Accounting & Tax

SEC Releases Orders and Rules for AA Clients

Upshot: Issuers get a 60-day grace period before having to file audited financial statements.
Stephen TaubMarch 19, 2002

Yesterday, the Securities and Exchange Commission released its orders and rules for clients of indicted accounting firm Arthur Andersen. The Commission’s goal: To reassure investors and calm the U.S. capital markets.

“We are committed to ensuring that investors continue to receive the timely financial information to which they are entitled,” said SEC Chairman Harvey Pitt. “The Commission believes that the actions it is taking will address any issues that might arise from Andersen’s indictment. Any potential disruptions are anticipated to be minimal and of relatively short duration. If other actions are needed, the Commission will take further appropriate steps.”

Last week, Andersen management assured regulators the accountancy will continue to audit financial statements in accordance with generally accepted auditing standards (GAAS) and applicable professional and firm auditing standards. Andersen pledged to immediately inform the Commission if it is unable to meet those assurances.

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The Commission first promulgated these new orders and rules on March 14. Andersen clients filing reports after March 14 must obtain similar representations from Andersen and must spell out those representations in their filings, said the SEC. As long as companies follow these procedures, the Commission said it will continue to accept financial statements audited by Andersen.

Under the SEC’s new rules, the Commission will require filers to adhere to existing filing deadlines. But the SEC will accept filings that include unaudited financial statements from any issuer unable to timely provide audited financial statements.

Issuers that file unaudited statements generally will be required to amend their filings within 60 days to include audited financial statements. “This alternative framework is procedural in nature, is of finite duration, and is intended solely to address timing constraints and temporary disruptions that the affected issuers may face,” noted the SEC.

The Commission will permit Andersen clients to file annual reports, certain registration statements, and certain other filings by the original due date with unaudited financial statements, so long as they file (within 60 days after the original due date) amended filings containing audited financial statements.

Further, the Commission extended the time for Andersen clients to file audited financial statements, make audited financial statements available to shareholders, obtain reviews of financial statements for quarterly reports. The SEC also extended the time to include required audited financial statements in registration statements.

In addition, affected issuers will be able to satisfy filing requirements for tender offers under the Williams Act, acquisition proxy statements, employee benefit plans, financial statements of unconsolidated subsidiaries and guarantors and transactions. Andersen clients will also be able to comply with the conditions of Rule 144, Rule 144A, Rule 701, or Regulation D, by filing unaudited financial statements by the original due date, so long as audited financial statements are filed within 60 days of that date.

So far, Andersen has been dumped as auditor by 46 major publicly held clients. The list includes Merck, Federal Express, Freddie Mac, Delta Air Lines, Sara Lee, and Wyeth. Andersen currently has about 2,255 corporations on its roster of exchange-traded clients.

To see who stands to gain the most from Andersen’s decline, read “Who Goes Up if Andersen Goes Down?”