Summary: Pursuant to a congressional request, GAO reviewed the reporting procedures under Section 10A of the Securities Exchange Act of 1934.
GAO noted that: (1) according to the Securities and Exchange Commission's (SEC) records, 6 Section 10A reports have been filed through December 14, 1999; (2) the Section 10A reporting requirements first became effective for fiscal years beginning on or after January 1, 1996; (3) SEC has also identified 7 additional cases in which it appeared that a Section 10A report may have been required; (4) of those 7 cases, 3 are now subjects of active enforcement cases, and in the remaining 4 cases SEC concluded that there was no appearance of illegal acts requiring the Section 10A reports; (5) SEC representatives GAO met with stated that there may be several reasons for the low level of Section 10A reporting, ranging from management resolution of likely illegal acts to auditor decisions that Section 10A reports are not required; (6) the representatives from the American Institute of Certified Public Accountants (AICPA) disagreed with the reasons set forth by the SEC, except for management's resolution of issues; (7) the AICPA representatives told GAO that a low level of Section 10A reporting could reasonably be expected because they believe in most cases, management or the board of directors take timely and appropriate actions to address the issues identified by the auditors, and therefore Section 10A reporting would not be required; and (8) SEC representatives indicated that because the Section 10A reporting requirements first became effective for fiscal years beginning on or after January 1, 1996, and due to the time lag involved in identifying and investigating enforcement cases, there could be potential Section 10A reporting violations under investigation by SEC that may result in enforcement actions.
