(December 16) – “The U.S. Securities and Exchange Commission voted to adopt new disclosure rules to ensure that corporate-audit committees serve as watchdogs against financial-reporting shenanigans,” Michale Schroeder is reporting in today’s Wall Street Journal.

“The SEC also agreed to consider proposed rules to prevent companies from disclosing market-moving information to Wall Street firms before they release it to the general public. Another set of proposals would clarify violations of insider-trading laws that apply to family members of corporate insiders. The controversial rules will receive action following a 90-day public-comment period.

“Critics say the new rules could increase the threat of litigation against board-audit committees. ‘The remote possibility of increased liability exposure must not be used as an excuse to shirk an audit committee’s duty to investors,’ said SEC Chairman Arthur Levitt. The rules are designed to make sure committees adequately review and vouch for the accuracy of financial statements. One rule, which takes effect March 15, requires independent auditors to review quarterly reports before companies file them with the SEC. Other changes, which take effect on Dec. 15, 2000, require companies to provide a report from their audit committees in proxy statements, disclosing whether the committee has recommended that a company’s audited financial statements be filed with the SEC.

Companies also have to disclose in their proxy statements whether their audit committees have a written charter spelling out the committee’s duties, and to submit this charter to the SEC every three years. And the SEC approved new listing standards for the New York Stock Exchange, the American Stock Exchange and the Nasdaq Stock Market that require companies that list on an exchange to disclose whether their audit-committee members are independent of management. Exchanges also will require audit-committee members to have some financial expertise.

In addition to approving the new audit rules, the SEC also unveiled a set of proposed rules aimed at curbing such things as selective disclosure. For nearly two years, Mr. Levitt has complained about the common practice of companies conveying market-moving information to Wall Street analysts in private meetings and conference calls. To restore fairness to the system, Mr. Levitt said, the agency agreed to consider forcing companies to give investors information at the same time stock analysts get it.

The fair-disclosure proposal would require companies to immediately make public any material information they make available to a select group. Companies would have a choice of filing a report with the SEC, or issuing a press release that provides the same information to a broad audience. The rule would apply both when companies make planned disclosures or if an executive unintentionally releases some potentially market-moving information. Violation of the rule could result in an SEC enforcement action.