Reform measures achieve fruition.

Certain provisions of the Sarbanes-Oxley Act became required practice in January when the SEC released as final four rules governing various aspects of accounting, financial reporting and auditing. As mandated by the act, the commission's new rules address auditor independence, off-balance-sheet arrangements, audit records retention and pro forma financial reporting--all focal points of Congress's efforts to stem the recent tide of corporate failures.

The auditor independence rule supersedes earlier provisions governing nonaudit services (www.see.gov/rules/final/33-8183.htm). It forbids auditors to provide nonaudit services such as financial information systems design and implementation, appraisal and valuation, actuarial functions and internal audit outsourcing to their audit clients unless it is reasonable to conclude the firm will not examine the results of such work when it audits the client's financial statements. The rule also requires firms to choose between keeping their clients' books and auditing them. Other provisions prevent auditors from performing for audit clients any management or human resources services; broker-dealer, investment advisory or investment banking services; or legal or expert services unrelated to the audit.

Particular aspects of the rule pertain to audit committee preapproval of both audit and nonaudit services before the auditor renders them; disclosure to investors of the nonaudit services the auditor provides, as well as the fees paid for all services; audit partner rotation and compensation; the definition of the term audit partner; how long an auditor must wait before overseeing financial reporting at a public company he or she had audited; communication between the auditor and the audit committee; and the impact on foreign accounting firms or companies. The rule will take effect May 6.

Another rule requires corporations to explain any off-balance-sheet arrangements in a clearly identifiable section of their "management discussion and analysis" disclosure documents and their aggregate contractual obligations in a summary table (www.sec.gov/rules/final/33-8182.htm). According to the SEC's definition, off-balance-sheet arrangements include certain guarantee contracts, retained or contingent interests in assets transferred to an unconsolidated entity, derivative instruments classified as equity or material variable interests in unconsolidated entities that conduct specified activities. The rule's disclosure requirements for off-balance-sheet arrangements and contractual obligations are effective for fiscal years ending on or after June 15 and December 15, respectively.

The SEC also issued a rule specifying that accounting firms must retain for seven years workpapers documenting audits they perform (www.see.gov/rules/final/33-8180.htm). Auditors must comply with the rule's provisions no later than October 31.

And in another rule, the commission adopted regulation G, which will apply whenever a company publicly discloses material information that includes a non-GAAP-compliant financial measure--commonly known as a pro forma release (www.see.gov/rules/final/33-8178.htm). In such situations, the rule requires public companies to include with the non-GAAP material the most directly comparable GAAP financial measure and to "reconcile" them. The regulation takes effect March 28.