SEC and NASDAQ Rules for Audit Committee Charters

Late last year, the Securities and Exchange Commission, Nasdaq, and the exchanges adopted new rules for audit committees. The rules become effective this year (2000). In general, they require public companies to have independent audit committees of at least three members, establish new independence rules for directors on the committee, specify the contents of audit charters, require audit charters to be published in proxy statements, and include special requirements for quarterly financial statements. Some of the new rules overlap with the audit and audit committee rules that have applied to banks and bank holding companies for years.

Bank holding companies and publicly traded banks should take special care in adopting audit committee charters. There are many sample charters in circulation. Some of the charters we have seen do not include items that are required by the new rules or the banking rules, or include responsibilities that are unnecessary or expose the committees to unnecessary risks.

The SEC rules and background materials can be obtained from the SEC web site at www.sec.gov. The Nasdaq rules can be found at the Nasdaq web site at www.nasdaq.com. Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, can be obtained at www.cpaindependence.org.

Please contact us if you desire additional information.