SEC Rules On Certifications

John P. Beavers
Bricker & Eckler LLP
September 2002

Perhaps the most significant provision of the Sarbanes-Oxley Act of 2002 is the requirement for CEOs and CFOs of public-reporting companies to make personal certifications regarding the accuracy and completeness of certain reports, the fair presentation of financial statements, the responsibility for internal accounting controls, and disclosures regarding significant deficiencies made to audit committees and outside auditors1.

Congress believed these certifications to be so important that it gave the SEC only 30 days to issue and effect rules implementing the certifications. The SEC found the certifications to be essential as well, which is evident by its issuance of the rules within 28 days. The new rules became effective August 29, 2002.

The significance of these certifications to Congress is apparent by the civil and criminal sanctions to which they are subject. These include SEC administrative and judicial enforcement actions against companies’ CEOs and CFOs as signatories for disclosures under the Exchange Act; actions for damages, as well as injunctive and administrative sanctions, for material misstatements or omissions under general antifraud standards of the Exchange Act, including rights of private action by shareholders for violating Exchange Section 10(b) Rule 10b-5; and for criminal penalties of up to $1 million and imprisonment for up to 10 years under the criminal penalties of the Exchange Act. In addition, Congress added a new section 1350 to Chapter 63 of the 18 USC criminal code providing additional criminal penalties of up to $5 million and imprisonment for up to 20 years for willful certifications knowing them to be false.

The Required Certifications

Pursuant to the August 29, 2002 rules, each CEO and each CFO of a public-reporting company are required to separately provide the following certification with respect to each Form 10-Q or 10-QSB, Form 10-K or 10-KSB, Form 20-F, and Form 40-F filed with the SEC on or after August 29, 2002:

I, [identify the certifying individual], certify that:

1. I have reviewed this quarterly report on Form [identify report] of [identify registrant];

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

   • Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

   • Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and

   • Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

   • All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

   • Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls.

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:

_______________________
[Signature]
[Title]

The new rules makes some significant changes to certifications previously filed in response to section 906 of Sarbanes-Oxley and to the initial SEC certification initiative. The first is that the new rules do not permit the certification to be limited by lack of knowledge and require affirmative knowledge of compliance. Most section 906 certifications contained language that the certifications were being made “subject to the best of my knowledge,” while the new rules require the certifications to be made “based upon my knowledge” after certifying that “registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures.”

New Issuer Responsibilities for Disclosure Controls and Procedures

The new rules go beyond CEO and CFO certifications. To assist CEOs and CFOs in making the required certifications, the new rules include a requirement for reporting companies to maintain disclosure controls and procedures that are to have been periodically evaluated at least 90 days before the filing of each report requiring a certification.

The definition of “disclosure controls and procedures” in the new rules is intentionally broader than the meaning of internal accounting controls currently required by section 13(b) of the Exchange Act. Under the new rules, these controls and other procedures are to be designed to ensure that information required to be disclosed in the reports is:

• "Recorded, processed, summarized and reported, within the time periods specified in the [SEC's] rules and forms"; and

• "Accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure"2.

The periodical evaluations required of the disclosure controls and procedures are “to be carried out under the supervision and with the participation of the issuer's management, including the issuer's principal executive officer or officers and principal financial officer or officers"3.

Footnotes

1. See Section 302 of Sarbanes-Oxley.

2. Rules 13a-14(c) and 15d-14(c).

3. Rules 13a-15(b) and 15d-15(b).