SEC expands financial expert definition

Strategic Finance, Feb, 2003 by Kathy Williams

AFTER RECEIVING A BARRAGE OF PROTESTS OVER THE DEFINITION OF FINANCIAL expert in the Sarbanes-Oxley Act (see IMA's letter, p. 35, and Government, p. 24), the Securities & Exchange Commission (SEC) voted on January 15 to change the term to "audit committee financial expert" and expand the proposed definition beyond someone with experience in "preparing or auditing financial statements."

Now, an audit committee financial expert will be a person who has:

* An understanding of financial statements and GAAP;

* An ability to assess the general application of those principles in connection with the accounting for estimates, accruals, and reserves;

* Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant's financial statements, or experience actively supervising one or more persons engaged in such activities;

* An understanding of internal controls and procedures for financial reporting;

* An understanding of audit committee functions.

A person can acquire these attributes through:

* Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions;

* Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions, or experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or

* Other relevant experience.

This paves the way for some CEOs and others to be listed as audit committee financial experts who wouldn't have been allowed under the original definition.

For a complete set of the proposed rules changes regarding Sarbanes-Oxley, visit the SEC's website at www.sec.gov.