One plank in the Sarbanes-Oxley Act is Section 302, a provision that chief executive officers as well as chief financial officers make certain certifications regarding financial and other information contained in companies' annual and quarterly reports.
On Aug. 30, 2002, the Securities and Exchange Commission issued the final rule implementing the provisions of Section 302, adding Rule 13a-14 and Rule 15d-14, which require certifications.
That ruling as explained in the SEC's summary: "As directed by Section 302(a) of the Sarbanes-Oxley Act of 2002, we are adopting rules to require an issuer's principal executive and financial officers each to certify the financial and other information contained in the issuer's quarterly and annual reports. ... We are adopting previously proposed rules to require issuers to maintain, and regularly evaluate the effectiveness of, disclosure controls and procedures designed to ensure that the information required in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported on a timely basis."
The question arises of how such executives have handled the dilemma posed when pervasive uncertainties or circumstances affect their ability to proffer such certifications. To address that question, we have assembled an exhibit that highlights the phrasing found in submissions by some of the companies filing other than the boilerplate certification form, and the types of events described. A number of these companies have been prominent in the media due to allegations associated with reporting practices, litigation or bankruptcy proceedings. This evidence corroborates the challenges posed by the certification requirement for chief executives and chief financial officers of companies dealing with allegations of fraud or bankruptcy proceedings.
Enforcement has already been evidenced, relative to certifications. The SEC filed a complaint, on Jan. 13, 2003, related to Rica Foods, which was settled in August of 2003.
This overview is provided to facilitate consideration of specific examples of the types of events that have triggered other than a boilerplate representation, and how such special circumstances have been handled in the certification process.
Wanda A. Wallace, Ph.D., CPA, CMA, is the John N. Dalton Professor of Business Administration, and Aamer Sheikh, Ph.D., CBM, CPA, is an assistant professor of business administration, at the College of William and Mary, in Williamsburg, Va. Research assistance for the article was provided by Yindong Chen.
