December 2012

SEC ACCOUNTING AND AUDITING BRIEF

On August 22, 2012, the Securities and Exchange Commission (SEC) adopted final rules and amendments which implement certain sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act (DoddFrank). Two of the disclosure requirements now mandated are briefly discussed below. Conflict Minerals Rule The SEC requires both foreign and domestic issuers to disclose the use of conflict minerals in their products and whether those minerals originated from the Democratic Republic of the Congo (DRC) and neighboring countries (collectively, covered countries). Conflict minerals include: cassiterite, columbite-tantalite, gold and wolframite or their derivatives (limited to tin, tantalum and tungsten) and other minerals or derivatives that the U.S. Secretary of State names in the future. The rule excludes (1) issuers that mine conflict minerals but do not manufacture anything, and (2) conflict minerals that have been smelted or refined before January 31, 2013. The rule was mandated by Section 1502 of Dodd-Frank in response to humanitarian concerns that trade in conflict minerals is financing armed groups in the region. The SEC estimates that the aggregate cost of compliance will be $3 billion to $4 billion initially and $207 million to $609 million annually thereafter. The SEC estimates that approximately 6,000 issuers will be directly impacted by the rule. Three-Step Process (1) Assessing applicability: Conflict minerals have to be necessary to the functionality or production of a product that an issuer either manufactures or contracts to be manufactured. A company is not deemed to have influence over the manufacturing if it only: Attaches its brand or logo to a generic product manufactured by a third party Services, maintains or repairs a product manufactured by a third party Specifies or negotiates contractual terms with a manufacturer that do not directly relate to the manufacturing of the product

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(2) Determining if minerals come from covered countries: Issuer must perform in good faith a reasonable country of origin inquiry. Maintaining

records which support inquiries may help companies demonstrate compliance with the rule. (3) Filing a Conflict Minerals Report: If an issuer determines the minerals come from or may have come from covered countries, it should (a) undertake due diligence on the source and chain of custody of the minerals; and (b) file a Conflict Minerals Report as an exhibit to Form SD. Such reports will be subject to Exchange Act Section 18 liability. Audits of these reports will be conducted in accordance with Government Auditing Standards (yellow book) for attestation engagements or performance audits. The rule permits issuers to describe their products as DRC conflict undeterminable for the first two years (four years for smaller reporting companies) if they cannot determine source and chain of custody of the minerals. Recycled or scrap sources of conflict minerals are considered DRC conflict free. Filing Date Initial Forms SD are required to be filed by May 31, 2014 (covering calendar year 2013) and then annually thereafter by May 31 covering the prior calendar year. Issuers are also required to post the information on their website and provide their website address in Form SD. Disclosure of Certain Payments to Foreign and Federal Governments by Resource Extraction Issuers Implementing Section 1504 of Dodd-Frank, the SEC added Section 13(q) to the Securities Exchange Act of 1934. For fiscal years ending after September 30, 2013, resource extraction issuers must include on Form SD annual report information relating to certain payments made to a foreign government or the Federal Government for the purpose of the commercial development of oil, natural gas, or minerals. The disclosure requirements apply to both U.S. and foreign companies, regardless of size of the company or the extent of business operations constituting commercial development of oil, natural gas, or minerals. There are no exemptions. Definitions Resource extraction issuer: an issuer that is required to file an annual report with the SEC and engages in the commercial development of oil, natural gas, or minerals. Commercial development of oil, natural gas, or minerals: includes the activities directly related to exploration, extraction, processing, and export, or the acquisition of a license for such activities. The definition is not intended to capture activities that are ancillary or preparatory to commercial development.

Foreign government: a foreign government, a department, agency, or instrumentality of a foreign government or a company owned by a foreign government, including a foreign national government as well as a foreign subnational government, such as the government of a state, province, county, district, municipality, or territory under a foreign national government. Federal Government: the United States Federal Government [not subnational governments in the U.S.]. Information to be Disclosed A resource extraction issuer must disclose payments that are made in the furtherance of development of oil, natural gas or minerals, and such payments are not de minimis. [A payment is not de minimis if a single payment or a series of related payments equals or exceeds $100,000 in the aggregate during the most recent fiscal year.] Information Required About Payments A resource extraction issuer must provide the following information about payments that are not de minimis made to further the commercial development of oil, natural gas, or minerals: type and total amount of payments made for each project; type and total amount of payments made to each government; total amounts of the payments, by category; currency used to make the payments; financial period in which the payments were made; business segment of the resource extraction issuer that made the payments; government that received the payments, and the country in which the government is located; and the project of the resource extraction issuer to which the payments relate.

The rules require a resource extraction issuer to disclose payment information annually by filing a new Form SD on the SECs public database, EDGAR. The payment information must be electronically tagged in eXtensible Business Reporting Language (XBRL) format and filed no later than 150 days after the end of the issuers most recent fiscal year beginning with fiscal years ending after September 30, 2013.
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