Who is subject to Sarbanes-Oxley?

The Sarbanes-Oxley Act applies to all issuers (including foreign private issuers) that:

• have registered securities under the US Securities Exchange Act 1934, as amended (the Exchange Act);
• are required to file reports under Section 15(d) of the Exchange Act; or
• have filed a registration statement under US Securities Act 1933, as amended (the Securities Act), that has not yet become effective.^[467]

This means, for example, that any foreign private issuer that has listed its securities in the US, or issued securities to the public in the US whether or not listed (such as in a registered exchange offer for high-yield bonds) is subject to the Sarbanes-Oxley Act. A foreign private issuer, however, that has not sold securities to the public in the US, or that is exempt from Exchange Act registration by virtue of Exchange Act Rule 12g3-2(b) is not subject to the requirements of the Sarbanes-Oxley Act. Accordingly, when we refer below to issuers and foreign private issuers we mean those companies that are subject to Sarbanes-Oxley.

Although the Sarbanes-Oxley Act does not generally distinguish between US domestic and foreign private issuers, the SEC has, in its implementing rules, made various exceptions for the benefit of foreign private issuers.

When does Sarbanes-Oxley take effect?

The Sarbanes-Oxley Act's provisions have taken effect at different times, ranging from immediately upon enactment to later dates specified in the Act or on which the required SEC implementing regulations came into force. With the exception of the SEC's rules implementing the internal control provisions of Section 404, all other aspects of Sarbanes-Oxley and the related SEC rules have now taken effect.

Section 404 – internal control over financial reporting

(i) Internal control requirements

Under Section 404 of Sarbanes-Oxley and the SEC's rules, an issuer must:

• maintain internal control over financial reporting;^[468]
• evaluate (with the participation of the CEO and CFO) the effectiveness of internal control as of the end of each fiscal year;^[469] and
• evaluate (with the participation of the CEO and CFO) any change in its internal control that occurred during the fiscal year that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting.^[470]

In addition, in its annual report on Form 20-F, the issuer must include:

• a report from management on the issuer's internal control over financial reporting that contains, among other things, management's assessment of the effectiveness of the issuer's internal control over financial reporting as of the end of the most recent fiscal year, including a statement as to whether or not the issuer's internal control over financial reporting is effective;^[471]and
• an attestation report of the independent auditor on management's assessment of the issuer's internal control over financial reporting.^[472]

Section 404's requirement to maintain internal control has taken effect. The compliance dates for Section 404's required internal control evaluation and reporting, however, essentially depend upon an issuer's market capitalization. In particular:

• A foreign private issuer that is a large accelerated filer^[473] must evaluate internal control, and provide management's internal control report and an auditor's attestation report, in its annual report on Form 20-F for the first fiscal year ending on or after July 15 2006.^[474] The requirement to evaluate changes in internal control takes effect in the first annual report thereafter.^[475]
• A foreign private issuer that is an accelerated filer^[476] but not a large accelerated filer can wait an additional year to provide the auditor's attestation report on internal control.^[477] In other words, it must evaluate internal control and provide a management report on internal control in its annual report on Form 20-F for the fiscal year ending on or after July 15 2006, but may wait to provide an auditor's attestation report until its annual report on Form 20-F for the fiscal year ending on or after July 15 2007.

The SEC has proposed (but not yet adopted) additional delays in Section 404 for the benefit of other filers. In particular, under the proposals:

• Non-accelerated filers would delay their first management report on internal control until their annual report filed with the SEC for fiscal years ending on or after December 15 2007, and would delay their first auditor's attestation report on internal control until their annual report filed with the SEC for fiscal years ending on or after December 15 2008.
• Issuers that become public in the US for the first time, whether through an IPO, a registered exchange offering or a secondary listing on a US securities exchange, would only have to provide a management report on internal control and an auditor's attestation in the second annual report they file with the SEC, and could omit the management and auditor's report in the first SEC annual report.^[478]

(ii) Definition of internal control over financial reporting

For these purposes, internal control over financial reporting is defined as a process designed by, or under the supervision of, the issuer's CEO and CFO, and effected by the issuer's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and
• provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the financial statements.^[479]

(iii) Evaluation of internal control

(a) Framework for evaluation

The SEC has not required the use of a particular framework. It has, however, specified that management's evaluation must be based on a recognized control framework established by a body or group that has followed due-process procedures, including a broad distribution of the framework for public comment.^[480] The Committee of Sponsoring Organizations of the Treadway Commission's Internal Control – Integrated Framework, the Canadian Institute of Chartered Accountant's The Guidance on Assessing Control, and the Institute of Chartered Accountants in England and Wales' Turnbull Report are all approved frameworks.^[481]

(b) Auditor independence

Although management may coordinate its evaluation of internal controls with that of its auditors, it cannot compromise the auditors' independence. Auditors may assist management in documenting internal controls, but management must be actively involved in the documentation process. In addition, management cannot delegate its responsibilities to assess internal control to the auditor.^[482]

(c) Material weaknesses

Management may not determine that an issuer's internal control over financial reporting is effective if it identifies one or more material weaknesses in the issuer's internal control.^[483] The term material weaknesses for these purposes has the same meaning as under the auditing standards of the PCAOB.^[484]

(d) Method of evaluation

The SEC has not specified a method or procedures to be followed in the evaluation.^[485] An issuer must, however, maintain evidential matter, including documentation to provide reasonable support for management's assessment of the issuer's internal control over financial reporting.^[486]

The assessment must be based on procedures enough both to evaluate design and to test operating effectiveness.^[487] Controls that are subject to assessment include:^[488]

• controls over initiating, recording, processing and reconciling account balances, classes of transactions and disclosure and related assertions included in the financial statements;
• controls related to the initiation and processing of non-routine and non-systematic transactions;
• controls related to the selection and application of appropriate accounting policies; and
• controls related to the prevention, identification and detection of fraud.

The SEC has cautioned that inquiry alone generally will not provide an adequate basis for management's assessment.^[489]

(iv) Certain internal control issues

(a) 2004 FAQ

In June 2004 the SEC issued answers to certain frequently asked questions regarding management's report over internal control (the 2004 FAQ).^[490] Under the 2004 FAQ:

• Equity investees: an issuer must have controls over the recording of amounts related to its investment that are recorded in its consolidated financial statements, although it need not evaluate the recording of transactions into the investee's accounts.^[491]
• Material business combinations: if an issuer consummates a material business combination during a fiscal year and is unable to conduct an assessment of the acquired business's internal control during the period between the consummation date and the date of management's assessment, it may omit an assessment of the acquired business's internal control for not more than one year from the date of acquisition (and must make certain disclosures about the acquired business and the effect of the acquisition on the issuer's internal control).^[492]
• Qualifications: management may not qualify its conclusion about the effectiveness of an issuer's internal control, and may not conclude that the internal control is effective if a material weakness exists. Instead, management may state that controls are ineffective for specific reasons.^[493]
• Initial internal control report: management need not disclose changes or improvements made in preparation for the first internal control report, although the SEC cautioned that if the issuer were to identify a material weakness it should carefully consider whether that fact should be disclosed, as well as any changes made in response to the material weakness.^[494]
• Subsequent internal control reports: after an issuer's first management report on internal control, it is required to identify and disclose material changes in internal control in its annual report on Form 20-F. This would include discussing a material change (including an improvement) even if that change was not in response to an identified significant deficiency or material weakness.^[495]
• Compliance with law: although general legal compliance is not part of internal control (as opposed to compliance with laws relating to the preparation of financial statements), an issuer must evaluate whether it has adequate controls to ensure that the effect of non-compliance with law is recorded in the issuer's financial statements. An evaluation of compliance with law is instead required as part of management's evaluation of disclosure controls and procedures. In particular, management must evaluate whether the issuer adequately monitors compliance and has appropriate disclosure controls and procedures to ensure that required disclosure of legal or regulatory matters is provided.^[496]
• Disclosure of significant deficiencies: an issuer must identify and publicly disclose all material weaknesses. If management identifies a significant deficiency, it is not obligated to disclose publicly the existence or nature of the significant deficiency. If, however, management identifies a significant deficiency that, when combined with other significant deficiencies, is determined to be a material weakness, management must disclose the material weakness (and the significant deficiency to the extent needed to understand the material weakness). In addition, if a material change is made to either internal control or disclosure controls and procedures in response to a significant deficiency, the issuer should disclose the change and consider whether a discussion of the significant deficiency is needed.^[497]

(b) May 2005 SEC Staff Statement

On May 16 2005, the SEC issued a "Staff Statement on Management's Report on Internal Control Over Financial Reporting."^[498] The SEC Staff Statement focuses on the management's report on internal control as required by Section 404.

The SEC Staff Statement (which reflects the views of the staff of the SEC's Division of Corporation Finance) provides that:

• Overall focus of reporting: while identifying control deficiencies and significant deficiencies represents an important component of management's internal control assessment, the "overall focus" of internal control reporting should be on those items that could result in material errors in a company's financial statements.^[499]
• • Reasonable assurance: management is required to assess whether internal control is effective to provide "reasonable assurance" about the reliability of financial reporting. This is a high standard, but does not mean absolute assurance. Exchange Act Section 13(b)(7) defines reasonable assurance as a level of assurance that "would satisfy prudent officials in the conduct of their own affairs".^[500]
• Preferred approaches: in place of a check-the-box approach, management should focus on controls related to those processes and classes of transactions for financial statement accounts and disclosures that are most likely to have a material impact on an issuer's financial statements. In addition, management should use a top-down, risk-based approach in determining the controls to be tested. The use of a percentage as a minimum threshold can be a reasonable starting place, but management must also exercise judgment (including qualitative factors) to determine if amounts above or below the threshold should be evaluated.^[501]
• Annual and company measures versus interim measures: companies should generally focus on annual and company measures rather than interim or segment measures. If management identifies a deficiency when it tests a control, however, at that point it must measure the significance of the deficiency by using both quarterly and annual measures and must also consider segment measures where applicable. In addition, although management's assessment is stated as of year-end, this does not mean that controls must only be tested during the period leading up to the year-end close. It is instead preferable to test over a longer period of time.^[502]
• Restatements: Section 404 does not require that a material weakness be found in every case of restatement resulting from an error. Instead, management and the auditors should use their judgment in assessing the reasons why a restatement was necessary and whether the need for restatement resulted from a material weakness in controls.^[503]
• Disclosure: companies should consider including in material weakness disclosure a discussion of:
  - the nature of the material weakness;
  - its impact on financial reporting and the control environment; and
  - management's current plans, if any, for rectifying the weakness.^[504]
• Impact of material weaknesses: issuers are strongly encouraged to provide disclosure that allows investors to assess the potential impact of each material weakness, and that also distinguishes those material weaknesses that have a pervasive impact on internal control from those that do not.^[505]
• IT issues: the SEC staff does not expect testing of general information technology controls that do not pertain to financial reporting. New IT systems and upgrades may not, however, be excluded by management from the scope of its assessment of internal control.^[506]
• Auditor independence: with respect to auditor independence:
  - discussing internal control issues with a company's auditors and exchanging views with them does not compromise auditor independence.
  - so long as management, and not the auditor, makes the final determination as to the accounting used, and the auditor does not design or implement accounting policies, involving auditors in a consideration of the proper application of accounting standards is appropriate and does not indicate an internal control deficiency.
  - management should not be discouraged from providing draft financial statements to auditors, even those that may be incomplete or contain errors. Errors in draft financial statements by themselves should not be the basis for determining that a deficiency in internal control exists.^[507]

(v) Internal control audits – Auditing Standard No 2^[508]

Auditing Standard No 2 sets out the PCAOB's rules for internal control audits (the PCAOB chose to refer to an "audit" rather than an "attestation").^[509] The PCAOB stated that the objective of the internal control audit is to form an opinion as to whether management's assessment of the effectiveness of the issuer's internal control is fairly stated in all material respects.^[510] The auditor's conclusion will therefore relate directly to whether the auditor can agree with management that internal control is effective.^[511] In this connection, the auditor needs to evaluate management's assessment process (to ensure that management has an appropriate basis for its conclusion) and to test the effectiveness of internal control.^[512]

(a) Significant deficiencies and material weaknesses

Under Auditing Standard No 2, both management and the auditor may identify deficiencies in internal control.^[513] A control deficiency exists "when the design or operation of a control does not allow the company's management or employees, in the normal course of performing their assigned functions", to prevent or detect misstatements on a timely basis.^[514]

Auditing Standard No 2 provides that a control deficiency should be classified as a "significant deficiency if, by itself or in a combination with other control deficiencies, it results in more than a remote likelihood of a misstatement of the company's annual or interim financial statements that is more than inconsequential and will not be prevented or detected".^[515] In addition, "a significant deficiency should be classified as a material weakness if, by itself or in combination with other control deficiencies, it results in more than a remote likelihood that a material misstatement in the company's annual or interim financial statements will not be prevented or detected".^[516]

Auditing Standard No 2 mandates that an auditor must communicate in writing to the audit committee all significant deficiencies and material weaknesses of which the auditor is aware.^[517] In addition, the auditor must communicate to management, in writing, all control deficiencies of which the auditor is aware that have not previously been communicated in writing to management and to notify the audit committee of such a communication.^[518]

(b) Identifying significant deficiencies

Auditing Standard No 2 identifies a number of circumstances that, "because of their likely significant negative effect on internal control are significant deficiencies as well as strong indicators that a material weakness exists".^[519] These include:

• ineffective oversight by the audit committee of the issuer's external financial reporting and internal control. As part of evaluating the control environment, an auditor must assess the effectiveness of the audit committee's oversight and must communicate to the board of directors if it concludes that oversight is ineffective;
• material misstatement in the financial statements not initially identified by the issuer's internal control. Failure to detect the misstatement is a "strong indicator that the company's internal control" is ineffective; and
• significant deficiencies that have been communicated to management and the audit committee, but that remain uncorrected after reasonable periods of time.^[520]

(c) Auditor's report

Under Auditing Standard No 2, the auditor's report includes two opinions: one on management's assessment of internal control and on the effectiveness of internal control.^[521]

An auditor may express an unqualified opinion if it has identified no material weaknesses.^[522] If the auditor cannot perform all of the necessary procedures, the auditor may either qualify or disclaim an opinion.^[523] If an overall opinion cannot be expressed, Auditing Standard No 2 requires the auditor to explain why.^[524]

The auditor's report may disclose only material weaknesses, although if an aggregation of significant deficiencies constituted a material weakness, then disclosure would be required.^[525] Auditing Standard No 2 does not permit a qualified opinion on the effectiveness of internal control in the event of a material weakness; instead, the auditor must express an "adverse opinion".^[526] The auditor may express an unqualified opinion on management's assessment (but not on the effectiveness of internal control) so long as management properly identifies the material weakness and concludes that internal control was not effective.^[527] If, however, the auditor and management disagree about the existence of the material weakness, then the auditor would render an adverse opinion on management's assessment.^[528]

Disclosure controls and procedures

In addition to internal control, the SEC's implementing rules under the Act have introduced the concept of "disclosure controls and procedures".^[529] For these purposes (as well as for the Section 302 certification discussed below), disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is: (i) recorded, processed, summarized and reported in a timely fashion, and (ii) accumulated and communicated to the issuer's management, to allow for timely decisions about disclosure.^[530]

(i) Interaction between disclosure controls and procedures and internal control

There is substantial overlap between the concepts of disclosure controls and procedures and internal control over financial reporting, although there are some elements of each term that are not subsumed within the other. In particular, disclosure controls and procedures will include those components of internal control over financial reporting that provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles.^[531] By contrast, disclosure controls and procedures would not necessarily include disposition or safeguarding of assets, which would remain components of internal control.^[532]

Accordingly, the effectiveness of an issuer's disclosure controls and procedures is directly linked to the effectiveness of its internal control over financial reporting. Recall that management may not determine that an issuer's internal control over financial reporting is effective if it identifies one or more material weaknesses in the issuer's internal control over financial reporting. While the SEC has not established that existence of a material weakness prevents management from concluding that an issuer's disclosure controls and procedures are effective, statements by senior SEC officials make clear that an issuer with a material weakness in internal control must overcome a high hurdle to conclude that its disclosure controls and procedures are nevertheless effective.

(ii) Requirements

The regime governing disclosure controls and procedures is similar to that for internal control. Accordingly:

• an issuer must maintain disclosure controls and procedures;^[533]
• an issuer's management must evaluate, with the participation of the CEO and CFO, the effectiveness of the issuer's disclosure controls and procedures, as of the end of its fiscal year;^[534] and
• the issuer must disclose the conclusions of its CEO and CFO regarding the effectiveness of the disclosure controls and procedures based on their review as of the end of the period to which the report relates.^[535]

There is, however, no required audit of disclosure controls and procedures.

Certification requirements

Sarbanes-Oxley contains two overlapping certifications that must be provided by an issuer's CEO and CFO (or persons performing similar functions): the Section 302 certification and the Section 906 certification. Section 302 amends the Exchange Act, whereas Section 906 amends the US federal criminal code.

(i) Section 302

Section 302 requires CEO and CFO certification of each "annual or quarterly report" filed by issuers.

(a) Section 302 Certification Text

Under the SEC's rules, a foreign private issuer's annual report on Form 20-F (but not its current reports on Form 6-K)^[536] must include separate certifications by the issuer's CEO and CFO.^[537] The certifications must state that:^[538]

• the officer has reviewed the annual report;
• based on the officer's knowledge, the annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report;
• based on the officer's knowledge, the financial statements, and other financial information included in the annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer;
• the CEO and CFO are responsible for establishing and maintaining "disclosure controls and procedures" and "internal control over financial reporting"^[539] for the issuer and have:
  - designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under their supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which the annual report is being prepared;
  - designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;^[540]
  - evaluated the effectiveness of the issuer's disclosure controls and procedures and presented in the annual report their conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by the report based on such evaluation;^[541] and
  - disclosed in the report any change in the issuer's internal control over financial reporting that occurred during the period covered by the report that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; and
• the CEO and CFO have disclosed, based on their most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee:
  - all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer's ability to record, process, summarize and report financial information; and
  - any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal control over financial reporting.

The certifications must be included as an exhibit to the issuer's annual report on Form 20-F.^[542] Except for the portions of the certifications appearing above in square brackets (which do not come into effect until fiscal years ending on or after July 15, 2006, in the case of foreign private issuers that are accelerated filers or large accelerated filers, and July 15, 2007, in the case of non-accelerated filers),^[543] the wording of the certification may not be changed in any respect, even if the changes would appear to be inconsequential.^[544]

(b) Violations of Section 302

While Section 302 carries no criminal sanctions, false certifications are subject to SEC enforcement action for violating the Exchange Act and also possibly to both SEC and private litigation alleging violations of the anti-fraud provisions of the Exchange Act (for example, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5). A false certification also may have liability consequences under Sections 11 and 12(a)(2) of the Securities Act if the accompanying report is incorporated by reference into a registration statement (for example, on Form F-3) or into a prospectus.

(ii) Section 906

(a) Section 906 Certification text

Section 906 added new Section 1350 to the US federal criminal code. Section 906 requires that each "periodic report containing financial statements" filed by an issuer must "be accompanied by" a certification by the issuer's CEO and CFO that:

• the periodic report fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and
• the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer.

Although Section 906 is self-implementing, the SEC has adopted rules to require that the Section 906 certification (which may be a joint certification of the CEO and CFO) must be provided, and must be furnished as an exhibit to the relevant periodic report. Because the Section 906 certification is not considered "filed" as a technical matter, it would not attract liability under Section 18 of the Exchange Act or be incorporated by reference into the issuer's subsequent Securities Act registration statements (unless specifically incorporated by the issuer).^[545] As with the Section 302 certification, Section 906 certification is not required for current reports on Form 6-K.^[546]

(b) Violations of Section 906

Under Section 906, an officer who certifies a statement "knowing that the periodic report accompanying the statement" does not meet the certification can be fined not more than $1 million or imprisoned for not more than 10 years, or both. By contrast, an officer who "willfully" certifies his or her written statement while "knowing" that the annual report does not "comport with all the requirements" of Section 906 can be fined not more than $5 million or imprisoned not more than 20 years, or both. The distinction between "knowing" and "willful" certification is not set out in the Sarbanes-Oxley Act, but in other contexts "willfully" normally requires a showing that the person had specific knowledge of the law he or she was violating, whereas the "knowingly" threshold does not.^[547]

(iii) Differences between Section 302 and Section 906 certifications

Although the two required certifications overlap, there are some important differences between them. In contrast to the Section 302 certification, the text of the Section 906 certification does not explicitly provide for the officer to certify as to his or her knowledge. However, the US Department of Justice has confirmed that an officer may qualify a Section 906 certification to his or her knowledge because knowledge would, in any event, be a necessary element of criminal prosecution.^[548] Furthermore, whereas the Section 302 certification is required for any amendment to an annual report on Form 20-F, the SEC has stated that Form 20-F amendments do not require a new Section 906 certification.^[549]

Non-Gaap financial measures

Section 401(b) of the Sarbanes-Oxley Act requires the SEC to issue rules limiting the use of pro forma financial information in various ways. In response, the SEC has adopted both a new disclosure regulation, Regulation G, and new rules applicable to disclosure in filings with the SEC under Item 10 of Regulation S-K.^[550] The SEC has chosen to refer in the rules to "non-GAAP financial measures" rather than pro forma financial information, to avoid confusion with existing SEC rules on pro forma financial information (such as Article 11 of Regulation S-X).^[551]

(i) Regulation G

Regulation G applies whenever an issuer, or a person acting on its behalf, "publicly discloses material information" that includes a non-Gaap financial measure.^[552] A "non-Gaap financial measure" is broadly defined as a numerical measure of financial performance that excludes (or includes) amounts that are otherwise included (or excluded) in the comparable measure calculated and presented in the financial statements under Gaap.^[553] For purposes of Regulation G, Gaap generally means US Gaap. However, in the case of a foreign private issuer whose primary financial statements are prepared in local Gaap, Gaap means the local Gaap under which the financial statements were prepared, unless the measure in question is derived from US Gaap (in which case Gaap means US Gaap).^[554]

The term non-Gaap financial measure does not include:

• operating or other financial measures and ratios or statistical measures calculated using exclusively one or both of: (1) financial measures calculated in accordance with Gaap, and (2) operating measures or other measures that are not non-Gaap financial measures;^[555] or
• financial measures required to be disclosed by Gaap, SEC rules or an applicable system of regulation of a government, governmental authority or a self-regulatory organization.^[556]

Regulation G requires that public disclosure of non-Gaap financial measures be accompanied by:

• a presentation of the most directly comparable financial measure calculated in accordance with Gaap; and
• a quantitative reconciliation of the differences between the non-Gaap financial measure and the most directly comparable Gaap financial measure.^[557]

In addition, Regulation G prohibits an issuer from making any non-Gaap financial measure public if it contains a material misstatement or omits to include information needed to make the included measure not misleading.^[558]

A foreign private issuer is exempt from Regulation G if:

• its securities are listed or quoted outside the US;
• the non-Gaap financial measure being used is not derived from or based on a measure calculated and presented in accordance with US Gaap; and
• the disclosure is made outside the US.^[559]

(ii) S-K Item 10(e)

Distinct from Regulation G, the SEC has adopted limitations on the use of non-Gaap financial measures in filings (whether annual reports on Form 20-F, or registration statements in connection with offerings in the US or US listings) as new Item 10(e) of Regulation S-K. For purposes of Item 10(e), the term non-Gaap financial measures has the same meaning as under Regulation G.

Item 10(e) requires that whenever an issuer includes a non-Gaap financial measure in an SEC filing it must also include:

• a presentation, with equal or greater prominence, of the most directly comparable Gaap financial measure;
• a quantitative reconciliation of the differences between the non-Gaap financial measure and the most directly comparable Gaap financial measure;
• a statement disclosing why management believes the non-Gaap financial measure provides useful information for investors; and
• to the extent material, a statement of the additional purposes for which management uses the non-Gaap financial measure.^[560]

Furthermore, Item 10(e) prohibits in SEC filings, among other things:

• non-Gaap measures of liquidity that exclude items requiring cash settlement, other than Ebit and Ebitda;
• the adjustment of non-Gaap measures of performance to eliminate or smooth items characterized as non-recurring, unusual or infrequent when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the previous two years;
• the presentation of non-Gaap financial measures on the face of the financial statements, in the accompanying notes or on the face of any pro forma financial information required to be disclosed by Article 11 of Regulation S-X; and
• the use of titles or descriptions for non-Gaap financial measures that are the same as, or confusingly similar to, titles or descriptions used for Gaap financial measures.^[561]

Item 10(e) contains an exemption from these prohibitions for a foreign private issuer if the non-Gaap financial measure relates to the local Gaap used in the issuer's primary financial statements, if it is required or expressly permitted by the standard-setter that establishes the local Gaap, and if it is included in the issuer's annual report for its home jurisdiction.^[562]

The SEC has cautioned that inclusion of a non-Gaap financial measure may be misleading unless accompanied by disclosure as to:

• the manner in which management uses the non-Gaap measure to conduct or evaluate its business;
• the economic substance behind management's decision to use such a measure;
• the material limitations associated with the use of the non-Gaap financial measure as compared to the use of the most directly comparable Gaap financial measure;
• the manner in which management compensates for these limitations when using the non-Gaap financial measure; and
• the substantive reasons why management believes the non-Gaap financial measure provides useful information to investors.^[563]

The SEC has also stated that earnings as used in Ebit and Ebitda is intended to mean net income as presented in the statement of operations under Gaap, and that measures that are calculated differently should not be characterized as Ebit or Ebitda.^[564] To the extent Ebit or Ebitda are presented as a performance measure, the term should be reconciled to net income and not operating income.^[565]

Off-balance-sheet and other MD&A disclosure

Section 401(a) of the Sarbanes-Oxley Act requires the SEC to implement rules requiring issuers to disclose material off-balance sheet transactions. The SEC's rules go beyond off-balance sheet transactions, however, and also address certain topics covered in its previous MD&A initiatives.^[566] The rules take the form of amendments to Item 5 of Form 20-F, and accordingly apply to all registration statements filed by foreign private issuers (whether under the Securities Act or Exchange Act), as well as to annual reports.

(i) Off-balance sheet arrangements

An issuer must disclose, in a separately captioned section of MD&A, off-balance sheet arrangements that either have, or are reasonably likely to have, a current or future material effect on the issuer's financial condition, results of operations, or liquidity.^[567] To the extent necessary to understand these arrangements, the disclosure must include:

• the nature and business purpose of the off-balance sheet arrangements;
• the importance to the issuer of the off-balance sheet arrangements in respect of liquidity, capital resources, market risk support, credit support or other benefits;
• the amount of revenues, expenses and cash flows arising from these arrangements;
• the nature and amounts of any interests retained, securities issued or amounts incurred by the issuer under these arrangements;
• the nature and amounts of any other obligations or liabilities (contingent or otherwise) arising from these arrangements that are reasonably likely to become material and the triggering events that could cause them to arise; and
• any known events or trends that will, or are reasonably likely to, result in the termination or reduction in availability to the issuer of these arrangements and the course of action the issuer proposes to take in response.^[568]

An off-balance-sheet arrangement is defined as including any transaction, agreement or contractual arrangement to which an entity unconsolidated with the issuer is a party, under which the issuer has certain obligations or interests.^[569] Because the definition of off-balance sheet arrangement incorporates concepts from US Gaap, foreign private issuers will need to refer to US Gaap for some of the disclosure items.^[570] However, the MD&A disclosure should focus on the primary financial statements in the document (while taking reconciliation to US Gaap into account).^[571]

(ii) Table of contractual obligations

An issuer must also include in its SEC filings a table of contractual obligations as of the end of the latest balance sheet date showing the following items:^[572]

The term purchase obligations means an enforceable agreement to purchase goods or services that is binding on the issuer and that specifies key commercial terms (such as quantity and price).^[573] With the exception of purchase obligations, the classifications of categories shown in the table are defined by reference to US Gaap. However, an issuer that prepares financial statements in accordance with non-US Gaap should include those items of contractual obligations in the table that are consistent with the classifications used in the Gaap under which its primary financial statements are prepared.^[574]

(iii) Contingent liabilities and commitments

Although it issued proposed rules with respect to disclosure requirements for contingent liabilities and commitments, the SEC declined to adopt final rules. In the meantime, the SEC's existing guidance on the subject (which suggests a tabular format of specified categories^[575]) is controlling.^[576]

Standards relating to listed company audit committees

Section 301 of the Sarbanes-Oxley Act adds new Section 10A(m) to the Exchange Act. Section 10A(m) charges the SEC with creating rules to prohibit the listing of any security in the US of an issuer that is not in compliance with certain substantive standards for audit committees. The SEC has adopted final rules under Section 301 as 1934 Act Rule 10A-3.

Under Rule 10A-3, audit committee members each have to be a member of the board of directors and otherwise independent.^[577] To be "independent", an audit committee member is barred from accepting any compensatory fees other than in that member's capacity as a member of the board^[578] and may not be an "affiliated person" of the issuer.^[579]The definition of affiliated person includes a person who, directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with the specified person.^[580] There is, however, a safe harbour for certain non-executive officers and other persons that are 10% or less shareholders of the issuer.^[581]

Foreign private issuers are entitled to certain exemptions from the independence requirement of Rule 10A-3. For example, the inclusion of a non-management employee representative,^[582] a non-management affiliated person with only observer status,^[583] or a non-management governmental representative on the audit committee will not violate the affiliated person prong of the independence test.^[584] In addition, issuers involved in an IPO are entitled to certain exemptions during a transitional period following their public offering.^[585]

Rule 10A-3 also requires that:

• the audit committee must be "directly responsible" for the appointment, compensation, oversight and retention of the external auditors, who must report directly to the audit committee;^[586]
• the audit committee must establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls or auditing matters, and for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters;^[587]
• the audit committee must have the authority to engage independent counsel and other advisers as it deems necessary to carry out its duties;^[588] and
• the issuer must provide the audit committee with appropriate funding for payment of external auditors, advisers employed by the audit committee and ordinary administrative expenses of the audit committee.^[589]

These requirements are not intended to conflict with local legal or listing provisions (or requirements under the foreign private issuer's organizational documents), and instead relate to the allocation of responsibility between the audit committee and the issuer's management.^[590] Accordingly, the audit committee may recommend or nominate the appointment or compensation of the external auditor to shareholders if these matters are within shareholder competence under local law,^[591] and it must be granted those responsibilities that the board of directors can legally delegate.^[592]

Rule 10A-3 contains a general exemption for foreign private issuers that have a statutory board of auditors or statutory auditors established pursuant to home country law or listing requirements, which in turn meet various requirements.^[593]

A foreign private issuer relying on Rule 10A-3's exemption from independence, or the general exemption noted above, will need to disclose in its annual report its reliance on the exemptions and an assessment of whether this reliance will materially adversely affect the audit committee's ability to act independently and to satisfy any of the other requirements of Rule 10A-3.^[594] 

Audit committee financial expert

Section 407(a) of the Sarbanes-Oxley Act directs the SEC to issue rules requiring an issuer to disclose in its periodic reports whether its audit committee has at least one "financial expert" or if not, to state why not.

The SEC's final rules implementing Section 407(a) use the term audit committee financial expert instead of financial expert. The SEC has implemented these rules as new Item 16A of Form 20-F.

Under Item 16A, a foreign private issuer must disclose in its annual report that the issuer's board of directors has determined whether or not it has one audit committee financial expert serving on its audit committee, or if not, to state why not.^[595] If the issuer has a two-tier board of directors, the supervisory or non-management board would make this determination.^[596] The issuer must also disclose the name of the audit committee financial expert (if any)^[597] and whether that person is "independent" from management.^[598] An issuer's board of directors must make an affirmative determination whether or not it has at least one audit committee financial expert, and may not simply fail to reach a conclusion.^[599]

To qualify as an audit committee financial expert, the audit committee member must have the following "attributes":

• an understanding of Gaap;
• the ability to assess the general application of Gaap in connection with the accounting for estimates, accruals and reserves;
• experience preparing, auditing or analyzing financial statements similar to those of the issuer, or actively supervising others engaged in these activities;
• an understanding of internal controls and procedures for financial reporting; and
• an understanding of audit committee functions.^[600]

In addition, an audit committee financial expert must have gained those attributes through:

• education and experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor, or through experience in similar positions;
• experience actively supervising these functions;
• experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements; or
• other relevant experience.^[601]

The term Gaap as used in Item 16A refers to the body of Gaap used by the issuer in its primary financial statements.^[602] Accordingly, the audit committee financial expert of a foreign private issuer need only be versed in local Gaap, and not in US Gaap or in reconciliation to US Gaap (although that experience would, of course, be useful).^[603]

Item 16A also contains a liability safe harbour for the audit committee financial expert, under which:

• a person who is determined to be an audit committee financial expert is not deemed to be an expert for any purpose, such as Section 11 of the Securities Act;^[604] and
• the designation of a person as an audit committee financial expert does not impose greater duties, obligations or liabilities on the person than on other audit committee and board members, and does not affect the duties, obligations or liabilities of other audit committee and board members.^[605]

Auditor independence

Title II of the Sarbanes-Oxley Act creates a series of requirements relating to the work of external auditors, grouped under the heading "auditor independence". Title II establishes new Sections 10A(g) through (l) of the Exchange Act. The SEC has implemented Title II by the adoption of amendments to Regulation S-X (S-X), Rule 2-01, new S-X Rule 2-07, new 1934 Act Rule 10A-2, and new Item 16C of Form 20-F.

Rule 10A-2 provides generally that it is unlawful for an auditor not to be independent under certain provisions of S-X Rules 2-01 and 2-07. S-X Rules 2-01 and 2-07, in turn, track (and in some cases expand upon) the requirements of Sections 10A(g)-(l), and provide, among other things:

• an issuer may not employ a former partner, principal, shareholder or professional employee of an accounting firm in a financial reporting oversight role at the issuer if the individual was a member of the audit engagement team during the one-year period preceding the date audit procedures commenced for the fiscal period that included the date of initial employment of the audit engagement team member by the issuer;^[606]
• limitations on the non-audit services that an independent auditor may provide;^[607]
• that an audit partner must not act as the lead audit partner or concurring partner for more than five consecutive years, and must not provide certain other services for more than seven consecutive years;^[608]
• that the audit committee must pre-approve the engagement of the auditor to provide audit and non-audit services to the issuer or its subsidiaries, or for policies or procedures for pre-approval of audit and non-audit services (subject to certain de minimis exceptions);^[609]
• that no audit partner may earn compensation based on the partner's procuring engagements with the issuer to provide any services other than audit, review or attest services;^[610] and
• that an auditor must report to the audit committee on: (1) all critical accounting policies and practices to be used, (2) all alternative treatments of financial information within Gaap that have been discussed with the issuer's management (as well as the implications of those alternatives and the auditor's preferred treatment), and (3) all other material written communications between the auditors and management.^[611]

Under new Item 16C of Form 20-F, a foreign private issuer must disclose in its annual report:

• under the caption audit fees, aggregate fees billed by the auditor for each of the past two fiscal years for audit services (and services in connection with statutory and regulatory filings);^[612]
• under the caption audit-related fees, aggregate fees billed by the auditor for each of the last two fiscal years for certain services "reasonably related" to the audit and review of financial statements, as well as a description of these services;^[613]
• under the caption tax fees, aggregate fees billed by the auditor for each of the past two fiscal years for tax services, as well as a description of these services;^[614]
• under the caption all other fees, aggregate fees billed by the auditor for each of the past two fiscal years for all other products and services, as well as a description of these services;^[615]
• the pre-approval policies and procedures of its audit committee for audit and non-audit services;^[616] and
• if greater than 50%, the percentage of hours expended on the audit by persons other than full-time permanent employees of the auditor.^[617]

Improper influence on the conduct of audits

Section 303 of the Sarbanes-Oxley Act directs the SEC to issue rules prohibiting any officer or director of an issuer from taking any action to improperly influence an auditor for the purpose of rendering the issuer's financial statements materially misleading.

The SEC has adopted 1934 Act Rules 13b2-2(a)-(c), largely tracking the text of Section 303. Among other things, the rules prohibit an officer or director of an issuer, or any other person acting under the direction of an officer or issuer, from taking any action to "coerce, manipulate, mislead or fraudulently influence" an auditor engaged in the performance of an audit or review of financial statements of the issuer that are required to be filed with the SEC if that person knew or should have known that his or her actions, if successful, could result in rendering the issuer's financial statements materially misleading.^[618]

The reach of the rules is quite broad. The phrase "persons acting under the direction" of an officer or director includes the issuer's employees (even if they are not under the supervision or control of that officer or director), customers, vendors, and even attorneys or other outside advisers who might be in a position to give out false or misleading information to the auditor.^[619] In addition, the period during which an auditor can be said to be "engaged in the performance of an audit" has been given a wide interpretation by the SEC. It accordingly could encompass not only the professional engagement period but any other time the auditor is called upon to make decisions or judgments regarding the issuer's financial statements, including, in certain situations, periods before and after the retention of the auditor.^[620]

Rule 13b2-2 also identifies certain types of actions that could cause an issuer's financial statements to be materially misleading, including improperly influencing an auditor:

• to issue or reissue a report on an issuer's financial statements that is not warranted in the circumstances (due to material violations of generally accepted accounting principles, generally accepted auditing standards, or other professional or regulatory standards);
• not to perform audit, review or other procedures required by generally accepted auditing standards or other professional standards;
• not to withdraw an issued report; or
• not to communicate matters to an issuer's audit committee.^[621]

Auditor record retention

Section 802 of the Sarbanes-Oxley Act (which amends the US federal criminal code) requires any accountant who conducts an audit of an issuer to maintain all audit or review work papers for a period of five years from the end of the fiscal period in which the audit or review was concluded. Section 802 also requires the SEC to issue rules relating to the retention of relevant records such as work papers and other documents that form the basis of the review. In response, the SEC has added new Rule 2-06 to Regulation S-X.

Rule 2-06 requires that, for a period of seven years after an accountant concludes an audit or review of an issuer's financial statements, the accountant must retain records relevant to the audit or review, including work papers that:

• are created, sent or received in connection with the audit or review; and
• contain conclusions, opinions, analyses or financial data related to the audit or review.^[622]

"Work papers" for these purposes means documentation of auditing or review procedures applied, evidence obtained, and conclusions reached by the accountant in the audit or review engagement.^[623]

Rule 2-06 also provides that memoranda, correspondence, communications, and other documents and records (including electronic records) must be retained whether they support the auditor's final conclusions about the audit or review, or contain information that is inconsistent with those conclusions.^[624]

Material correcting adjustments

Section 401(a) of the Sarbanes-Oxley Act adds new Section 13(i) to the Exchange Act. Under Section 13(i), each financial report containing financial statements that is prepared in accordance with (or reconciled to) US Gaap and filed with the SEC must reflect all "material correcting adjustments" that have been identified by an issuer's auditors. This provision does not require implementing regulations by the SEC.

The SEC has not provided guidance on the question of whether Section 13(i) applies to interim financial statements submitted on Form 6-K. We believe the better view of Section 13(i) is that it applies only to a foreign private issuer's annual report on Form 20-F, and not to any interim financial statements furnished to the SEC under Form 6-K. Submissions on Form 6-K are not considered filed as a technical matter with the SEC, and are not required to be reconciled to US Gaap. In addition, the SEC has interpreted the Section 302 certification requirement (which also refers to reports filed with the SEC) as not applying to Form 6-K submissions.^[625] As a practical matter, however, an issuer would likely face concerns under the anti-fraud provisions of the US federal securities laws if it failed to reflect a material correcting adjustment in an interim financial statement furnished on Form 6-K.

Attorney conduct rules

Section 307 of the Sarbanes-Oxley Act requires the SEC to issue rules setting forth "minimum standards of professional conduct for attorneys appearing and practising before the SEC in any way in the representation of issuers". Section 307 also directs the SEC to implement rules requiring an attorney to report "evidence of a material violation of securities law or breach of fiduciary duty or similar violation" by an issuer or its agent to the issuer's CEO or chief legal counsel, and to report the evidence to the audit committee, another independent board committee, or the board of directors as a whole, if the CEO or chief legal counsel "does not appropriately respond to the evidence". The SEC adopted final rules under Section 307 as new Part 205 Standards of Professional Conduct for Attorneys Appearing and Practicing Before the Commission in the Representation of an Issuer.^[626]

The term appearing and practising before the SEC is broader than it might first appear. It potentially covers any lawyer who transacts business with the SEC, represents an issuer in SEC proceedings, provides advice on the US securities laws regarding any document the attorney "has notice" will be submitted to the SEC (including in the context of preparing documents to be filed), or advises an issuer whether information must be included in or filed with any SEC document.^[627] However, the Attorney Conduct Rules contain an exemption for "non-appearing foreign attorneys",^[628] who are defined as attorneys who: (1) are admitted to practise law in a jurisdiction outside of the US and do not hold themselves out as practising US federal or state securities or other laws, and (2) who either:

• conduct activities that would constitute appearing and practising before the SEC only incidentally to, and in the ordinary course of, the practice of law in a jurisdiction outside the US; or
• are appearing and practising before the SEC only in consultation with counsel, other than a non-appearing foreign attorney, admitted or licensed to practise in a state or other US jurisdiction.^[629]

If a covered attorney becomes aware of evidence of a "material violation" (which is defined as including a material violation of US securities law or a breach of fiduciary duty or a similar material violation of any US federal or state law^[630]) the Attorney Conduct Rules create a duty to report the matter to the issuer's chief legal officer (CLO) or to both the CLO and the CEO.^[631] The CLO must then open an inquiry into the matter and take all reasonable steps to cause the issuer to adopt an appropriate response.^[632] Unless the attorney reasonably believes that the CLO's response was adequate, he or she must report the matter up the ladder to the audit committee, to another independent board committee (if the issuer does not have an audit committee), or the board of directors as a whole (if there is no independent board committee).^[633]

As an alternative to reporting to the CLO or CEO, the attorney may refer the matter to the issuer's qualified legal compliance committee (QLCC), if one has been set up.^[634] A QLCC (which may also be the audit committee) is any committee of the issuer that includes at least one member of the audit committee and two or more non-employee members of the board of directors, and that has been duly established by the board of directors with certain requirements.^[635] If the attorney reports the matter to the QLCC, he or she has no further obligations under the Attorney Conduct Rules.^[636] In addition, the CLO may refer a reported matter to the QLCC in lieu of conducting the required investigation, in which case the QLCC will be responsible for responding.^[637]

The SEC has also proposed, but not yet adopted, a noisy withdrawal provision, under which a covered attorney would be required to withdraw from representing an issuer under certain circumstances if there is not an appropriate response to the up-the-ladder reporting.^[638]

Code of ethics

Section 406 of the Sarbanes-Oxley Act directs the SEC to issue rules requiring issuers to disclose whether they have adopted a code of ethics for senior financial officers, or if not, to state why not. The SEC has accordingly adopted new Item 16B of Form 20-F.

Item 16B requires the issuer to disclose whether it has adopted a code of ethics that applies to its principal executive officers, principal financial officers, and principal accounting officer or controller (or persons performing similar functions), and if not, it must explain why it has not done so.^[639] The term code of ethics means written standards that are reasonably designed to deter wrongdoing and to promote a specified set of principles, such as honest and ethical conduct and full, accurate and timely disclosure.^[640] The code must be filed as an exhibit to the issuer's annual report on Form 20-F or posted on the issuer's website, or the issuer must undertake to provide to any person upon request, free of charge, a copy of the code.^[641] An issuer must report any amendment to the code relating to its covered executive officers, as well as the nature and date, and name of the person involved, of any waivers (whether explicit or implicit) of the code for its covered executive officers.^[642]

Blackout trading restrictions

Section 306 of the Sarbanes-Oxley Act prohibits directors and executive officers from acquiring or transferring company equity securities during pension fund "blackout periods". The SEC has adopted new Regulation Blackout Trading Restrictions (Regulation BTR) to implement Section 306.

For a foreign private issuer, a blackout period generally means any period of more than three consecutive business days during which the ability to purchase or sell an interest in the issuer's equity securities held in an individual account plan (such as a 401(k) plan)^[643] is temporarily suspended with respect to not less than 50% of participants or beneficiaries located in the US and:

• the number of participants and beneficiaries located in the US subject to the temporary suspension exceeds 15% of the total number of employees of the issuer and its consolidated subsidiaries; or
• more than 50,000 participants or beneficiaries located in the US are subject to the temporary suspension.^[644]

Regulation BTR prohibits, subject to certain exceptions, any director or executive officer of an issuer from purchasing, selling or otherwise transferring the issuer's equity securities during any blackout period applicable to the securities, if the officer acquires or previously acquired the securities in connection with his or her service or employment as a director or officer.^[645] Under Regulation BTR, in any case where a director or officer is subject to a blackout trading restriction under Section 306 of Sarbanes-Oxley, the issuer must promptly notify each director or officer and the SEC of the blackout period and provide certain additional information (including the reasons for the blackout period).^[646] The issuer must file any notice of this type as an exhibit to its annual report on Form 20-F.^[647]

Subject to a two-year statute of limitations,^[648] profits realized by an insider in violation of Section 306 (regardless of the insider's intention upon entering into the transaction) will be recoverable by the issuer.^[649] In addition, if the issuer fails to institute an action to recover such profits within 60 days after being asked to do so by a shareholder, the shareholder can then initiate the action to recover on behalf of the issuer.^[650]

Loans to executives

Section 402(a) of the Sarbanes-Oxley Act adds new Section 13(k) to the Exchange Act. Under Section 13(k), it is illegal for an issuer to "extend or maintain credit, to arrange for the extension of credit, or to renew an extension of credit, in the form of a personal loan to or for any director or executive officer (or equivalent thereof)" of that issuer.^[651] Section 13(k) covers both direct extensions and indirect extensions of credit, including through subsidiaries.^[652]

Section 13(k) contains certain exemptions, including:

• any loan existing on July 30 2002, unless its terms are materially modified or the loan is renewed;^[653]
• consumer credit and extensions of credit under a charge card;^[654] and
• certain bank loans.^[655]

The broad sweep of Section 13(k), coupled with the absence of SEC guidance, has raised a number of thorny questions for issuers. In response, a group of 25 law firms (including Latham & Watkins) has issued a paper attempting to interpret Section 13(k).^[656] The interpretive paper contends that the following should generally be regarded as permissible under Section 13(k):

• cash advances to reimburse travel and similar expenses while performing executive duties;^[657]
• personal usage of a company credit card and company car, and relocation expenses required to be reimbursed;^[658]
• "stay" and "retention" bonuses subject to repayment if an employee terminates employment before a designated date;^[659]
• indemnification advances for litigation;^[660]
• tax indemnity payments to overseas-based executive officers;^[661]
• loans by a parent or shareholder that is a foreign private issuer but not subject to Sarbanes-Oxley, to the executive officer of a wholly-owned subsidiary that is subject to Sarbanes-Oxley, if the subsidiary has not "arranged" the loan and the loan is made by reason of service to the parent, not the subsidiary;^[662] and
• most "cashless" option exercises.^[663]

Forfeiture of bonuses

Section 304 of the Sarbanes-Oxley Act provides that if an issuer is required to "prepare an accounting restatement due to the material noncompliance of the issuer, as a result of misconduct" with any financial reporting requirements under the securities laws, the CEO and CFO must reimburse the issuer for:

• all bonuses or other incentive-based or equity-based compensation received from the issuer during the 12-month period following the first public issuance or filing with the SEC (whichever is first) of the financial document embodying the financial reporting requirement; and
• any profits received from the sale of the issuer's securities during that 12-month period.^[664]

Section 304 does not require SEC implementing rules. It remains unclear whether, among other things, the definition of "misconduct" applies to mistakes or simply to knowing or reckless conduct.^[665] In the case of foreign private issuers, it is also not certain how Section 304 works if the required repayment is in conflict with the CEO's or CFO's rights under local employment laws.^[666]

Research analysts

Section 501 of the Sarbanes-Oxley Act added new Section 15D to the Exchange Act. Section 15D directs the SEC to adopt rules "reasonably designed to address conflicts of interest" involving securities analysts. The SEC has adopted Regulation Analyst Certification to implement Section 15D.^[667] (In addition, as discussed below, the NYSE and NASD have issued new rules regarding research analysts that are designed to meet the requirements of Section 15D.)

Regulation AC requires that any broker or dealer, or certain persons associated with brokers or dealers, must include in any research reports that they publish or circulate to a US person in the US, a "clear and prominent" statement from the research analyst:^[668]

• attesting that all of the views expressed in the research report accurately reflect the research analyst's personal views about the securities or issuers covered in the report; and
• either that no part of the analyst's compensation is related to specific recommendations expressed in the report, or if it is related, details of the source, amount and purpose of the compensation and how the compensation could influence the recommendations expressed in the report.

A research analyst is the person "primarily responsible" for the preparation of the content of the research report.^[669] If more than one analyst is primarily responsible, all must certify.^[670] Certifications should either appear on the front page of the research report or the front page should disclose where the certification is to be found.^[671] The first certification (as to accuracy) applies both to the rating as well as to the analysis in the research report, and the SEC has warned that a rating that contradicts the analysis could both render the certification false, as well as potentially violate the anti-fraud provisions of the US federal securities laws.^[672]

In addition, Regulation AC mandates that brokers or dealers that provide research reports to US persons in the US prepared by an analyst employed by them must keep certain quarterly records of public appearances of the analyst containing:^[673]

• a statement by the analyst attesting that the views expressed in the public appearances accurately reflected his or her personal views about the securities or issuers covered in the report; and
• a statement that no part of the analyst's compensation is related to specific recommendations or views expressed in the public appearances.

However, the record-keeping requirement only applies to public appearances when the research analyst is physically present in the US.^[674]

Regulation AC contains an exclusion to cover foreign research. In particular, "foreign persons" located outside the US who are not associated with a US registered broker-dealer are exempt from Regulation AC if they:^[675]

• prepare a research report concerning a foreign security; and
• provide the research report to a US person in the US in accordance with the exemption under 1934 Act Rule 15a-6(a)(2) for non-US broker-dealers providing research reports to major US institutional investors.

A foreign person for these purposes means any non-US person, and a foreign security means a security issued by a foreign issuer for which the US market is not the principal trading market.^[676]

Liability issues

The Sarbanes-Oxley Act has a sweeping impact on liability under the US federal securities laws. For a discussion of this, see Liability under the US federal securities laws – Sarbanes-Oxley Act, below.

Endnotes

[467]

See Sarbanes-Oxley Act of 2002, § 2(a)(7) [SOX].

[468]

See Securities Exchange Act of 1934 Rules 13a-15(a); 15d-15(a) [1934 Act].

[469]

See id. at Rules 13a-15(c); 15d-15(c).

[470]

See id. at Rules 13a-15(d); 15d-15(d).

[471]

See Form 20-F, Item 15(b). The statement must also include disclosure of any material weakness in the issuer's internal control over financial reporting identified by management. Management is not permitted to conclude that the issuer's internal control over financial reporting is effective if there are one or more material weaknesses in internal control. See id. Even if the evaluation framework used by a foreign private issuer does not require a statement as to the effectiveness of the issuer's system of internal control over financial reporting, the issuer must nevertheless state affirmatively whether such controls are effective. See Management's Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, Securities Act Release 8238, Exchange Act Release 47986, Investment Company Act Release 26068, Fed Sec L Rep (CCH) ¶ 86,923 at 87,685 n.68 (June 5 2003) (the obligation to state whether internal controls are effective extends to foreign reporting companies) [Management's Reports on Internal Control Adopting Release].

[472]

See Form 20-F, Item 15(c).

[473]

Under 1934 Act Rule 12b-2(2), a large accelerated filer is an issuer meeting the following conditions:

• The aggregate worldwide market value of voting and non-voting common equity held by non-affiliates is more than $700 million (as of the last business day of the issuer's most recently completed second fiscal quarter);
• The issuer has been subject to SEC reporting under the US Securities Exchange Act (Exchange Act) for at least 12 calendar months;
• The issuer has filed at least one annual report under the Exchange Act with the SEC; and
• The issuer is not a small business issuer (that is, eligible to use Forms 10-KSB and 10-QSB for its annual and quarterly reports).

[474]

See Internal Control Over Financial Reporting in Exchange Act Periodic Reports of Foreign Private Issuers that are Accelerated Filers, Securities Act Release 8730A, Exchange Act Release 5429A, Fed Sec L Rep. (CCH) ¶ 87,621 at 87,632 (August 9 2006) [Accelerated Filer Delay Release].

[475]

See Management's Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports of Companies That are not Accelerated Filers, Securities Act Release 8618, Exchange Act Release 52492 (September 22 2005) [Non-Accelerated Filer Delay Release]; see also Management's Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports of Non-Accelerated Filers and Foreign Private Issuers: Extension of Compliance Dates, Securities Act Release 8545, Exchange Act Release 51293, Fed Sec L Rep (CCH) ¶ 87,335 at 87,341 (March 2 2005).

[476]

An accelerated filer is the same as a large accelerated filer, except that the aggregate market value of its voting and non-voting common equity held by non-affiliates is $75 million or more, but less than $700 million (as of the last business day of the issuer's most recently completed second fiscal quarter). See 1934 Act Rule 12b-2(1).

[477]

See Accelerated Filer Delay Release, ¶ 87,621 at 87,633.

[478]

See generally Internal Control Over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers and Newly Public Companies, Securities Act Release 8731, Exchange Act Release 54295 (August 9 2006).

[479]

See 1934 Act Rules 13a-15(f); 15d-15(f).

[480]

See Management's Reports on Internal Control Adopting Release, ¶ 86,923 at 87,685.

[481]

See id; see also id., ¶ 86,923 at 87,685 n.67.

[482]

See id., ¶ 86,923 at 87,685, 87,686.

[483]

See Form 20-F, Item 15(b)(3).

[484]

See Management's Reports on Internal Control Adopting Release, ¶ 86,923 at 87,686.

[485]

See id.

[486]

See Form 20-F, Instruction 1 to Item 15. The SEC has stated that it believes it is important for the internal control report to be located near the auditor's attestation report, and that it expects issuers will place the report and attestation near MD&A disclosure or immediately preceding the financial statements. See Management's Reports on Internal Control Adopting Release, ¶ 86,923 at 87,687.

[487]

See Management's Reports on Internal Control Adopting Release, ¶ 86,923 at 87,687.

[488]

See id.

[489]

See id.

[490]

See generally Office of the Chief Accountant, Division of Corporation Finance, Management's Report On Internal Control Over Financial Reporting and Disclosure in Exchange Act Periodic Reports: Frequently Asked Questions (June 22 2004), available at www.sec.gov/info/accountants/controlfaq0604.htm.

[491]

See id. at Question 2.

[492]

See id. at Question 3.

[493]

See id. at Question 5.

[494]

See id. at Question 9.

[495]

See id.

[496]

See id. at Question 10.

[497]

See id. at Question 11.

[498]

See generally Office of the Chief Accountant, Division of Corporation Finance, Staff Statement on Management's Report on Internal Control Over Financial Reporting (May 16 2005), available at www.sec.gov/info/accountants/stafficreporting.htm.

[499]

See id. at § B.

[500]

See id. at § C.

[501]

See id.

[502]

See id.

[503]

See id. at § D.

[504]

See id.at § E.

[505]

See id.

[506]

See id. at § F.

[507]

See id. at § G.

[508]

Public Company Accounting Oversight Board, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements, PCAOB Release 2004-001, PCAOB Rulemaking Docket Matter 008, [2003-2004 Transfer Binder] Fed Sec L Rep (CCH) ¶ 87,151, at 89,327 (March 9 2004).

[509]

See Public Company Accounting Oversight Board, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements, PCAOB Release 2004-001, PCAOB Rulemaking Docket Matter 008, Fed Sec L Rep (CCH) ¶ 87,151 at 89,327 (March 9 2004). The PCAOB believed that attestation was "insufficient to describe the process of assessing management's report on internal controls." See id.

[510]

See id.

[511]

See id.

[512]

See id.

[513]

See id., ¶ 87,151 at 89,334.

[514]

See id.

[515]

See id.

[516]

See id.

[517]

See id.

[518]

See id.

[519]

See id.

[520]

See id., ¶ 87,151 at 89,334, 89,335.

[521]

See id., ¶ 87,151 at 89,336.

[522]

See id., ¶ 87,151 at 89,335.

[523]

See id.

[524]

See id., ¶ 87,151 at 89,336.

[525]

See id.

[526]

See id.

[527]

See id.

[528]

See id.

[529]

See 1934 Act Rules 13a-15(a), 15d-15(a).

[530]

See id. at Rules 13a-15(e), 15d-15(e).

[531]

See Management's Reports on Internal Control Adopting Release, ¶ 86,923 at 87,689.

[532]

See id.

[533]

See 1934 Act Rules 13a-15(a), 15d-15(a).

[534]

See id. at Rules 13a-15(b), 15d-15(b).

[535]

See Form 20-F, Item 15(a).

[536]

The SEC has stated that current reports such as those on Forms 6-K and 8-K, as opposed to periodic reports (that is, quarterly and annual reports), are not covered by Section 302's certification requirements. See Certification of Disclosure in Companies' Quarterly and Annual Reports, Securities Act Release 8124, Exchange Act Release 46427, Investment Company Act Release 25722, [2002 Transfer Binder] Fed Sec L Rep (CCH) ¶ 86,720 at 86,753 (August 28 2002) [Certification Adopting Release]. Foreign private issuers are nevertheless required to design and maintain disclosure controls and procedures to ensure full and timely disclosure in current reports. See id.

[537]

See 1934 Act Rules 13a-14(a), 15d-14(a).

[538]

See generally Form 20-F, Instructions as to Exhibits 12.

[539]

This portion of the Section 302 certification does not take effect until the annual report on Form 20-F for the first fiscal year ending on or after July 15 2006 in the case of foreign private issuers that are accelerated filers or large accelerated filers, and July 15 2007 in the case of non-accelerated filers. See generally Non-Accelerated Filer Delay Release.

[540]

Similarly, this portion of the Section 302 certification does not take effect until the annual report on Form 20-F for the first fiscal year ending on or after July 15 2006 in the case of foreign private issuers that are accelerated filers, and July 15 2007 in the case of non-accelerated filers. See id.

[541]

No specific date for the evaluation is specified. See Management's Reports on Internal Control Adopting Release, ¶ 86,923 at 86,970-86,979.

[542]

See 1934 Act Rules 13a-14(a), 15d-14(a); see also Form 20-F, Instructions as to Exhibits 12.

[543]

See generally Non-Accelerated Filer Delay Release.

[544]

See Certification Adopting Release, ¶ 86,720 at 86,757. However, "a company's certifying officers may temporarily modify the content of their Section 302 certification to eliminate certain references to internal control over financial reporting until the compliance date." See Management's Reports on Internal Control Adopting Release, ¶ 86,923 at 87,926.

[545]

See Management's Reports on Internal Control Adopting Release, ¶ 86,923 at 87,699. Not filing will also limit enforcement of the certificate to criminal proceedings rather than civil litigation. For a further discussion see John J Huber and Julie K Hoffman, "The Sarbanes-Oxley Act of 2002 and SEC Rulemaking," in The Practitioner's Guide to the Sarbanes-Oxley Act I-1, I-26 (John J Huber, et al, eds, 2004) [the Huber Outline].

[546]

See Additional Form 8-K Disclosure Adopting Release, Securities Act Release 8400, Exchange Act Release 49424, Fed Sec L Rep (CCH) ¶ 87,158 at 89,493 n.146 (March 16 2004).

[547]

See Huber Outline at I-28.

[548]

See id. at I-22.

[549]

See Management's Reports on Internal Control Adopting Release, ¶ 86,923 at 87,699.

[550]

See Conditions for Use of Non-GAAP Financial Measures, Securities Act Release 8176, Exchange Act Release 47226, Financial Reporting Release 65, Fed Sec L Rep (CCH) ¶ 86,816 at 86,830 (January 22 2003) [Non-GAAP Financial Measures Adopting Release]; see also Latham & Watkins Client Alert 257, SEC Adopts Rules for Disclosure of EBITDA and Other "Non-GAAP Financial Measures," available at www.lw.com/resource/publications/_pdf/pub578.pdf.

[551]

See Conditions for Use of Non-GAAP Financial Measures, Securities Act Release 8145, Exchange Act Release 46788, Fed Sec L Rep. (CCH) ¶ 86,737 at 86,830 (November 4 2002).

[552]

See Regulation G, Rule 100(a).

[553]

See id. at Rule 101(a)(1).

[554]

See id. at Rule 101(b).

[555]

See id. at Rule 101(a)(2).

[556]

See id. at Rule 101(a)(3).

[557]

See id. at Rule 100(a). In the case of forward-looking non-Gaap measures, a quantitative reconciliation need only be provided to the extent available without unreasonable efforts. See id. at Rule 100(a)(2).

[558]

See id. at Rule 100(b).

[559]

See id. at Rule 100(c).

[560]

See Regulation S-K, Item 10(e)(1)(i).

[561]

See id. at Item 10(e)(1)(ii).

[562]

See id. at Item 10, Note to Paragraph (e).

[563]

See SEC Office of the Chief Accountant, Division of Corporation Finance, Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures, Question 8 (June 13 2003), available at www.sec.gov/divisions/corpfin/faqs/nongaapfaq.htm.

[564]

See id. at Question 14.

[565]

See id. at Question 15.

[566]

See Disclosure in Management's Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations, Securities Act Release 8182, Exchange Act Release 47264, Financial Reporting Release 67, International Series Release 1266, Fed Sec L Rep (CCH) ¶ 86,821 at 86,929 (January 27 2003) [Off-Balance-Sheet Adopting Release].

[567]

See Form 20-F, Item 5.E.1.

[568]

See id. at Items 5.E.1(a)-(d).

[569]

See id. at Item 5.E.2.

[570]

See Off-Balance Sheet Adopting Release, ¶ 86,821 at 86,972, 86,977.

[571]

See id., ¶ 86,821 at 86,984.

[572]

See Form 20-F, Item 5.F.1.

[573]

See id. at Item 5.F.2.

[574]

See Off-Balance Sheet Adopting Release, ¶ 86,821 at 86,982 n.73.

[575]

See Commission Statement about Management's Discussion and Analysis of Financial Condition and Results of Operations, Securities Act Release 8056, Exchange Act Release 45321, Financial Reporting Release 61 (January 22 2002).

[576]

See Off-Balance Sheet Adopting Release, ¶ 86,821, at 86,974.

[577]

See 1934 Act Rule 10A-3(b)(1)(i).

[578]

See id. at Rule 10A-3(b)(1)(ii)(A).

[579]

See id. at Rule 10A-3(b)(1)(ii)(B).

[580]

See id. at Rule 10A-3(e)(1)(i).

[581]

See id. at Rule 10A-3(e)(1)(ii)(A).

[582]

See id. at Rule 10A-3(b)(1)(iv)(C).

[583]

See id. at Rule 10A-3(b)(1)(iv)(D).

[584]

See id. at Rule 10A-3(b)(1)(iv)(E).

[585]

See id. at Rule 10A-3(b)(1)(iv)(A).

[586]

See id. at Rule 10A-3(b)(2).

[587]

See id. at Rule 10A-3(b)(3).

[588]

See id. at Rule 10A-3(b)(4).

[589]

See id. at Rule 10A-3(b)(5).

[590]

See Instruction 1 to 1934 Act Rule 10A-3.

[591]

See id.

[592]

See Instruction 2 to 1934 Act Rule 10A-3.

[593]

See 1934 Act Rule 10A-3(c)(3).

[594]

See id. at Rule 10A-3(d); see also Form 20-F, Item 16.D.

[595]

See Form 20-F, Items 16A(a)(1), 16A(a)(3).

[596]

See id. at Instruction 3 to Item 16A.

[597]

See id. at Item 16A(a)(2).

[598]

See id. For listed issuers the audit committee financial expert will need to satisfy the definition of independence as set out under 1934 Act Rule 10A-3. See id.

[599]

See Disclosure Required by Sections 406 and 407 of the Sarbanes-Oxley Act of 2002, Securities Act Release 8177, Exchange Act Release 47234, Fed Sec L Rep (CCH) ¶ 86,818 at 86,885 (as amended, January 24 2003 and March 31 2003) [Sections 406 and 407 Adopting Release].

[600]

See Form 20-F, Item 16A(b).

[601]

See id. at Item 16A(c).

[602]

See id. at Instruction 3 to Item 16A.

[603]

See Sections 406 and 407 Adopting Release, ¶ 86,818 at 86,883.

[604]

See Form 20-F, Item 16A(d)(1).

[605]

See id. at Items 16A(d)(2), 16A(d)(3).

[606]

See S-X Rule 2-01(c)(2)(iii)(B); see also 1934 Act Rule 10A(l) (an auditor may not audit an issuer whose CEO, controller, CFO or chief accounting officer was employed by the auditor and participated in the audit during the one-year period preceding the date of the initiation of the audit in question). Generally speaking, persons other than the lead or concurring partner who provided 10 or fewer hours of audit, review or attest services during the relevant period are not considered to be members of the audit engagement team. See S-X Rule 2-01(c)(2)(iii)(B)(2)(i).

[607]

See S-X Rule 2-01(c)(4); see also 1934 Act Rule 10A(g) (substantially identical limitations).

[608]

See S-X Rule 2-01(c)(6); see also 1934 Act Rule 10A(j) (it is unlawful to act as an auditor if lead (or coordinating) audit partner (having primary responsibility for the audit) or audit partner responsible for reviewing the audit has performed audit services for the issuer in the each of the issuer's prior five fiscal years).

[609]

See S-X Rule 2-01(c)(7); see also 1934 Act Rules 10A(h), 10A(i) (all audit and permitted non-audit services must be pre-approved by the audit committee (subject to certain de minimis exceptions)). The SEC has stated that an issuer's audit committee must follow three requirements in its pre-approval process. First, the policies and procedures must be detailed as to the particular service to be provided. Second, the audit committee must be informed about each service. Third, the policies and procedures cannot result in the delegation of the audit committee's authority to management. Accordingly, monetary limits cannot be the only basis for the pre-approval policies and procedures. See SEC Office of the Chief Accountant, Application of the January 2003 Rules on Auditor Independence: Frequently Asked Questions, Question 22, available at www.sec.gov/info/accountants/ocafaqaudind08703.htm. Under Auditing Standard 2 of the PCAOB, an issuer's audit committee cannot pre-approve internal control services as a category, but must instead approve each service.

[610]

See S-X Rule 2-01(c)(8).

[611]

See id. at Rule 2-07(a); see also 1934 Act Rule 10A(k) (substantially identical requirements).

[612]

Form 20-F, Item 16C(a).

[613]

See id. at Item 16C(b).

[614]

See id. at Item 16C(c).

[615]

See id. at Item 16C(d).

[616]

See id. at Item 16C(e).

[617]

See id. at Item 16C(f).

[618]

See 1934 Act Rule 13b2-2(b)(1).

[619]

See Improper Influence on Conduct of Audits, Exchange Act Release 47890, Investment Company Act Release 206050, Financial Reporting Release 71, Fed Sec L Rep (CCH) ¶ 86,921 at 87,656 (May 20 2003).

[620]

See id.

[621]

See 1934 Act Rule 13b2-2(b)(2).

[622]

See S-X Rule 2-06(a). The SEC required a seven-year period rather than the five-year period mandated in Section 802, because, among other things, Section 103 of the Sarbanes-Oxley Act directs the Public Company Accounting Oversight Board to require auditors to retain audit workpapers and other materials that support the audit for seven years. See generally Retention of Records Relevant to Audits and Reviews, Securities Act Release 8180, Exchange Act Release 47241, Investment Company Act Release 25911, Financial Reporting Release 66, Fed Sec L Rep (CCH) ¶ 86,819 at 86,917 (January 24 2003).

[623]

See S-X Rule 2-06(b).

[624]

See id. at Rule 2-06(c).

[625]

See Certification Adopting Release, ¶ 86,720 at 86,752 n.50

[626]

See Implementation of Standards of Professional Conduct for Attorneys, Securities Act Release 8185, Exchange Act Release 47276, Investment Company Act Release 25919, Fed Sec L Rep (CCH) ¶ 86,823 at 87,069 (January 29 2003) [Attorney Conduct Adopting Release].

[627]

See Standards for Professional Conduct for Attorneys Appearing and Practicing Before the Commission in the Representation of an Issuer, 17 CFR § 205.2(a)(1).

[628]

See id. at § 205.2(a)(2)(ii).

[629]

See id. at § 205.2(j).

[630]

See id. at § 205.2(i).

[631]

See id. at § 205.3(b)(1).

[632]

See id. at § 205.3(b)(2).

[633]

See id. at § 205.3(b)(3).

[634]

See id. at § 205.3(c)(1).

[635]

See id. at § 205.2(k).

[636]

See id. at § 205.3(c)(1).

[637]

See id. at § 205.3(c)(2).

[638]

See Attorney Conduct Adopting Release, ¶ 86,823 at 87,069.

[639]

See Form 20-F, Item 16B(a).

[640]

See id. at Item 16B(b).

[641]

See id. at Item 16B(c).

[642]

See id. at Items 16B(d), 16B(e).

[643]

The term individual account plan is defined as a pension plan that provides for an individual account for each participant and for benefits based solely upon the amount contributed to the participant's account. See Regulation BTR, Rule 100(j).

[644]

See id. at Rule 100(b)(2).

[645]

See id. at Rule 101(a).

[646]

See generally Regulation BTR, Rule 104.

[647]

See Form 20-F, Instructions as to Exhibits, Instruction 10. Although the issuer need not submit the notice under Form 6-K, if it does so it is not separately required to include the notice as an exhibit to its annual report on Form 20-F. See id.

[648]

See Regulation BTR, Rule 103(b).

[649]

See id. at Rule 103(a).

[650]

See id. at Rule 103(b).

[651]

See 1934 Act Rule 13(k)(1).

[652]

See id.

[653]

See id.

[654]

See id. at Rule 13(k)(2).

[655]

See id. at Rule 13(k)(3).

[656]

See generally Sarbanes-Oxley Act: Interpretive Issues under § 402 – Prohibition of Certain Insider Loans (October 15 2002), available at www.lw.com/upload/docs/doc29.pdf.

[657]

See id. at 3-4.

[658]

See id. at 4.

[659]

See id.

[660]

See id. at 4-5.

[661]

See id. at 6.

[662]

See id. at 6-7.

[663]

See id. at 8-11.

[664]

See SOX § 304.

[665]

See Huber Outline at I-106.

[666]

See id. at I-107.

[667]

See Regulation Analyst Certification, Securities Act Release 8193, Exchange Act Release 47384, Fed Sec L Rep (CCH) ¶ 86,833, at 87,233 (February 20 2003) [Regulation AC Release]. See also Division of Market Regulation, Responses to Frequently Asked Questions Regarding Regulation Analyst Certification (April 26 2005), available at www.sec.gov/divisions/marketreg/mregacfaq0803.htm.

[668]

See Regulation AC, Rule 501(a).

[669]

See id. at Rule 500.

[670]

See id. However, certification is not required from junior analysts. See Regulation AC Release, ¶ 86,833 at 87,23.

[671]

See Regulation AC Release, ¶ 86,833 at 87,235 n.11.

[672]

See id., ¶ 86,233 at 87,235.

[673]

See Regulation AC, Rule 502(a).

[674]

See id. at Rule 502(c).

[675]

See id. at Rule 503.

[676]

See id. at Rule 500. A foreign issuer is any foreign government or foreign private issuer. See 1933 Act, Rule 902(e).