Conflict minerals
SEC compliance evaluation and
the role of the IPSA
Conflict Minerals and Ethical Sourcing Workshop
December 3, 2015
Setting the stage
The legal challenge – lingering uncertainty concerning the IPSA
US Court of Appeals for the DC Circuit (DC Court) Ruling1
• On August 18, 2015, the DC Court reaffirmed its April 14, 2014 ruling that the requirement for companies to describe their
products as “not been found to be DRC conflict free” violates the First Amendment.
• On November 9, 2015, the DC Court rejected the SEC’s appeal; the SEC has 90 days to appeal to the US Supreme Court
• Market participants remain uncertain around how the issue will ultimately be resolved and are awaiting guidance from the
Securities and Exchange Commission (SEC). The main challenge for registrants are:
SEC’s Partial Stay
• Given the SEC’s partial stay and the “temporary suspension” of the broad applicability of the
independent private sector audit (IPSA) requirement, when will the IPSA be required?
Expiration of Temporary Transition Period
• How to balance the SEC’s partial stay with the expiration of the temporary transition period
provided for in the Final Rule to determine the adequacy of disclosure for the 2015 calendar
year reporting?
Driving Conflict Minerals Compliance
• How to drive continued conflict minerals compliance program performance improvement with supply
chain partners in light of regulatory uncertainty?
1
2
Nam Et Al., v. SEC Et Al.,. US Court of Appeals, DC Circuit. 18 Aug. 2015
Conflict Minerals—Year 3 recommendations and IPSA implications
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Setting the stage
Understanding the IPSA
An opinion or conclusion is to be expressed as to:
1) Whether the design of the registrant’s due diligence framework, set forth in the Conflict Minerals Report (CMR), is in
conformity with, in all material respects, the criteria set forth in the nationally or internationally recognized due
diligence framework used by the registrant
2) Whether the registrant’s description of the due diligence measures set forth in the CMR is consistent with the due
diligence process that the registrant undertook
Two types of engagements are allowable:
Examination attestation engagement
Performance audit
• May only be performed by CPAs or individuals • May be performed by CPAs or individuals working for a licensed CPA
•
3
working for a licensed CPA firm or a
governmental auditing organization
Standard form of the report
•
Conflict Minerals—Year 3 recommendations and IPSA implications
firm or by persons other than CPAs or CPA firms
Report contains the audit results, including findings, conclusions, and
recommendations including, but not limited to:
‒ A description of the nature and extent of the issues being
reported and the extent of the work performed that resulted in
the finding
‒ Details of the performance audit, including objectives of the
procedures performed in conducting the audit and results of
such procedures
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Year two filing analysis and IPSA implications
CMR approach: Organizing the CMR
The following should be considered when organizing the CMR:
The Situation
• Organizing description of due
diligence using steps of the OECD
Framework:
− ~58% of registrants used the
steps of the OECD Framework
to organize their due diligence
description (~47% in prior
reporting year)
• Distinguishing RCOI from due
diligence:
− ~55% of registrants did
separate RCOI from due
diligence (~47% in prior
reporting year)
The IPSA Implication(s)
• Due diligence-related elements of
• Assists IPSA provider in
the registrant’s conflict minerals
compliance program can be
organized and disclosed in a manner
to be easily identifiable as subject to
the IPSA
• The IPSA provider need only opine
Conflict Minerals—Year 3 recommendations and IPSA implications
understanding how the registrant’s
activities align to each OECD step
• The IPSA provider can more
on whether the design of the
registrant’s due diligence framework
is in accordance with the due
diligence realted portion of the
nationally or internationally
recognized due diligence framework
(i.e., OECD Framework):
− RCOI is a distinct step separate
from the due diligence process
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The Significance
efficiently identify the content of the
CMR that will be subject to the
IPSA
• Increases clarity in describing the
registrant’s conflict minerals
program
• Minimizes duplication in the
process description
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Year two filing analysis and IPSA implications
CMR approach: Suitability of criteria
The Situation
• Year two filings included various
approaches to describing the
registrant’s conflict minerals
compliance program, including the
following:
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The IPSA Implication(s)
• The registrant’s description of the
due diligence measures performed
must meet the suitable criteria
requirements (e.g., measurable,
objective, relevant, and complete):
− Quantitative descriptions (e.g.,
number of suppliers surveyed,
survey response rate and
number of smelters identified)
− Example language: “The
company sent surveys to its key
suppliers”
− Qualitative descriptions (e.g.,
general requirements
established for all suppliers,
overview of supplier
engagement, involvement in the
CFSI)
− Language that would facilitate
ease of auditability: “The
company sent surveys to a total
of 100 suppliers, which
represents the population of
suppliers that supplies 3TG to
the company”
Conflict Minerals—Year 3 recommendations and IPSA implications
The Significance
• The IPSA provider will use the
registrant’s description of due
diligence measures performed as
the criteria against which they will
evaluate the due diligence
measures the registrant actually
performed
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Year two filing analysis and IPSA implications
Example CMR
Exhibit 1.01
Conflict Minerals Report (excerpt)
I. Introduction
[The registrant includes an introduction section, although not required.]
II.
Reasonable Country of Origin Inquiry
OECD Step X:
[The registrant includes a description of the measures taken in
accordance with the OECD steps considered to be RCOI.]
III. Due Diligence Design and Performance
1. Due Diligence Design:
The design of the Company’s due diligence framework conforms to the
due diligence related steps of the OECD Framework.
In order to test the design assertion, the IPSA practitioner may conduct
interviews to understand the registrant’s program design in accordance
with the due diligence related steps of the OECD Framework, and request
documentation to support the alignment of the registrant’s conflict
minerals compliance program to the OECD Framework.
2. Due Diligence Measures Performed:
OECD Step X1:
The registrant contacted the 435 non-responding suppliers up to three
times to obtain a survey response.
The IPSA practitioner may (1) ask how the registrant identified the
population of 435 non-responding suppliers, (2) obtain the listing of the
435 suppliers, and (3) select a sample for testing. For the sample
selected, the IPSA practitioner may request evidence that the supplier
was contacted up to three times (e.g., e-mails or logs the registrant
maintained by using a conflict minerals technology tool).
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Conflict Minerals—Year 3 recommendations and IPSA implications
IV.
Independent Private Sector Audit
[If an IPSA was obtained, the registrant includes a statement that it
obtained an IPSA of the CMR and provides the audit report prepared by
the auditor in accordance with standards established by the Comptroller
General of the United States. The registrant identifies the independent
private sector auditor of the report if the auditor is not identified in the
audit report.]
[The registrant might note that the IPSA report is provided along with the
CMR; however, this is not required.]
V.
Product Disclosures
[The registrant provides a description of its products. If the registrant
voluntarily labels any of its products as “DRC conflict free”, the registrant
should consider clarifying which products are “DRC conflict free” and
which are not].
VI.
Smelter/Refiner Disclosures
[The registrant includes the list of smelters/refiners used to process the
necessary conflict minerals in their in-scope products, the country of
origin of the necessary conflict minerals in those products, and the efforts
to determine the mine or location of origin.]
VII. Future Measures
[The registrant might include a description of any planned future
measures to improve due diligence processes if the registrant
manufactures or contracts to manufacture products that the registrant is
unable to determine whether or not such products qualify as “DRC
conflict free”.]
Copyright © 2015 Deloitte Development LLC. All rights reserved.
Additional “good practices”
Registrants should consider:
• Seeking the advice of SEC legal counsel when determining whether and when the IPSA is
required, especially in light of recent developments
• The potential implications related to the organization of the RCOI and due diligence
disclosed in the CMR
• Evaluating the clarity and sufficiency of disclosures in the CMR of due diligence
measures performed
• Taking demonstrated and focused efforts to increase the level of confidence in the data gathered
and performance measurements related to supplier engagement, and focus on sufficiency
of documentation to support activities undertaken and related disclosures
• Documenting the conflict mineral process in a standard operating procedure or a similar
document
• Seeking assurance readiness to be prepared for an IPSA
• Engaging with your IPSA provider early
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Conflict Minerals—Year 3 recommendations and IPSA implications
Copyright © 2015 Deloitte Development LLC. All rights reserved.
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