Q: Does Item 9(e)(5) of Schedule 14A require disclosure of a conclusion by the audit committee or of factors considered by the audit committee in the assessment of independence?

A: No. Voluntary disclosures describing conclusions reached and factors considered are permitted.

Q: Should "out-of-pocket" costs incurred in connection with providing the professional service and billed to the issuer be included in the fee disclosures required by Items 9(e)(1) – (e)(4) of Schedule 14A?

A: Yes. These costs should be included as part of the aggregate fee for the service to which they apply.

Q: In determining fees that are disclosed pursuant to Items 9(e)(1) – (e)(4) of Schedule 14A, should the disclosure be based on when the service was performed, the period to which the service applies, or when the bill for the service is received?

A: Fees to be disclosed in response to Item 9(e)(1) of Schedule 14A should be those billed or expected to be billed for the audit of the issuer's financial statements for the two most recently completed fiscal years and the review of financial statements for any interim periods within those years. If the issuer has not received the bill for such audit services prior to filing with the Commission its definitive proxy statement, then the issuer should ask the auditor for the amount that will be billed for such services, and include that amount in the disclosure. Amounts disclosed pursuant to Items 9(e)(2) – (e)(4) should include amounts billed for services that were rendered during the most recent fiscal year, even if the auditor did not bill the issuer for those services until after year-end.

Q: In situations where other auditors are involved in the delivery of services, to what extent should the fees from the other auditors be included in the required fee disclosures?

A: Only the fees billed by the principal accountant need to be disclosed. See Question 5 of this section regarding the definition of "principal accountant." If the principal accountant's billings or expected billings include fees for the work performed by others (such as where the principal accountant hires someone else to perform part of the work), then such fees should be included in the fees disclosed for the principal accountant.

In some foreign jurisdictions an issuer may be required to have a joint audit requiring both accountants to issue an audit report for the same fiscal year. In these circumstances, fees for each accountant should be separately disclosed as they are both "principal accountants."

Q: Does the term "principal accountant" in Item 9(e) of Schedule 14A include associated or affiliated organizations?

A: Yes. "Principal accountant" has the meaning given to it in the auditing literature. In determining what services rendered by the principal accountant must be disclosed, all entities that comprise the accountant, as defined in Rule 2-01(f)(1), should be included. This term includes not only the person or entity that furnishes reports or other documents that the issuer files with the Commission, but also all of the person's or entity's departments, divisions, parents, subsidiaries, and associated entities, including those located outside of the United States.

Q: Where in the proxy materials should the disclosures required pursuant to Item 9(e) of Schedule 14A appear? For example, can issuers include the disclosures in the audit committee report?

A: Like other Items in Schedule 14A, Item 9(e) does not specify where in the proxy statement the disclosures must appear. We think it is appropriate for the disclosures to accompany the disclosures required by Item 7(d) and Items 9(a)-(d) of Schedule 14A. Issuers can include the disclosures in the audit committee report, but we remind issuers that the safe harbor in Item 7(d)(3)(v) of Schedule 14A applies only to information required to be disclosed under Item 7(d)(3) and the safe harbor in Item 306(c) of Regulation S-K applies only to information required to be disclosed by Items 306(a) and (b) of Regulation S-K and, therefore, neither safe harbor would cover disclosures required by Item 9(e) but included in the audit committee report. The 2003 rules require disclosure of Item 9 (a) – (d) be included in a company's annual report. However, domestic companies are able to incorporate the required disclosure from the proxy or information statement into the annual report. Issuers that do not issue proxy statements are required to include disclosures in their annual filings.

Q: When there has been a change in accountants during the year, should fees paid to both the predecessor and successor auditor be disclosed pursuant to Item 9(e) of Schedule 14A?

A: No. The fee disclosure should only be made for the accountant who renders an audit report on that year's financial statements.

Q: What fee disclosure category is appropriate for professional fees in connection with an audit of the financial statements of a carve-out entity in anticipation of a subsequent divestiture?

A: Release No. 33-8183 (January 28, 2003),Strengthening the Commission’s Requirements Regarding Auditor Independence, establishes a new category, "Audit-Related Fees," which enables issuers to present the audit fee relationship with the principal accountant in a more transparent fashion. In general, "Audit-Related Fees" are assurance and related services (e.g., due diligence services) that traditionally are performed by the independent accountant. More specifically, these services would include, among others: employee benefit plan audits, due diligence related to mergers and acquisitions, accounting consultations and audits in connection with acquisitions, internal control reviews, attest services related to financial reporting that are not required by statute or regulation and consultation concerning financial accounting and reporting standards. Fees for the above services would be disclosed under "Audit-Related Fees."

Q: Should fees paid to the audit firm for operational audit services be included in "Audit-Related Fees?"

A: No. "Audit-Related Fees" are fees for assurance and related services by the principal accountant that are traditionally performed by the principal accountant and which are "reasonably related to the performance of the audit or review of the issuer's financial statements." Operational audits would not be related to the audit or review of the financial statements and, therefore, the fees for these services should be included in "All Other Fees." As required by the rules, the issuer would need to include a narrative description of the services included in the "All Other Fees" category.

Q: Are the fees paid to the principal auditor of a sponsor for the audit of its employee benefit plan, regardless of whether paid by the sponsor or the plan, required to be disclosed in the sponsor's proxy statement?

A: Yes. The Commission's rules (Items 9(e)(1)–(e)(4) of Schedule 14A) require all fees paid to the principal auditor be included in the issuer's fee disclosures. This includes fees related to the audits of any employee benefit plan for which the issuer is the sponsor, regardless of whether or not the issuer paid those fees or the audit committee of the issuer pre-approved those fees. The issuer may elect to identify in their disclosures those fees paid to the accountant that were not paid by the issuer or subject to the pre-approval requirements.