The Dodd-Frank Act Addresses Corporate Governance
Rashty, Josef, The CPA Journal
Internal Controls, Whistleblower Provisions, and Disclosure Regulations
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act includes many provisions that federal regulators, including the SEC, have not yet been able to fully adopt and implement. Although the Dodd-Frank Act focuses mostly on the financial services sector, secondary provisions in the act impact the corporate governance and compliance programs of any nonfinancial publicly held companies.
The Dodd-Frank Act deals with numerous aspects of corporate governance, executive compensation, public company disclosures, and whistleblower procedures and protections, as well as mining and use of certain minerals. These requirements may potentially impact any industry in the United States.
The corporate governance and compliance programs of every publicly held corporation - not just those in the financial sector - may be affected by the following four provisions in the Dodd-Frank Act:
* Exemption from section 404(b) of the Sarbanes-Oxley Act
* Whistieblower rules
* Disclosure requirements for executive compensation in proxies and annual reports
* Disclosure requirements for the use of conflict minerals.
Exemption from Section 404(b) of the Sarbanes-Oxley Act
In response to the Dodd-Frank Act mandate, on September 15, 2010, the SEC issued a final rule, effective September 21, 2010, that public companies with a public float of $75 million or less were exempt from obtaining an independent auditor's report on the effectiveness of their internal control over financial reporting (ICFR) under section 404(b) of the Sarbanes-Oxley Act of 2002 (SOX). This exemption, however, does not extend to management's assessment of the effectiveness of ICFR, which continues to be required under SOX section 404(a).
In addition, on April 22, 2011, the SEC published the results of a study, mandated by the Dodd-Frank Act, that addressed whether it could reduce the costs of compliance with section 404(b) for public companies with a public float between $75 milHon and $250 million. The SEC concluded that "auditor involvement promotes more accurate and reliable reporting" in the assessment of ICFR for publicly held companies; as a result, it found that SOX section 404(b) should continue to apply to such companies.
On May 25, 2011, the SEC issued a final rule (which narrowly passed by a 3-2 vote) to implement the whistleblower provisions under section 21 F (added by section 922 of the Dodd-Frank Act) of the Securities Exchange Act of 1934. The final rule provides financial rewards for whistleblowers who provide the SEC with "original information" leading to securities law enforcement actions that result in a recovery of more than $1 million.
The Dodd-Frank Act's whistleblower provisions create a system of financial incentives and protections to encourage those with information about possible violations of the securities or commodities laws to submit their complaints directly to the SEC. Whistleblowers can receive between 10% and 30% of any amounts obtained in a successful regulatory enforcement action with sanctions of $1 million or more brought as a result of the tip.
The SEC mandate encourages, but does not obligate, whistleblowers to report the information internally first. In addition to addressing the amount of the awards and the eligibility criteria, the final rule discusses the antiretaliatory provisions of section 21F and the eligibility of whistleblowers who are culpable of misconduct to receive awards.
As part of the Dodd-Frank Act's effort to modify the SEC's authority and operations to better protect the investing community, the SEC created the Office of the Whistleblower (www.sec.gov/whistle blower). This office is responsible for the management and administration of whistleblower programs. …