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The Global Hospitality Advisor

Sarbanes-Oxley Update

April 2003

The Securities and Exchange Commission (“SEC”) is rapidly proposing and enacting regulations to implement the Sarbanes-Oxley Act of 2002. As widely reported, the Act will have a significant impact on all public companies. The following is a brief listing of some of the key final and proposed regulations recently enacted or proposed by the SEC. 

Final regulations adopted

Audit Committee and Code of Ethics Issues: A company must disclose whether it has at least one “audit committee financial expert” serving on its audit committee, and if so, the name of the expert and whether the expert is independent of management. A company lacking an audit committee financial expert must disclose this fact and explain why it has no such expert. 

Additionally, the rules require a company to disclose whether it has adopted a code of ethics that applies to the company’s key executives. A company that has not adopted such a code must disclose this fact and explain why. Also a company will be required to promptly disclose amendments to, and waivers from, the code of ethics relating to any of those officers.

Retention of Accounting Records: Accounting firms must retain for five years certain records relevant to their audits and reviews of issuers’ financial statements. Records to be retained would include an accounting firm’s workpapers and certain other documents that contain conclusions, opinions, analyzes, or financial data related to the audit or review.

Use of Non-GAAP Financial Statements: Companies must now disclose when financial information is calculated and presented on the basis of methodologies other than in accordance with generally accepted accounting principles. 

Auditor Independence: Auditors are now subject to new independence requirements and are limited in their ability to provide non-audit services.

Attorney Standards: Attorneys must now report evidence of a material violation, determined according to an objective standard, “up-the-ladder” within the issuer to the chief legal counsel or the chief executive officer of the company or the equivalent.

Proposed rules

Audit Committees: The SEC has proposed a new rule to direct the national securities exchanges and national securities associations to prohibit the listing of any security of an issuer that is not in compliance with the audit committee requirements established by the Sarbanes-Oxley Act. These requirements relate to: the independence of audit committee members; the audit committee’s responsibility to select and oversee the issuer’s independent accountant; procedures for handling complaints regarding the issuer’s accounting practices; the authority of the audit committee to engage advisors; and funding for the independent auditor and any outside advisors engaged by the audit committee.

Electronic Filing of Reports by Insiders: The SEC has proposed rules that mandate the electronic filing, and website posting by issuers with corporate websites, of beneficial ownership reports filed by officers, directors and principal security holders under Section 16(a) of the Securities Exchange Act of 1934.

Robert E. Braun is a partner in Jeffer, Mangels, Butler & Marmaro’s Corporate Department.

For more information about these rules and their impact on your business, contact Robert Braun at 310.785.5331 or [email protected]

The Global Hospitality Group® is a registered trademark of Jeffer, Mangels, Butler & Marmaro LLP

©2003 Jeffer, Mangels, Butler & Marmaro LLP


For more information:
Jeffer, Mangels, Butler & Marmaro LLP
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Email Jim Butler at [email protected]
Or contact 
Jim Butler at the Firm
 Jeffer, Mangels, Butler & Marmaro LLP
  1900 Avenue of the Stars
 Los Angeles, CA 90067
     Phone: 310-201-3526 
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in a full-service law firm
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