International Accounting and Reporting Issues: 2004 Review - Unctad

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Chapter II
Further, the revised Principles underscore the responsibility of the external auditor to
shareholders and also encourage analysts, brokers, rating agencies and others to
ensure they are free from material conflicts of interest that might compromise the
integrity of their analysis or advice.
In 2003, the European Commission (EC) 1 proposed an Action Plan covering
proposals on corporate governance, capital maintenance and alteration, groups and
pyramids, corporate restructuring and mobility, and other issues. Concurrently with
the Action Plan, the EC established 10 priorities for improving and harmonizing the
quality of statutory audit throughout the EU. 2 A new Prospectus Directive, which
entered into force on 31 December 2003, offers common criteria for the acceptance of
offering prospectuses throughout the EU. 3 In addition, a new Transparency Directive,
which was agreed by the European Parliament on 30 March 2004, aims to upgrade
transparency for securities issues and investors, and sets out a wide variety of
disclosure requirements. The Committee of European Securities Regulators (CESR)
is taking on an increasingly important role as an independent pan-European advisory
group, and will assist the EC in preparing draft implementing measures .4
In 2003/04, significant reforms continued to be introduced in the United
States. Reforms in the area of corporate governance in the United States are of
considerable importance, as they can be expected to have international implications
due to the many foreign listings on US exchanges, the influence of US investment
funds globally and the fact that the Sarbanes Oxley Act (SOA) assigned the Securities
and Exchange Commission (SEC) the authority to direct US stock exchanges to
prohibit the listing of companies that do not meet their disclosure requirements.
In its continued efforts to implement the SOA, the SEC approved significant
regulations, in particular with respect to Board members; in November 2003, it
adopted rules to enhance the transparency of Board operations with respect to
disclosure when nominating committees and how shareholders communicate with
directors. 5 Also in November 2003, the SEC approved the new rules for corporate
governance and disclosure proposed by the New York Stock Exchange (NYSE) and
NASDAQ in 2002. 6 For companies listed at both of these exchanges, the new rules
require that the Boards have a majority of independent directors. Generally,
companies listed on both the NYSE and NASDAQ are requested to comply with the
new rules by the earliest at their first annual meeting after 15 January 2004 or 31
October 2004.
Some other significant new rules for companies listed on the NYSE cover the
following: disclosure by boards of specific information with respect to the presiding
director, communication processes with the directors, nomination and remuneration
committees, adoption and disclosure of corporate governance guidelines and
committee charters, and the existence of an internal audit body. 7
The new rules at NASDAQ require listed companies to disclose which
directors are independent and that either a majority of independent directors or a
remuneration committee composed solely of independent directors is to determine
compensation for top executives. The NASDAQ rules also require that either a
majority of independent directors or a nominating committee composed solely of
independent directors select or recommend director nominees to the Board.