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45 See, generally, Report of the Public Oversight Board (`the POB`), entitled `Directors, Management, and Auditors: Allies in Protecting Shareholder Interests`, in which the POB discusses, inter alia, a recommendation by the Kirk Group to require audit committees to discuss with management and auditors the quality of accounting policies and judgments used in preparing the financial statements. POB reiterates its belief that compliance with this recommendation would not increase directors` exposure to litigation, given that the proceedings will, among other things, reduce the possibility that financial statements are truly misleading, thereby reducing the risk of directors being guilty, and the additional steps taken should be persuasive to convince courts and juries to: that the annual accounts have been drawn up with care. 31 In the tender notice, we asked for comments on whether companies should be required to disclose whether their quarterly accounts have been audited by independent auditors. We do not accept this requirement, but maintain the current requirement in Rule 10-01(d) of Regulation S-X, 17 CFR 210.10-01(d), which requires an entity to file a copy of the auditor`s report if it discloses that an independent auditor has conducted a review of interim financial information. A corresponding amendment to item 310 (b) was made as proposed. For the purposes of the Red Tape Reduction Act, we estimated that the disclosures we require would impose an average of one additional hour of exposure on each Schedule 14A or 14C notifier, for a total of 10,145 additional hours of exposure per year. This estimate reflects the time that the companies would spend preparing the additional information in the proxy circular.91 The total annual cost would be approximately $1 million. 7. The statutory auditor of a company and the audit committee shall have the right to be heard at meetings of the audit committee when considering the auditor`s report, but shall not have the right to vote. As previously mentioned, the changes are part of a larger and coordinated set of actions by the New York Stock Exchange, NASD, AMEX and the accounting profession recommended by the Expert Panel to improve the financial reporting process. The changes to the rules and the Commission`s new rules complement and reinforce the efforts of the NYSE, NASD, AMEX and the accounting profession.

This cost-benefit analysis focuses only on the impact of the Commission`s rules. The benefits of the new requirements are not easy to quantify.79 However, these measures are expected to mitigate inadequate revenue management, increase the reliability of financial information, improve disclosure to investors, and improve the efficiency of securities prices by promoting the timely release of higher-quality earnings figures. 9. Each listed company or one or more categories of entities that may be required shall establish a follow-up mechanism enabling directors and staff to report their genuine concerns. In the draft opinion, we asked for comments on whether, in view of the proposal to require preliminary reviews, we should require all companies to comply with paragraph 302(a) of Regulation S-K. Currently, under paragraph 302(a) of Regulation S-K, larger and more widespread companies36 supplement their annual financial information by publishing certain quarterly financial data. Paragraph 302(a) requires appropriate reconciliations and descriptions of adjustments to quarterly information previously reported on a Form 10-Q for a quarter. The selected financial data must be verified by the independent auditors in accordance with SAS 71, but the review may take place at year-end and as part of the audit of the financial statements. We are amending Section 302(a) to extend the requirements to all corporations37 (except small business issuers that file small company forms) whose securities are registered under Section 12(b)38 or 12(g)39 of the Exchange Act, regardless of the size of the corporation or free float.40 88 The preparation of the charter is required by the NYSE. NASD and AMEX and not Commission rules. The audit committee should coordinate with the management team, the independent auditor and internal audit to oversee the choice of accounting policies and policies and ensure compliance with laws and regulations.

The Commission requires more undertakings to provide the additional financial information described in paragraph 302 of Regulation S-K. This information includes selected quarterly financial data such as net sales and gross margin for the past two years. We recognize that the requirement for all publicly traded companies (other than Form S-B filers, Section 15(d) reporting companies, and foreign private issuers) to provide additional financial information under Section 302(a) of Regulation S-K may result in additional costs. Currently, only certain large, widely used companies that meet certain criteria (including number of securityholders, share price and market capitalization) are required to submit additional financial information. Given that the auditors will perform SAS 71 audits for these entities, the additional cost of preparing and presenting the additional financial information is low. As set forth in the Offer Notice, companies whose reporting obligations arise solely under Section 15(d) of the Exchange Act are not required to file proxy circulars with the Board. We sought comment on whether we should require these companies to provide the new information on their Form 10-K or other filings. Because we believe disclosures are most relevant to voting decisions based on disclosure in proxy circulars, and due to the nature of the securities market for these companies, we do not apply such a system. Accordingly, we are not currently extending proxy disclosure requirements to Section 15(d) entities.

(b) is a subsidiary of a holding company of which it is also a subsidiary; or 85 An accounting firm that is not a member of the Big 5 stated in its commentary that the upper end of the range (i.e., approximately $4,000 per quarter) corresponds to its experience for small and medium-sized businesses. Letter dated October 14, 1999 from Edward W. O`Connell, Wiss & Company, LLP. 89 The $15 million figure increases from one page to $1,500 per page for approximately 10,145 companies. 40 We remove the requirement for large, widely used insurance companies that file periodic reports only under Section 15(d) of the Exchange Act to provide information under Section 302(a). In this context, it should be noted that other types of issuers reporting only in accordance with Article 15(d) are not required to provide information on Article 302(a). Changes to paragraph 302(a) will be treated by insurance undertakings under Article 302(a) in the same way as other issuers reporting only in accordance with Article 15(d). We have made our best estimate of the additional cost of preparing for a SAS 71 exam for companies that have not done so currently. Our estimate of these additional costs is based on data provided to employees by the AICPA`s SEC Practice Section (“SECPS”), discussions with experienced practitioners, the experiences of current SEC staff, and data from commentators. 30 See Codification of Statements on Auditing Standards, AT § 722. SAS 71 provides advice to independent auditors on how to conduct audits of interim financial information.

94 See, generally, COSO report, note 26 above. In fact, the COSO report specifically stated that “a regulatory focus on companies with a market capitalization greater than $200 million cannot target companies with a higher risk of accounting fraud activity.” Id., p. 4. 25 See, in particular, letter of 19 November 1999 from the New York State Bar Association, Committee on Securities Regulation (`the NYS Bar Letter`) and letter from KPMG LLP (`KPMG`) of 17 November 1999 supporting the application of the amendments and new regulations to firms of all sizes.