[Title 17 CFR 228.304]
[Code of Federal Regulations (annual edition) - April 1, 2007 Edition]
[Title 17 - COMMODITY AND SECURITIES EXCHANGES]
[Chapter II - SECURITIES AND EXCHANGE COMMISSION]
[Part 228 - INTEGRATED DISCLOSURE SYSTEM FOR SMALL]
[Subpart A - Regulation S-B]
[Sec. 228.304 - (Item 304) Changes In and Disagreements With Accountants on]
[From the U.S. Government Printing Office]


17COMMODITY AND SECURITIES EXCHANGES22007-04-012007-04-01false228.304Sec. 228.304COMMODITY AND SECURITIES EXCHANGESSECURITIES AND EXCHANGE COMMISSIONINTEGRATED DISCLOSURE SYSTEM FOR SMALLRegulation S-B
Sec. 228.304  (Item 304) Changes In and Disagreements With Accountants on 
Accounting and Financial Disclosure.

    (a)(1) If, during the small business issuer's two most recent fiscal 
years or any later interim period, the principal independent accountant 
or a significant subsidiary's independent accountant on whom the 
principal accountant expressed reliance in its report, resigned (or 
declined to stand for re-election) or was dismissed, then the small 
business issuer shall state:
    (i) Whether the former accountant resigned, declined to stand for 
re-election or was dismissed and the date;
    (ii) Whether the principal accountant's report on the financial 
statements for either of the past two years contained an adverse opinion 
or disclaimer of opinion, or was modified as to uncertainty, audit 
scope, or accounting principles, and also describe the nature of each 
such adverse opinion, disclaimer of opinion or modification;
    (iii) Whether the decision to change accountants was recommended or 
approved by the board of directors or an audit or similar committee of 
the board of directors; and
    (iv)(A) Whether there were any disagreements with the former 
accountant, whether or not resolved, on any matter of accounting 
principles or practices, financial statement disclosure, or auditing 
scope or procedure, which, if not resolved to the former accountant's 
satisfaction, would have caused it to make reference to the subject 
matter of the disagreement(s) in connection with its report; or
    (B) The following information only if applicable. Indicate whether 
the former accountant advised the small business issuer that:
    (1) internal controls necessary to develop reliable financial 
statements did not exist; or
    (2) information has come to the attention of the former accountant 
which made the accountant unwilling to rely on management's 
representations, or unwilling to be associated with the financial 
statements prepared by management; or
    (3) the scope of the audit should be expanded significantly, or 
information has come to the accountant's attention that the accountant 
has concluded will, or if further investigated might, materially impact 
the fairness or reliability of a previously issued audit report or the 
underlying financial statements, or the financial statements issued or 
to be issued covering the fiscal period(s) subsequent to the date of the 
most recent audited financial statements (including information that 
might preclude the issuance of an unqualified audit report), and the 
issue was not resolved to the accountant's

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satisfaction prior to its resignation or dismissal; and
    (C) The subject matter of each such disagreement or event identified 
in response to paragraph (a)(1)(iv) of this Item;
    (D) Whether any committee of the board of directors, or the board of 
directors, discussed the subject matter of the disagreement with the 
former accountant; and
    (E) Whether the small business issuer has authorized the former 
accountant to respond fully to the inquiries of the successor accountant 
concerning the subject matter of each of such disagreements or events 
and, if not, describe the nature of and reason for any limitation.
    (2) If during the period specified in paragraph (a)(1) of this Item, 
a new accountant has been engaged as either the principal accountant to 
audit the issuer's financial statements or as the auditor of a 
significant subsidiary and on whom the principal accountant is expected 
to express reliance in its report, identify the new accountant and the 
engagement date. Additionally, if the issuer (or someone on its behalf) 
consulted the new accountant regarding:
    (i) The application of accounting principles to a specific completed 
or contemplated transaction, or the type of audit opinion that might be 
rendered on the small business issuer's financial statements and either 
written or oral advice was provided that was an important factor 
considered by the small business issuer in reaching a decision as to the 
accounting, auditing or financial reporting issue; or
    (ii) Any matter that was the subject of a disagreement or event 
identified in response to paragraph (a)(1)(iv) of this Item, then the 
small business issuer shall:
    (A) Identify the issues that were the subjects of those 
consultations;
    (B) Briefly describe the views of the new accountant given to the 
small business issuer and, if written views were received by the small 
business issuer, file them as an exhibit to the report or registration 
statement;
    (C) State whether the former accountant was consulted by the small 
business issuer regarding any such issues, and if so, describe the 
former accountant's views; and
    (D) Request the new accountant to review the disclosure required by 
this Item before it is filed with the Commission and provide the new 
accountant the opportunity to furnish the small business issuer with a 
letter addressed to the Commission containing any new information, 
clarification of the small business issuer's expression of its views, or 
the respects in which it does not agree with the statements made in 
response to this Item. Any such letter shall be filed as an exhibit to 
the report or registration statement containing the disclosure required 
by this Item.
    (3) The small business issuer shall provide the former accountant 
with a copy of the disclosures it is making in response to this Item no 
later than the day that the disclosures are filed with the Commission. 
The small business issuer shall request the former accountant to furnish 
a letter addressed to the Commission stating whether it agrees with the 
statements made by the issuer and, if not, stating the respects in which 
it does not agree. The small business issuer shall file the letter as an 
exhibit to the report or registration statement containing this 
disclosure. If the letter is unavailable at the time of filing, the 
small business issuer shall request the former accountant to provide the 
letter so that it can be filed with the Commission within ten business 
days after the filing of the report or registration statement. 
Notwithstanding the ten business day period, the letter shall be filed 
within two business days of receipt. The former accountant may provide 
an interim letter highlighting specific areas of concern and indicating 
that a more detailed letter will be forthcoming within the ten business 
day period noted above. The interim letter, if any, shall be filed with 
the report or registration statement or by amendment within two business 
days of receipt.
    (b) If the conditions in paragraphs (b)(1) through (b)(3) of this 
Item exist, the small business issuer shall describe the nature of the 
disagreement or event and the effect on the financial

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statements if the method had been followed which the former accountants 
apparently would have concluded was required (unless that method ceases 
to be generally accepted because of authoritative standards or 
interpretations issued after the disagreement or event):
    (1) In connection with a change in accountants subject to paragraph 
(a) of this Item, there was any disagreement or event as described in 
paragraph (a)(1)(iv) of this Item;
    (2) During the fiscal year in which the change in accountants took 
place or during the later fiscal year, there have been any transactions 
or events similar to those involved in such disagreement or event; and
    (3) Such transactions or events were material and were accounted for 
or disclosed in a manner different from that which the former 
accountants apparently would have concluded was required.

Instructions to Item 304: 1. The disclosure called for by paragraph (a) 
of this Item need not be provided if it has been previously reported as 
that term is defined in Rule 12b-2 under the Exchange Act (Sec. 
240.12b-2); the disclosure called for by paragraph (a) of this Item must 
be provided, however, notwithstanding prior disclosure, if required 
pursuant to Item 9 of Schedule 14A (Sec. 249.14a-101 et seq.). The 
disclosure called for by paragraph (b) of this Item must be furnished, 
where required, notwithstanding any prior disclosure about accountant 
changes or disagreements.
    2. When disclosure is required by paragraph (a) of this Item in an 
annual report to security holders pursuant to Rule 14a-3 or Rule 14c-3 
(Sec. 240.14a-3 or 240.14c-3 of this chapter), or in a proxy or 
information statement filed pursuant to the requirements of Schedule 14A 
(Sec. 240.14a-101 et seq.) or 14C (Sec. 240.14c-101 et seq.), in lieu 
of a letter pursuant to paragraph (a)(2)(ii)(D) or (a)(3) of this Item, 
before filing such materials with or furnishing such materials to the 
Commission, the small business issuer shall furnish the disclosure 
required by paragraph (a) of this Item to each accountant who was 
engaged during the period set forth in paragraph (a) of this Item. If 
any such accountant believes that the statements made in response to 
paragraph (a) of this Item are incorrect or incomplete, it may present 
its views in a brief statement, ordinarily expected not to exceed 200 
words, to be included in the annual report or proxy or information 
statement. This statement shall be submitted to the small business 
issuer within ten business days of the date the accountant receives the 
small business issuer's disclosure. Further, unless the written views of 
the newly engaged accountant required to be filed as an exhibit by 
paragraph (a)(2)(ii)(D) of this Item have been previously filed with the 
Commission, the small business issuer shall file a Form 8-K (17 CFR 
249.308 of this chapter) along with the annual report or proxy or 
information statement for the purpose of filing the written views as 
exhibits.
    3. The information required by this Item need not be provided for a 
company being acquired by the small business issuer if such acquiree has 
not been subject to the filing requirements of either section 13(a) or 
15(d) of the Exchange Act, or, because of section 12(i) of the Exchange 
Act, has not furnished an annual report to security holders pursuant to 
Rule 14a-3 or Rule 14c-3 (Sec. 240.14a-3 or 240.14c-3 of this chapter) 
for its latest fiscal year.
    4. In determining whether any disagreement or reportable event has 
occurred, an oral communication from the engagement partner or another 
person responsible for rendering the accounting firm's opinion (or their 
designee) will generally suffice as the accountant advising the small 
business issuer of a reportable event or as a statement of a 
disagreement at the ``decision-making level'' within the accounting firm 
and require disclosure under this Item.