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© 2004 Dechert LLP
FORM N-CSR, CERTIFICATIONS AND
DISCLOSURE CONTROLS AND PROCEDURESJames F. DesMarais, Esq.
MFS Investment Management
Brian S. Vargo, Esq.Dechert LLP
January 26, 2004
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 2
© 2004 Dechert LLP
SARBANES-OXLEY ACT OF 2002
A primary goal - enhance responsibility for financial reports
Two separate certifications SOX § 302 SOX § 906
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 3
© 2004 Dechert LLP
SEC RULES AND FORMSINVESTMENT COMPANY ACT OF 1940
ICA Rule 30e-1 Semi-annual reports to stockholders Annual audited financial statements
ICA Rules 30b2-1 and 30d-1 – Form N-CSR
ICA Rule 30a-2 – Certifications ICA Rule 30a-3 – Controls and
Procedures
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 4
© 2004 Dechert LLP
FORM N-CSR
ICA and Exchange Act report Items include
Reports to stockholders Code of ethics Audit committee financial expert Principal accountant fees and services Controls and procedures Exhibits - including certifications
Note Exchange Act Rule 12b-20 – further material information
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 5
© 2004 Dechert LLP
FORM N-CSR CERTIFICATIONS
Principal executive officer and principal financial officer
Two separate forms of certifications Form N-CSR Item 10(a)(2) – ICA Rule 30a-
2(a) Form N-CSR Item 10(b) – ICA Rule 30a2(b)
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 6
© 2004 Dechert LLP
FORM N-CSR CERTIFICATIONS
Item 10(a)(2) Reviewed the report Based on his or her knowledge, no material
misstatement or omission Based on his or her knowledge, financial
statements and financial information fairly present in all material respects financial condition, results of operations, changes in net assets, and cash flows (if required)
Disclosure controls and procedures Internal control over financial reporting
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 7
© 2004 Dechert LLP
FORM N-CSR CERTIFICATIONS
Item 10(b) Report fully complies with Exchange Act
requirements Information contained in the report fairly
presents, in all material respects, the financial condition and results of operations of the issuer
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 8
© 2004 Dechert LLP
FORM N-CSR CERTIFICATIONS
Item 10(a)(2) - Controls and procedures Disclosure controls and procedures (DCP) Internal control over financial reporting
(ICFP)
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 9
© 2004 Dechert LLP
FORM N-CSR CERTIFICATIONS
Item 10(a)(2) - DCP Responsibility for establishing and
maintaining Designed to ensure knowledge of material
information Evaluation and report Form N-CSR, Item 9 - conclusions
regarding effectiveness of DCP
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 10
© 2004 Dechert LLP
FORM N-CSR CERTIFICATIONS
Item 10(a)(2) - ICFR Responsibility for establishing and
maintaining Designed to provide reasonable assurance
regarding reliability of financial reporting and the preparation of financial statements in accordance with GAAP
Disclosure of material changes and deficiencies
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 11
© 2004 Dechert LLP
CHANGES TO SHAREHOLDER REPORTS
Tighten MDFP Use of standardized template Base discussion on attribution analysis Eliminate discussion of comparative performance to benchmarks
not included in attribution analysis
Elimination of forward-looking statements Note significant positions sold out of fund after the reporting
period Discuss effect of cash position on relative performance
Use of separate document that is not part of shareholder report
President letter Forward looking statements Expanded discussion on fund performance
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 12
© 2004 Dechert LLP
CONDUCT OF PEO/PFOCERTIFICATION MEETING
Frequency – monthly for many fund groups Attendees – major contributors to N-CSR Purpose – to fulfill requirement that PEO/PFO have reviewed
the shareholder report Topics
Approve minutes Discussion of material changes to processes or controls Discuss significant issues arising from other operating committees
Risk Committee Valuation Committee Trade Processing Committee
Discuss whistleblower reports Discuss reports under Attorney Conduct Rule Regulatory update Update on industry compliance activities/efforts Review current N-CSR filings/process Confirm receipt of all sub-certifications
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 13
© 2004 Dechert LLP
DISCLOSURE CONTROLS AND PROCEDURES
ICA Rule 30a-3 Funds must maintain and regularly
evaluate DCP DCP - controls and other procedures
designed to ensure that information required to be disclosed on Form N-CSR
(includes shareholder report!) is recorded, processed, summarized and reported on a timely basis
information is timely communicated to management to enable timely decisions regarding disclosure
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 14
© 2004 Dechert LLP
DISCLOSURE CONTROLS AND PROCEDURES
What’s the point of DCP? SEC rules require them Process provides the basis for
certifications Accuracy of information Compliance with disclosure requirements
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 15
© 2004 Dechert LLP
DEVELOPING & IMPLEMENTING DCP
Getting started No prescribed form Tailor to particular business and
management practices Start with current practices
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 16
© 2004 Dechert LLP
DEVELOPING & IMPLEMENTING DCP
Initial assessment Understand and document the process by
which information is collected and reported
Evaluate current practice Timely communication Accuracy Records Personnel
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 17
© 2004 Dechert LLP
DEVELOPING & IMPLEMENTING DCP
Identify key personnel/functions Determine how to effectively gather information
Questionnaires Interviews Disclosure review and meetings Sub-certifications
Determine the level of diligence to confirm information
Establish schedules for each step in the process
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 18
© 2004 Dechert LLP
DEVELOPING & IMPLEMENTING DCP
Introduction Explain rationale Emphasize importance
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 19
© 2004 Dechert LLP
DEVELOPING & IMPLEMENTING DCP
Establish a disclosure controls committee (DCC) Role
Oversee the process Ensure efficiency and effectiveness Resolve disputes Consider disclosure issues
Members - senior management of each major department/function that contributes to disclosure
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 20
© 2004 Dechert LLP
DEVELOPING & IMPLEMENTING DCP
Describe the process Key personnel Methods of gathering information and
responsibility Methods of confirming information
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 21
© 2004 Dechert LLP
DEVELOPING & IMPLEMENTING DCP
Active role for senior management PEO and PFO are “on the hook” At a minimum
PEO and PFO must review each report DCC should meet or communicate with PEO
and PFO to review the process implemented, disclosure issues, and the accuracy and completeness of disclosures
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 22
© 2004 Dechert LLP
DEVELOPING & IMPLEMENTING DCP
Sub-certifications Support PEO and PFO certifications Internal - personnel who provide or verify
information External - service providers
Certification of information Verification of integrity of process
Investment activities, pricing, marketing and information services, legal and compliance, administration, accounting, custody, transfer agency
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 23
© 2004 Dechert LLP
DEVELOPING & IMPLEMENTING DCP
Coverage PEO and PFO certifications cover the entire report
MDFP Marketing information “President’s letter” Financial statements and information
DCP must be comprehensive and coordinate efforts of all groups that contribute to disclosure
Use checklists and flow charts Required information Responsible persons Sub-certifications
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 24
© 2004 Dechert LLP
DEVELOPING & IMPLEMENTING DCP
Records Create a “paper trail” - document each
step in the disclosure process Regular meetings and minutes of DCC Compiled reports and information Completed checklists Sub-certifications
January 26, 2004Form N-CSR, Certifications and Disclosure Controls and Procedures 25
© 2004 Dechert LLP
DEVELOPING & IMPLEMENTING DCP
Keep the Board involved Approval of DCP Regular reports - evaluations, deficiencies,
changes