certification of Disclosure in Exchange Act 23 Ibid. para. 86,923, at 87,691. Reports, Securities Act Release No. 8392, 24 Ibid. Exchange Act Release No. 49313, Invest- 25 Office of the Chief Accountant, Division ment Company Act Release No. 26357 of Corporation Finance, Management’s [2003-2004 Transfer Binder] Fed. Sec. L. Report on Internal Control over Financial Rep. (CCH) para. 87,144, at 189,123 Reporting and Disclosure in Exchange Act (24th February, 2004) [hereinafter Manage- Periodic Reports: Frequently Asked Questions ment’s Report on Internal Control Adopting (22nd June, 2004) (http://www.sec.gov/ Release — 2004]. info/accountants/controlfaq0604.htm). 7 1934 Act, Rules 13a-15(f); 15d-15(f). 26 Ibid. Question 2. 8 Form 20-F, Item 15(b). 27 Ibid. Question 3. 9 Even if the evaluation framework used by 28 Ibid. Question 5. a foreign private issuer does not require a 29 Ibid. Question 9. statement as to the effectiveness of the 30 Ibid. issuer’s system of internal control over 31 Ibid. Question 10. financial reporting, the issuer must never- 32 Ibid. Question 11. theless state affirmatively whether such 33 Auditing Standard No. 2 Release, para. controls are effective. Management’s Reports 87,151, at 89,329. on Internal Control Adopting Release, para. 34 The PCAOB believed that ‘attestation’ 86,923, at 87,685 n.68. was ‘insufficient to describe the process of 10 Form 20-F, Items 15(c), (d). assessing management’s report on internal 11 Management’s Report on Internal Control controls’. Ibid. Adopting Release — 2004, para. 87,144, at 35 Ibid. 89,123. See also Management’s Reports on 36 Ibid. Internal Control Adopting Release, para. 37 Ibid. 86,923, at 87,698 regarding the effective 38 Ibid. para. 87,151, at 89, 334.

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39 Ibid. and 87,701, as amended by Management’s 40 Ibid. Report on Internal Control Adopting Release 41 Ibid. — 2004, para. 87,144, at 89,123. 42 Ibid. 66 Similarly, this portion of the Section 302 43 Ibid. certification does not take effect until 15th 44 Ibid. July, 2005. Management’s Reports on Internal 45 Ibid. para. 87,151, at 89,334–89,335. Control Adopting Release, para. 86,923, at 46 Ibid. para. 87,151, at 89,336. 87,697 and 87,701, as amended by Man- 47 Ibid. para. 87,151, at 89,335. agement’s Report on Internal Control Adopting 48 Ibid. Release — 2004, para. 87,144, at 89,123. 49 Ibid. para. 87,151, at 89,336. 67 Note, however, that no specific date for 50 Ibid. the evaluation is specified. Management’s 51 Ibid. Reports on Internal Control Adopting Release, 52 Ibid. para. 86,923, at 87,701. 53 Ibid. 68 1934 Act, Rules 13a-14(a), 15d-14(a) and 54 1934 Act, Rules 13a-15(a), 15d-15(a). Form 20-F, Instructions as to Exhibits, 55 1934 Act, Rules 13a-15(e), 15d-15(e). Instruction 12. 56 Management’s Reports on Internal Control 69 Certification Adopting Release, para. 86,720, Adopting Release, para. 86,923, at 87,689. at 86,132. However, ‘a company’s certify- 57 Ibid. ing officers may temporarily modify the 58 Ibid. content of their Section 302 certification 59 1934 Act, Rules 13a-15(b), 15d-15(b). to eliminate certain references to internal 60 Form 20-F, Item 15(a). control over financial reporting until the 61 Certification of Disclosure in Companies’ compliance date’. Management’s Reports Quarterly and Annual Reports, Securities Act on Internal Control Adopting Release, para. Release No. 8124, Exchange Act Release 86,923, at 87,701. No. 46427, Investment Company Act 70 Management’s Reports on Internal Control Release No. 25722 [2002 Transfer Binder] Adopting Release, para. 86,923, at 87,699. Fed. Sec. L. Rep. (CCH) para. 86,720, at Not ‘filing’ will also limit enforcement of 86,132, 86,152 (28th August, 2002) [here- the certificate to criminal proceedings inafter Certification Adopting Release]. rather than civil litigation. John J. Huber 62 The SEC has stated that current reports and Julie K. Hoffman, The Sarbanes–Oxley such as those on Forms 6-K and 8-K, as Act of 2002 and SEC Rulemaking, para. opposed to periodic reports (ie quarterly II.B.1.c, at 20 (2nd April, 2004) (http:// and annual reports), are not covered by www.lw.com/upload/docs/doc84.pdf) Section 302’s certification requirements. [hereinafter Huber Outline]. Certification Adopting Release, para. 86,720, 71 Additional Form 8-K Disclosure Requirements at 86,130. Foreign private issuers are and Acceleration of Filing Date, Securities nevertheless required to design and main- Act Release No. 8400, Exchange Act tain disclosure controls and procedures to Release No. 49424 [2003-2004 Transfer ensure full and timely disclosure in current Binder] Fed. Sec. L. Rep. (CCH) para. reports. Ibid. 87,158, at 89,493 n.146 (16th March, 63 1934 Act, Rules 13a-14(a), 15d-14(a). 2004). 64 Form 20-F, Instructions as to Exhibits, 72 Huber Outline, para. II.B.3.b(1), at 23. Instruction 12. 73 Ibid. para. II.B.2.b(3), at 21. 65 This portion of the Section 302 certifica- 74 Management’s Reports on Internal Control tion does not take effect until the annual Adopting Release, para. 86,923, at 87,699. report on Form 20-F for the first fiscal 75 Conditions for Use of Non-GAAP Financial year ending on or after 15th July, 2005. Measures, Securities Act Release No. 8176, Management’s Reports on Internal Control Exchange Act Release No. 47226, Finan- Adopting Release, para. 86,923, at 87,697 cial Reporting Release No. 65 [2002-2003

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Transfer Binder] Fed. Sec. L. Rep. (CCH) 98 Off-Balance Sheet Adopting Release, para. para. 86,816, at 86,830 (22nd January, 86,821, at 86,982 n.73. 2003); see also Latham & Watkins Client 99 Commission Statement about Management’s Alert No. 257, SEC Adopts Rules for Discussion and Analysis of Financial Condition Disclosure of EBITDA and Other ‘Non- and Results of Operations, Securities Act GAAP Financial Measures’ (http:// Release No. 8056, Exchange Act Release www.lw.com/resource/publications/_pdf/ No. 45321, Financial Reporting Release pub578.pdf). No. 61 [2001-2002 Transfer Binder] Fed. 76 Regulation G, Rule 100(a). Sec. L. Rep. (CCH) para. 86,617, at 77 Ibid. Rule 101(a)(1). The term does not 85,152 (22nd January, 2002). cover operating measures. Ibid. Rule 100 Off-Balance Sheet Adopting Release, para. 101(a)(2). 86,821, at 86,974. 78 Ibid. Rule 101(b). In addition, if the 101 1934 Act, Rule 10A-3(a)(5)(i)(A); see also foreign private issuer prepares its primary Standards Relating to Listed Company Audit financial statements under US GAAP, Committees, Securities Act Release No. ‘GAAP’ would mean US GAAP. Ibid. 8220, Exchange Act Release No. 47654, 79 Ibid. Rule 101(a). Investment Company Act Release No. 80 Ibid. 26001 [2003 Transfer Binder] Fed. Sec. L. 81 Ibid. Rule 100(b). Rep. (CCH) para. 86,902, at 87,402 (9th 82 Ibid. Rule 100(c). April, 2003) [hereinafter Listed Company 83 Regulation S-K, Item 10(e)(1)(i). Audit Committee Adopting Release]. 84 Ibid. Item 10(e)(1)(ii). 102 1934 Act, Rule 10A-3(b)(1)(i). 85 Ibid. Item 10, Note to Paragraph (e). 103 1934 Act, Rule 10A-3(b)(1)(ii)(A). 86 SEC Office of the Chief Accountant, 104 1934 Act, Rule 10A-3(b)(1)(ii)(B). Division of Corporation Finance, Fre- 105 1934 Act, Rule 10A-3(e)(1)(i). quently Asked Questions Regarding the Use of 106 1934 Act, Rule 10A-3(e)(1)(ii)(A). Non-GAAP Financial Measures, Question 8 107 1934 Act, Rule 10A-3(b)(1)(iv)(C). (13th June, 2003) (http://www.sec.gov/ 108 1934 Act, Rule 10A-3(b)(1)(iv)(D). divisions/corpfin/faqs/nongapfaq.htm). 109 1934 Act, Rule 10A-3(b)(1)(iv)(E). 87 Ibid. Question 14. 110 1934 Act, Rule 10A-3(b)(1)(iv)(A). 88 Ibid. Question 15. 111 1934 Act, Rule 10A-3(b)(2). 89 See Disclosure in Management’s Discussion 112 1934 Act, Rule 10A-3(b)(3). and Analysis about Off-Balance Sheet 113 1934 Act, Rule 10A-3(b)(4). Arrangements and Aggregate Contractual Obli- 114 1934 Act, Rule 10A-3(b)(5). gations, Securities Act Release No. 8182, 115 Instruction 1 to 1934 Act, Rule 10A-3. Exchange Act Release No. 47264, 116 Ibid. Financial Reporting Release No. 67, 117 Instruction 2 to 1934 Act, Rule 10A-3. International Series Release No. 1266 118 1934 Act, Rule 10A-3(c)(3). [2002-2003 Transfer Binder] Fed. Sec. L. 119 1934 Act, Rule 10A-3(d) and Form 20-F, Rep. (CCH) para. 86,821, at 86,969 (27th Item 16.D. January, 2003) [hereinafter Off-Balance 120 Form 20-F, Items 16A(a)(1) and (3). Sheet Adopting Release]. 121 Ibid. Instruction 3 to Item 16A. 90 Form 20-F, Item 5.E.1. 122 Ibid. Item 16A(a)(2). 91 Ibid. Items 5.E.1.(a)-(d). 123 Ibid.; see also Listed Company Audit Com- 92 Ibid. Item 5.E.2. mittee Adopting Release, para. 86,902, at 93 Off-Balance Sheet Adopting Release, para. 87,433. 86,821, at 86,973 and 86,977. 124 Disclosure Required by Sections 406 and 407 94 Ibid. para. 86,821, at 86,984. of the Sarbanes–Oxley Act of 2002, Securi- 95 Ibid. ties Act Release No. 8177, Exchange Act 96 Form 20-F, Item 5.F.1. Release No. 47234 [2002-2003 Transfer 97 Ibid. Item 5.F.2. Binder] Fed. Sec. L. Rep. (CCH) para.

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86,818, at 86,885 (as corrected, 24th Accordingly, monetary limits cannot be January, 2003 and 31st March, 2003) the only basis for the pre-approval policies [hereinafter Sections 406 and 407 Adopting and procedures. SEC Office of the Chief Release]. Accountant, Application of the January 2003 125 Form 20-F, Item 16A(b). Rules on Auditor Independence: Frequently 126 Ibid. Item 16A(c). Asked Questions, Question 22 (http:// 127 Ibid. Instruction 3 to Item 16A. www.sec.gov/info/accountants/ 128 Sections 406 and 407 Adopting Release, para. ocafaqaudind08703.htm). Note that under 86,818, at 86,883. Auditing Standard No. 2 of the PCAOB, 129 Form 20-F, Item 16A(d)(1). an issuer’s audit committee cannot pre- 130 Ibid. Items 16A(d)(2)-(3). approve internal control services as a cat- 131 S-X Rule 2-01(c)(2)(iii)(B); see also 1934 egory, but must instead approve each Act, Section 10A(l) (auditor may not audit service. an issuer whose CEO, controller, CFO or 135 S-X Rule 2-01(c)(8). chief accounting officer was employed by 136 S-X Rule 2-07(a); see also 1934 Act the auditor and participated in the audit Section 10A(k) (substantially identical during the one-year period preceding the requirements). date of the initiation of the audit in 137 Form 20-F, Item 16C(a). question). Generally speaking, persons 138 Ibid. Item 16C(b). other than the lead or concurring partner 139 Ibid. Item 16C(c). who provided ten or fewer hours of audit, 140 Ibid. Item 16C(d). review or attest services during the rel- 141 Ibid. Item 16C(e). evant period are not considered to be 142 Ibid. Item 16C(f). members of the audit engagement team. 143 1934 Act, Rule 13b2-2(b)(1). S-X Rule 2-01(c)(2)(iii)(B)(2). 144 Improper Influence on Conduct of Audits, 132 S-X Rule 2-01(c)(4); see also 1934 Act, Exchange Act Release No. 47890, Invest- Section 10A(g) (substantially identical limi- ment Company Act Release No. 26050, tations). Financial Reporting Release No. 71 [2003 133 S-X Rule 2-01(c)(6); see also 1934 Act, Transfer Binder] Fed. Sec. L. Rep. (CCH) Section 10A(j) (unlawful to act as auditor para. 86,921, at 87,656 (20th May, 2003). if lead (or coordinating) audit partner 145 Ibid. (having primary responsibility for the 146 1934 Act, Rule 13b2-2(b)(2). audit) or audit partner responsible for 147 S-X Rule 2-06(a). The SEC required a reviewing the audit has performed audit seven-year period rather than the five-year services for the issuer in each of the prior period mandated in Section 802, because, five fiscal years of the issuer). among other things, Section 103 of the 134 S-X Rule 2-01(c)(7); see also 1934 Act, Sarbanes–Oxley Act directs the PCAOB Sections 10A(h)-(i) (all audit and permitted to require auditors to retain audit work- non-audit services must be pre-approved papers and other materials that support the by the audit committee (subject to certain audit for seven years. Retention of Records de minimis exceptions)). The SEC has Relevant to Audits and Reviews, Securities stated that an issuer’s audit committee Act Release No. 8180, Exchange Act must follow three requirements in its use Release No. 47241, Investment Company of pre-approval through policies and pro- Act Release No. 25911, Financial Report- cedures. First, the policies and procedures ing Release No. 66 [2002-2003 Transfer must be detailed as to the particular service Binder] Fed. Sec. L. Rep. (CCH) para. to be provided. Secondly, the audit com- 86,819, at 86,917 (24th January, 2003). mittee must be informed about each ser- 148 S-X Rule 2-06(b). vice. Thirdly, the policies and procedures 149 S-X Rule 2-06(c). cannot result in the delegation of the audit 150 See Certification Adopting Release, para. committee’s authority to management. 86,720, at 86,130.

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151 Implementation of Standards of Professional Loans (15th October, 2002) (http:// Conduct for Attorneys, Securities Act Release www.lw.com/upload/docs/doc29.pdf). No. 8185, Exchange Act Release No. 182 Ibid. at 3–4. 47276, Investment Company Act Release 183 Ibid. at 4. No. 25919 [2002-2003 Transfer Binder] 184 Ibid. Fed. Sec. L. Rep. (CCH) para. 86,823, at 185 Ibid. at 4–5. 87,069 (29th January, 2003) [hereinafter 186 Ibid. at 6. Attorney Conduct Adopting Release]. 187 Ibid. 152 Part 205.2(a)(1). 188 Ibid. at 8–11. 153 Part 205.2(a)(2)(ii). 189 See Huber Outline, para. V.C.1.a, at 95. 154 Part 205.2(j). 190 Ibid. para. V.C.2, at 97. 155 Part 205.2(i). 191 Ibid. para. X.A, at 172. 156 Part 205.3(b)(1). 192 Sarbanes–Oxley Act, Section 802(a) (add- 157 Part 205.3(b)(2). ing new Section 1519 of 18 U.S.C.); 158 Part 205.3(b)(3). Huber Outline, para. X.A.1.a(1), at 172. 159 Part 205.3(c)(1). 193 Sarbanes–Oxley Act, Section 1102 160 Part 205.2(k). (amending 18 U.S.C. Section 1512); Huber 161 Part 205.3(c)(1). Outline, para. X.A.1.b, at 175. 162 Part 205.3(c)(2). 194 Sarbanes–Oxley Act, Section 1107 163 Attorney Conduct Adopting Release, para. (amending 18 U.S.C. Section 1513); Huber 86,823, at 87,069. Outline, para. X.A.2.a, at 175. 164 Form 20-F, Item 16B(a). 195 Sarbanes–Oxley Act, Section 807 (adding 165 Ibid. Item 16B(b). new Section 1348 to 18 U.S.C.); Huber 166 Ibid. Item 16B(c). Outline, para. X.A.3, at 175. 167 Ibid. Items 16B(d) and (e). 196 Sarbanes–Oxley Act, Section 1106 168 The term ‘individual account plan’ is (amending 1934 Act Section 32(a)); Huber defined in Regulation BTR, Rule 100( j). Outline, para. X.A.4.a(7), at 177. 169 Ibid. Rule 100(b)(2). 197 Sarbanes–Oxley Act, Section 1103 170 Ibid. Rule 101(a). (amending 1934 Act Section 21C(c)); 171 Ibid. Rule 104. Huber Outline, para. X.B.1, at 177. 172 Form 20-F, Instructions as to Exhibits, 198 Sarbanes–Oxley Act, Section 1105 Instruction 10. Although the issuer need (amending 1934 Act Section 21C and not submit the notice under Form 6-K, if 1933 Act Section 8A); Huber Outline, para. it does so it is not separately required to X.B.2, at 178. include the notice as an exhibit to its 199 Huber Outline, para. X.B.2.a, at 178. annual report on Form 20-F. Ibid. 200 Sarbanes–Oxley Act, Section 305 (amend- 173 Regulation BTR, Rule 103(b). ing 1934 Act Section 21(d)(2) and 1933 174 Ibid. Rule 103(a). Act Section 20(e)); Huber Outline, para. 175 Ibid. Rule 103(b). X.B.2.c, at 178. 176 1934 Act, Section 13(k)(1). 201 Sarbanes–Oxley Act Section 806 (adding 177 Ibid. new Section 1514A to 18 U.S.C.); Huber 178 Ibid. Outline, para. X.C.2.a, at 179–180. 179 1934 Act, Section 13(k)(2). 202 Sarbanes–Oxley Act Section 803 (adding 180 1934 Act, Section 13(k)(3). new Section 523(a) to 11 U.S.C.); Huber 181 Sarbanes–Oxley Act: Interpretive Issues under Outline, para. X.C.3.a, at 180. Section 402 — Prohibition of Certain Insider

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