New SEC Rules for Arthur Andersen Audit Clients

The Securities and Exchange Commission (SEC) announced new rules, effective March 18, 2002, that are designed to assist companies that have Arthur Andersen LLP (Andersen) as their outside auditor.

Issuers that Continue to Engage Andersen

For filings that include accountant's reports from Andersen issued after March 14, 2002, issuers are required to include as an exhibit to the filings a letter confirming that Andersen represented to the issuer that:

• the audit was subject to Andersen's quality control system for U.S. accounting
• the engagement was conducted in compliance with professional standards
• there was appropriate continuity of Andersen personnel working on audits, availability of national office consultation and availability of personnel at foreign affiliates of Andersen to conduct relevant portions of the audit

Issuers Who Are Unable to, or Choose Not to, Continue to Engage Andersen

Issuers who are unable to or elect not to obtain from Andersen a signed report for audits currently in process are permitted to file annual reports on Form 10-K, registration statements, proxy statements and certain other filings in compliance with existing filing deadlines, but with unaudited financial statements, provided that they:

• disclose that the filing includes unaudited financial statements in lieu of the audited financial statements because the issuer was unable to obtain or elected not to have Andersen issue a manually signed audit report
• submit amended filings containing financial statements audited by an accountant other than Andersen within 60 days of the original filing due date
• explain material differences between the unaudited and audited financial statements, and
• under certain circumstances, alert the public through a press release that the audited financial statements are available

The SEC has confirmed that compliance by issuers with the filing framework established by the new rules will be sufficient to meet the conditions of eligibility for Rule 144, Rule 144A, Rule 701, Regulation D, and registrations on Form S-3.

Consents and Reissued Accountant Reports

The SEC also will waive the requirement for Andersen clients to include in a registration statement the consent of Andersen to use audit reports from prior years for which a consent cannot be obtained. In addition, the SEC waived the requirement in some circumstances that Andersen clients submit a reissued accountant's report from Andersen if the issuer is unable to obtain the accountant's report after reasonable efforts. The issuer may instead provide a copy of the latest previously issued accountant's report, provided that it discloses that the report is a copy of a report previously issued and that the report has not been reissued by Andersen. Although the SEC has not specifically addressed the issue, it appears unlikely that an issuer will be permitted to forego a required report or consent when such report or consent is unavailable because Andersen has a specific objection to providing it due to circumstances unique to the issuer.