On Aug. 29, new Securities and Exchange Commission (SEC) rules governing disclosure in the wake of the Sarbanes-Oxley Act went into effect.
The act, signed July 30, establishes federal oversight of public auditors through a Public Company Accounting Oversight Board and new auditor independence rules, disclosure requirements applicable to public companies and insiders, restrictions on loans and stock transactions involving insiders, and strong civil and criminal penalties for those responsible for accounting or reporting violations.
"This law says to every dishonest corporate leader: You will be exposed and punished; the era of low standards and false profits is over," said President George W. Bush upon signing the bill. "This law says to honest corporate leaders: Your integrity will be recognized and rewarded, because the shadow of suspicion will be lifted from good companies that respect the rules."
"We are determined to give real teeth and meaning to the protections of the new law," said Harvey Pitt, chairman, at an open meeting announcing the new rules.
Under the SEC directive:
- Executives and directors must report within two days when they buy or sell company stock (formerly they had until the 10th day of the month after the transaction occurred).
- By July 2003, inside trade details (Form 4) must be filed electronically.
- Public companies must file quarterly reports (Form 10-Q) within 35 days of the end of the quarter (formerly 45 days).
- Annual reports (Form 10-K) must be filed within 60 days (formerly 90 days).
- Companies must disclose whether they provide free access to reports on their web sites as soon as practicable after electronic filing.
- Principal executives and financial officers must certify that their companies have internal controls to protect against inaccurate financial disclosures.
- Beginning in 2003, executives at registered investment companies must certify their biannual SEC reports are accurate to the best of their knowledge.
The deadlines and phase-in periods were altered after the SEC considered more than 300 comments from both investors and companies. The new report-filing deadlines at first only will apply to companies that have been reporting for at least 12 months, have previously filed an annual report, and have market values of more than $75 million. The deadlines will be phased in over a period of three years.
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