MODULE 21 PROFESSIONAL RESPONSIBIliTIES 71

2. Consists of five members

(1) Two members must be or have been CPAs
(2) Three members cannot be or cannot have been Cl'As
(3) None of Board members may receive payor profits from CPA firms
3. Board regulates firms that audit SEC registrants, not accounting firms of private companies
4. Main functions of Board are to
(1) Register and conduct inspections of public accounting firms
(a) This replaces peer reviews
(2) Set standards on auditing, quality control, independence, or preparation of audit reports
(a) May adopt standards of existing professional groups or new groups
(b) Accounting firm must have second partner review and approve each audit report
(c) Accounting firm must report on examination of internal control structure along with de-
scription of material weaknesses
(3) May regulate nonaudit services CPA firms perform for clients
(4) Enforce compliance with professional standards, securities laws relating to accountants and
audits
(5) Perform investigations and disciplinary proceedings on registered public accounting firms
(6) May perform any other duties needed to promote high professional standards and to improve
auditing quality
(7) Material services must receive preapproval by audit committee, and fees for those services
must be disclosed to investors
5. Additional new responsibilities and provisions recently added
6. Company must disclose whether it has adopted code of ethics for company's principal
executive
officer, principal accounting officer, principal financial officer or controller
(1) Company may have separate codes of ethics for different officers or may have broad code of
ethics covering all officers and directors
(2) Company is not required to adopt code of ethics but if it has not, it must disclose the reasons
why
7. Company officials found liable for fraud cannot use bankruptcy law to discharge that liability
8. Attorneys practicing before SEC representing public companies must report evidence of
material
violations by the company or its officers, directors, or agents of securities laws or breach of fidu-
ciary duties
(1) Report must be made to chief legal officer or chief executive officer'
(a) If they do not respond appropriately, then report of evidence must be made "up the ladder"
to audit committee of board of directors, another committee of independent
directors, or
finally to board of directors
9. SEC adopted new rules requiring more events to be reported on Form 8-K and shortening
filing
deadlines for most reportable events to four business days after the events
(1) If company becomes directly or contingently liable for material obligation arising from an off-
balance-sheet arrangement, it must describe this including its material terms and nature of
ar-
rangement
10. Company must disclose several items if a director has resigned or refused to stand for
reelection
because of disagreement with company's practices, operations or policies, or if director has been
removed for cause
(1) Company must disclose such items as circumstances regarding disagreement with company
11. If new executive officer is appointed, company must disclose information such as his or her
name,
the position, and description of any material terms of employment agreement between company
and officer