Institute Supports Corporate Governance Reform

Restoring investor confidence in the integrity of our securities markets and the accuracy of financial information is an enormously important goal. The Institute is committed to helping Congress and the SEC accomplish it. The ICI has urged Congress to authorize appropriate SEC funding authorized by the Sarbanes-Oxley Act.

The Institute’s support for the Sarbanes-Oxley Act is one in a series of corporate and market reform efforts endorsed by the fund industry to improve accountability, enhance transparency and oversight, and strengthen regulation to advance corporate and market reforms. The fund industry has called for: earnings announcements to be promptly filed with the SEC and made more reliable to avoid misleading investors; stronger disclosure rules for loans to and insider selling by senior executives; disclosure of critical corporate accounting policies; the expensing of stock options; and new legislation to promote better accounting standards. The Institute also supports many of the proxy voting rules recently adopted by the SEC.

Institute Supported Certification of Mutual Fund Financial Information
The Institute believes that certifying financial information will promote greater accountability. Certification is designed to improve the reliability and accuracy of financial statements by imposing enhanced responsibility for how they are prepared and reported. Accordingly, the Institute filed a comment letter supporting the certification of mutual fund financial statements and other financial information in shareholder reports. The SEC’s rulemaking is intended to implement the certification requirement of Section 302 in the Sarbanes-Oxley Act.

"We continue to endorse the SEC’s ongoing efforts to enhance the accuracy and integrity of the financial reporting system," Institute President Matthew P. Fink said. "The ICI supports the application of the certification requirement to mutual fund financial statements even though mutual funds are already prohibited from employing the corporate structures and engaging in the types of transactions that have led to recent accounting problems. In our letter to the SEC, we identified all of the areas where proposed mutual fund certifications could improve accountability and potentially benefit shareholders."

In addition, the SEC requested comment on whether it should require certification of both shareholder reports containing fund financial statements and a technical regulatory filing called Form N-SAR. Unlike forms 10-K and 10-Q filed by corporations, Form N-SAR contains only limited financial information and is not sent to or relied upon by mutual fund shareholders. Requiring that Form N-SAR be certified presents a serious risk of diluting the certification requirement prescribed by Congress. As such, it fails to meet the legislation’s intent of assisting investors and promoting improved financial accountability. The Institute urged that the pointless, costly, and distracting requirement of certifying Form N-SAR be replaced by the certification of fund financial statements and other financial information in shareholder reports.

For the latest legislative and regulatory developments concerning these and other related issues, return to the Corporate Governance index page.