Certification of Disclosure in Companies' Quarterly and Annual Reports

Companies that are preparing their quarterly and annual reports should be mindful of the additional disclosures required under the Sarbanes Oxley Act (the "Act") which apply to filings for periods after August 29, 2002, including quarterly reports due November 14, 2002.

Section 302 of the Act not only requires a certification following a company's quarterly or annual report, but also requires additional disclosures in the report itself. Under Section 302, the company's CEO and CFO must certify that they have reviewed the quarterly or annual report, and to the best of their knowledge, that it does not contain any material false statement or omission and fairly presents in all material respects the company's financial condition and results of operations. These officers must also certify that they have evaluated the company's disclosure controls and procedures in addition to internal controls relating to the circulation of material information regarding the company and must state the results of those evaluations.

The term "disclosure controls and procedures" is intended to embody controls and procedures addressing the quality and timeliness of disclosure. The SEC created this definition to differentiate this concept of disclosure controls and procedures from the pre-existing concept of "internal controls" that pertains to a company's financial reporting and control of its assets. Therefore, Section 302 includes material non-financial information as well as financial information.

Because the certification required under Section 302 makes reference to certain statements regarding both disclosure controls and procedures and internal controls that must be made in quarterly and annual reports in which the certification is contained, the SEC has adopted new Item 307 of Regulations S-K and S-B.

Item 307 requires that a company disclose the conclusions of the CEO and CFO about the effectiveness of the company's disclosure controls and procedures based on an evaluation of these controls that occurred within 90 days before the filing of the report. In addition, a company must disclose whether or not there were significant changes in the company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

The SEC does not require any specific procedures for conducting the required reviews and evaluations. Instead, each company must develop a process that is consistent with its business and internal management and supervisory practices. However, the SEC has recommended that companies create a management committee with the responsibility for considering the materiality of information and determining disclosure obligations on a timely basis.

The full text of the new rules is part of the SEC’s adopting release which is available at the SEC’s website, www.sec.gov. For more information regarding the Section 302 certification and the new disclosure requirements, please contact any of our securities attorneys.