15 U.S.C. § 7265 — Disclosure of audit committee financial

Page 2342 TITLE 15—COMMERCE AND TRADE § 7263 4 of Pub. L. 111–203, set out as an Effective Date note under section 5301 of Title 12, Banks and Banking. § 7263. Exemption Nothing in section 401, 402, or 404, the amend- ments made by those sections, or the rules of the Commission under those sections shall apply to any investment company registered under section 80a–8 of this title. (Pub. L. 107–204, title IV, § 405, July 30, 2002, 116 Stat. 789.) Editorial Notes REFERENCES IN TEXT Sections 401, 402, and 404, referred to in text, mean sections 401, 402, and 404 of Pub. L. 107–204. Section 401 enacted section 7261 of this title and amended section 78m of this title. Section 402 amended section 78m of this title. Section 404 enacted section 7262 of this title. § 7264. Code of ethics for senior financial officers (a) Code of ethics disclosure The Commission shall issue rules to require each issuer, together with periodic reports re- quired pursuant to section 78m(a) or 78o(d) of this title, to disclose whether or not, and if not, the reason therefor, such issuer has adopted a code of ethics for senior financial officers, appli- cable to its principal financial officer and comp- troller or principal accounting officer, or per- sons performing similar functions. (b) Changes in codes of ethics The Commission shall revise its regulations concerning matters requiring prompt disclosure on Form 8–K (or any successor thereto) to re- quire the immediate disclosure, by means of the filing of such form, dissemination by the Inter- net or by other electronic means, by any issuer of any change in or waiver of the code of ethics for senior financial officers. (c) Definition In this section, the term ‘‘code of ethics’’ means such standards as are reasonably nec- essary to promote— (1) honest and ethical conduct, including the ethical handling of actual or apparent con- flicts of interest between personal and profes- sional relationships; (2) full, fair, accurate, timely, and under- standable disclosure in the periodic reports re- quired to be filed by the issuer; and (3) compliance with applicable governmental rules and regulations. (d) Deadline for rulemaking The Commission shall— (1) propose rules to implement this section, not later than 90 days after July 30, 2002; and (2) issue final rules to implement this sec- tion, not later than 180 days after July 30, 2002. (Pub. L. 107–204, title IV, § 406, July 30, 2002, 116 Stat. 789.) § 7265. Disclosure of audit committee financial expert (a) Rules defining ‘‘financial expert’’ The Commission shall issue rules, as necessary or appropriate in the public interest and con- sistent with the protection of investors, to re- quire each issuer, together with periodic reports required pursuant to sections 78m(a) and 78o(d) of this title, to disclose whether or not, and if not, the reasons therefor, the audit committee of that issuer is comprised of at least 1 member who is a financial expert, as such term is defined by the Commission. (b) Considerations In defining the term ‘‘financial expert’’ for purposes of subsection (a), the Commission shall consider whether a person has, through edu- cation and experience as a public accountant or auditor or a principal financial officer, comp- troller, or principal accounting officer of an issuer, or from a position involving the perform- ance of similar functions— (1) an understanding of generally accepted accounting principles and financial state- ments; (2) experience in— (A) the preparation or auditing of financial statements of generally comparable issuers; and (B) the application of such principles in connection with the accounting for esti- mates, accruals, and reserves; (3) experience with internal accounting con- trols; and (4) an understanding of audit committee functions. (c) Deadline for rulemaking The Commission shall— (1) propose rules to implement this section, not later than 90 days after July 30, 2002; and (2) issue final rules to implement this sec- tion, not later than 180 days after July 30, 2002. (Pub. L. 107–204, title IV, § 407, July 30, 2002, 116 Stat. 790.) § 7266. Enhanced review of periodic disclosures by issuers (a) Regular and systematic review The Commission shall review disclosures made by issuers reporting under section 78m(a) of this title (including reports filed on Form 10–K), and which have a class of securities listed on a na- tional securities exchange or traded on an auto- mated quotation facility of a national securities association, on a regular and systematic basis for the protection of investors. Such review shall include a review of an issuer’s financial statement. (b) Review criteria For purposes of scheduling the reviews re- quired by subsection (a), the Commission shall consider, among other factors— (1) issuers that have issued material restate- ments of financial results; (2) issuers that experience significant vola- tility in their stock price as compared to other issuers; (3) issuers with the largest market capital- ization; (4) emerging companies with disparities in price to earning ratios; (5) issuers whose operations significantly af- fect any material sector of the economy; and