Monday, January 31, 2005

Sarbanes-Oxley's costs more than anticipated

The recent rash of corporate scandals has created both attitudinal changes among skeptical consumers and stockholders, and legislative changes that have forced public companies to radically alter the way they keep tabs on their accounting practices.

The 2-year-old Public Company Acc-ounting Reform and Investor Protection Act (more commonly known as Sarbanes-Oxley) requires companies to have more independent oversight of their accounting functions. These requirements have some companies spending more or altering schedules to abide federal regulators.

Michael Dollins of Birmingham-based accounting firm Dent Baker & Co. LLP says well-publicized scandals such as Enron Corp. and WorldCom Corp. "shook the confidence of investors."

Sarbanes-Oxley "is supposed to create corporate accountability and restore the investor confidence," he says.

Sarbanes-Oxley's costs more than anticipated

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CFOs feeling the heat of legal responsibilities

In the past, a company's chief financial officer wore many hats: money raiser, investor cheerleader, corporate strategizer and fiscal drill sergeant.

But these days, many say the only hats CFOs get to wear are accountants' green eye shades -- or the occasional dunce cap.

Two years after Congress cracked down on corporations with anti-fraud laws like the Sarbanes-Oxley Act, it's a different world for CFOs: more rigid, less creative, and fraught with a lot more personal risk if their company's finances aren't squeaky clean. And while the new rules haven't yet caused an inordinate CFO exodus from Silicon Valley companies, some predict there could soon be an increase in CFOs calling it quits.

"In this Sarbanes-Oxley world, it's not pleasant to be a CFO," summed up Charles Swan, who recently filled in as interim CFO for Cupertino-based Chordiant Software while its board of directors looked for a finance chief who could handle all the new responsibilities.

CFOs feeling the heat of legal responsibilities

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Make friends with finance

Jim McEwan began his career as an accountant before moving into IT in 1981. As director of IT at Scottish Power he has found his financial background invaluable. "The IT director's job is as much about watching the pennies as watching the technology," he says.

McEwan believes that anyone with aspirations to become an IT director needs a working knowledge of finance. Without it, IT executives risk not being taken seriously by the finance director and being unable to gain approval for vital IT expenditure.

"I remember an old professor said to me once that if you do not understand the numbers, you are at the mercy of those who do," says McEwan. "I definitely think that is true for an IT executive."

IT executives are increasingly called on to work alongside the finance department as the nature of IT investment changes, says Scott Phares, IT director at software supplier Business Engine. "IT finance used to be a headcount once a year, where you looked at what projects were planned," says Phares. "Today, finance is a lot more interested in the details of exactly what you have spent, and exactly what you have achieved in return."

This process can quickly become hostile if IT executives cannot speak the language of the finance director. "Money is the language of business, and if you cannot articulate the value of what you have spent, you have got problems," says Phares.

Make friends with finance

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Friday, January 28, 2005

Deloitte publishes Sarbanes-Oxley guide

Aiming to help companies bring more order, predictability, and value to section 404 compliance, Deloitte & Touche LLP has released a new publication, Under Control: Sustaining Compliance with Sarbanes-Oxley in Year Two and Beyond.

Under Control provides a straightforward discussion of the essential characteristics of sustainability, as well as plain-English guidance for deriving value from internal control programs. The document clearly and simply explains key concepts, provides practical advice, and analyzes critical shortcomings that many companies experienced in their first-year efforts.

Drawing heavily on Deloitte & Touche's field experience with more than 700 Sarbanes-Oxley engagements, the publication is based on the Sustained Compliance Solution Framework, a comprehensive approach to long-term sustainability developed by the firm.

Deloitte publishes Sarbanes-Oxley guide

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Dressing down the emperors

Bob Monks is withering about the Bush administration and its close links to big corporations. He has coined a term for the corporate bigwigs who were much in evidence at President George Bush's inauguration parties last week: the new American oligarchy.
Amidst all the talk from Bush about an "ownership society", Monks says there is a new class in America - the top officers of publicly traded companies. He cites the tremendous accumulation of wealth by these new oligarchs.

The remuneration of the chief executive officers of S&P 500 companies (America's 500 biggest companies) has roughly doubled from $4.1bn in the fiscal year 2000 to $8.1bn for 2003, Monks points out.

"Much like the recent experience in Russia, a few individuals in America under cover of law managed vastly to enrich themselves. In this they were aided by the explicit policies of the Bush administration which will be known in history as the time of the American oligarchy," he says.

Harsh words, yet Monks is no radical firebrand. Now in his 70s, Monks is a highly respected member of the financial elite. He has been a partner in a law firm, chief executive of an oil company, and is one of the founding trustees of the Federal Employees' Retirement System, a retirement plan for public service staff.

Dressing down the emperors

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Accounting Errors Delay Kodak Earnings

Eastman Kodak Co. on Wednesday disclosed that it has a "material weakness" in its internal controls over its financial reporting processes, and, as a result, its 2004 annual report will contain an adverse opinion by its auditor, PricewaterhouseCoopers. The Sarbanes-Oxley Act requires management and auditors to perform assessments of the effectiveness of such internal controls.

Errors in Kodak's treatment of income-tax accounting were discovered during the year-end closing process. Final earnings results for the fourth quarter, which had been scheduled for release this week, are being delayed about six weeks while the income-tax accounts are analyzed by management and external consultants.

The company said the weakness involved accounting errors, not misconduct. "Remember that Kodak has been devoting significant resources for more than a year to assessing, and strengthening as appropriate, its controls in the context of its Sarbanes-Oxley section 404 review," CFO Robert Brust said in a statement.

Accounting Errors Delay Kodak Earnings

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Auditor draws one-year term for altering files

One of the first people charged under the new corporate-crackdown laws known as Sarbanes-Oxley will spend a year in jail after pleading guilty to falsifying audit files of a San Francisco company, NextCard, while it was under investigation, federal prosecutors said Thursday.

Thomas Trauger, an Ernst & Young partner who audited NextCard before its demise, pleaded guilty in October to the actions, which hindered a probe by the Securities and Exchange Commission into the collapse of NextCard, the online credit-card issuer. Under the sentence handed down Thursday, he also will pay a $5,000 fine and spend two years under supervised release, the U.S. attorney for Northern California said.

A call to Trauger's lawyer, Edward Swanson, was not returned Thursday evening.

``I did not tell the SEC that certain workpapers . . . had been altered and considerable portions of those workpapers deleted in November 2001,'' Trauger stated in the plea agreement.

Auditor draws one-year term for altering files

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Thursday, January 27, 2005

SEC reconsiders Sarbanes-Oxley impact on foreign corporations

Leading Tuesday's corporations and securities law news, SEC Chairman William Donaldson [SEC biography] stated in a speech today that the agency is considering changes to the Sarbanes-Oxley Act [text, PDF] to ease burden on foreign companies. Companies in both Europe and the US have complained of the costs to meet the act's requirements. European companies also contend that some of the regulations conflict with EU practices. Donaldson has asked the SEC staff to "consider whether to recommend that we delay the effective date of the internal control on financial reporting requirements for non-US companies" in wake of the complaints.

SEC reconsiders Sarbanes-Oxley impact on foreign corporations

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Firms ready to delist from US over governance rules

Up to 60 European companies are ready to drop their US listings, Sir Digby Jones, Director-General of the CBI, said yesterday as he called on America to unravel its stringent laws on corporate governance.

Sir Digby’s comments to The Times came a day after the US Securities and Exchange Commission (SEC) pledged to make it easier for foreign companies to escape the huge costs of complying with the Sarbanes-Oxley governance rules by relinquishing their US listing.

The CBI chief welcomed the SEC’s comments and said that 25 European companies, most of them British, had since told him that they planned to delist from US bourses such as Nasdaq and the New York Stock Exchange. There are 113 UK companies with dual listings, including AstraZeneca, GlaxoSmithKline and Royal Dutch/Shell.

But Sir Digby, who expects Sarbanes-Oxley eventually to force up to 60 European companies to drop their US listings, attacked the SEC, casting doubt on whether the US stock market regulator would honour its pledge, and accusing it of corporate imperialism.

He said: "It is not what you say that matters, but what you do. We want to see the SEC do it, because it has not yet given us the details."

Firms ready to delist from US over governance rules

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Compliance absorbs 15 percent of bank IT staff

Up to 15% of the IT staff at Dresdner Kleinwort Wasserstein are working on compliance projects for financial regulations, the director of global IT business management at the investment bank revealed last week.

The comments by Stephen Ashton, who declined to put a figure on the cost of compliance for the bank's IT divisions globally, highlight the growing demands of financial regulations on IT budgets.

Ashton said one of his main challenges was securing sufficient funds for IT projects to help the bank comply with Sarbanes-Oxley. The US legislation to tighten financial reporting in the wake of corporate governance scandals such as WorldCom and Enron will affect European companies listed on US stock exchanges.

"One of the most difficult things in achieving [Sarbanes Oxley] compliance is selling it to some poor bloke in the finance department who has nothing to do with the US and no idea about Sarbanes Oxley," said Ashton.

Compliance absorbs 15% of bank�s IT staff

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Consolidate data warehouses to achieve compliance

IT directors can help companies achieve compliance with financial regulations by reducing the number of data warehouses within their company and enforcing rules on developing new systems, according to one expert.

Mark Connolley, senior manager in the capital markets practice at Accenture, said that many financial firms needed to review the way they store and distribute data.

Regulations such as Sarbanes Oxley and the forthcoming Basel 2 require financial firms to show that they have adequate systems in place for storing vast amounts of financial data to help them measure risks better and tighten financial reporting.

He advised IT directors to work towards having just one data warehouse for storing the most important financial data (credit and market) and store other information in smaller data marts.

Consolidate data warehouses to achieve compliance

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Wednesday, January 26, 2005

The clueless CEO defense

In the late 1990s, CEOs Bernie Ebbers of WorldCom, Dennis Kozlowski of Tyco International, and Richard Scrushy of HealthSouth were what novelist Tom Wolfe called "masters of the universe." Charismatic, driven and fabulously wealthy, they sat atop giant companies largely of their own making. They didn't so much manage these corporations as reign over them.

But now that their trials for securities fraud are about to begin, they want to let the world in on a little secret: They actually weren't very good at what they did. They were unaware of what was going on around them and were incapable of demanding accountability from their aides. Like the hapless Sgt. Schultz in the old television program Hogan's Heroes, they know nothing, they see nothing.

Call it the invasion of the clueless CEOs. These once high-flying corporate titans have made humiliating swoons in an attempt to avoid being brought down by prosecutors. Ebbers and Scrushy are expected to argue that key aides kept them out of the loop on accounting decisions. Kozlowski, meanwhile, told The New York Times he was unaware of some of the lavish items that went into his New York apartment, including his infamous $6,000 shower curtain.

The clueless CEO defense

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Sarbanes-Oxley Will Help Recording Artists

Rock Historian Dave Marsh once described being an artist in the record industry as the equivalent of sharecropping. In sharecropping, the farmer doesn't really own the vegetables they raise, the landowner does. The landowner pays them a fee for the amount of produce they create, but charges back the cost of the feed, fertilizer, use of equipment, even water - all at inflated prices. In the end, the sharecropper makes the minimum it takes to keep them and their families alive so they can work the land the next year and the next. As the sharecropper suffers in poverty, the landowner garners excess wealth.

Call it a form of creative accounting.

Through alleged dubious accounting practices the record industry does the same to the musicians who make the music they sell. Just replace music videos and PR costs for feed and fertilizer and you get the idea. The details of those expenses are hidden too, forcing artists who feel they have been cheated to either pony up for a very expensive cross-audit or shut up. Since such an audit is prohibitively expensive they almost never occur.

But in this post-Enron world the rules have changed. That's because of a new law, born out of the Enron scandal, which will make dubious accounting practices MUCH more dangerous for the executive management of all publicly traded firms.

The Sarbanes-Oxley act was designed to protect investors by improving the reliability of corporate disclosures. It places very stringent reporting conditions with criminal penalties for executive management and the board of directors if they fail in their due diligence in providing accurate and fair information.

Sarbanes-Oxley Will Help Recording Artists

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CRM Gains Attention as Sarbanes-Oxley Compliance Medium

Whether one believes that the scandals at high-flyers like Enron and Worldcom were endemic to modern enterprise or the acts of a few bad apples, the financial and legal fallout has cast a wide net on business operations today. As a growing number of firms are called to comply with new disclosure and management control acts like Sarbanes-Oxley (SOX, also referred to as Sarbox), enterprise software developers are tailoring their products to better meet the needs of compliance officers and the stricter accounting guidelines. Just today, NetSuite rolled out two new advanced financial modules, with an improved checks-and-balances rule engine governing changes to revenue and reporting information, and other CRM developers are taking the opportunity to position their solutions as a crucial part of compliance.

On the face of the problem SOX may appear to be a matter of accounting--a matter for the CFO's direct reporting organization only. "Sarbanes-Oxley is not about CRM or ERP or general ledger specifically. It's about business process, and putting controls on business processes so you can have visibility into transactions that are auditable and controlled," says John van Decker, senior vice president at META Group. "Wherever there are financial controls, authorizations, or contracts... or wherever accounting details are generated [applies]."

CRM Gains Attention as Sarbanes-Oxley Compliance Medium

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With Charity for All

In early 2003, Barron "Buzz" Tenny, the executive vice president and general counsel of the New York-based Ford Foundation, sat down with the text of the Sarbanes-Oxley Act, the 2002 corporate governance reform law passed in the wake of the Enron Corp. and WorldCom Inc. meltdowns. The law primarily applies to public companies, but two provisions in it were also incorporated into the criminal section of the United States code: the expanded protections for internal whistleblowers and new standards on document retention. Tenny thought that other sections of the law might make sense for his organization too, such as the requirement that audit committee members are completely "independent" -- governance-speak for no business ties with the foundation.

He spoke with other Ford Foundation executives and board members about implementing some of SOX's provisions. "[The topic] was in the air," recalls Tenny. "[New York attorney general Eliot] Spitzer had been making noises about cracking down on nonprofits, and everywhere there was talk of increased scrutiny. It became obvious to me that it would be good for us to do something."

Shortly thereafter, Tenny initiated a governance overhaul at the $10 billion charity. A team of lawyers from Morgan, Lewis & Bockius helped him figure out what needed to be done. Then Tenny set to work. He established an audit committee, mandating that each of its five members be completely independent. He also created a code of ethics for the entire board's 14 members, set up an annual review process to evaluate the directors' performance, and wrote a new code of conduct for the whole foundation staff. The process took close to 16 months. Tenny won't reveal what the overhaul cost, saying only that, because he used outside counsel mostly in an "advisory" role, the price was "quite modest."

With Charity for All

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Tuesday, January 25, 2005

Scrushy-HealthSouth Fraud Trial Opens

Richard Scrushy's (search) trial on corporate fraud charges opened Tuesday with a prosecutor telling jurors the fired HealthSouth (search) CEO was the driving force behind a conspiracy to overstate earnings in the rehabilitation giant by about $2.7 billion.

With underlings generating bogus financial statements to make it appear HealthSouth Corp. was meeting Wall Street forecasts from 1996 through 2002, a prosecutor argued, Scrushy sold about $150 million worth of his own HealthSouth stock and spent more than $200 million on a lavish lifestyle.

All the while, Scrushy was getting private reports on the company's true financial condition, but he never told investors what was going on, U.S. Attorney Alice Martin told jurors in opening statements.

"They pumped up the profits, and he hid it from the public," said Martin. She described Scrushy as "a very hands-on leader" who personally selected top aides and tried to sway their statements to federal agents once an investigation began.

"The evidence will show that Richard Scrushy as chief executive officer gave phony numbers to the public," Martin said.

The defense conceded that a fraud occurred, but Scrushy lawyer Jim Parkman blamed it on a group of overly ambitious, tightly knit executives who called themselves "the family" — a group, he said, that hid the misstatements from Scrushy.

Scrushy-HealthSouth Fraud Trial Opens

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Sarbanes-Oxley helps KPMG revenues

Accountants KPMG’s annual results showed strong growth in revenues on Tuesday as companies seek help adapting to new accounting regulations in the United States and Europe.

KPMG’s global revenues to September 2004 were up 7.3 percent at $13.4 billion, including an 11.6 percent rise in advisory services, an 8.9 percent increase in audit services and a 0.7 percent drop in tax services.

Companies are demanding accountants’ services more as they try to comply with new Sarbanes-Oxley rules in the United States and new International Financial Reporting Standards (IFRS) in Europe.

“In the U.S. there’s been lots of growth in the risk advisory and audit business because of Sarbanes-Oxley,” said Mike Rake, chairman of KPMG International and a senior partner of the British business.

Sarbanes-Oxley helps KPMG revenues

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Under Control: Sustaining Compliance with Sarbanes-Oxley in Year Two and Beyond

Now that the first compliance deadlines for Sarbanes-Oxley section 404 have come and gone, business executives are looking to the future. First-year efforts were often difficult and sometimes chaotic. Can your company afford to repeat the process in year two?

In response to a compelling need to bring more order, predictability and value to section 404 compliance, Deloitte & Touche LLP has released a new publication, Under Control: Sustaining Compliance With Sarbanes-Oxley in Year Two and Beyond.

Under Control provides a straightforward discussion of the essential characteristics of sustainability, as well as plain-English guidance for deriving long-term value from internal control programs. The document clearly and simply explains key concepts, provides practical advice, and analyzes critical shortcomings that many companies experienced in their first-year efforts.

Under Control draws heavily on Deloitte’s field experience with over 700 Sarbanes-Oxley-related engagements. The publication is based on the firm’s Sustained Compliance Solution Framework, a comprehensive approach to long-term sustainability that can help your company

Under Control: Sustaining Compliance with Sarbanes-Oxley in Year Two and Beyond

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AICPA Addresses Fraud in Audit Committee Guidance

As part of its ongoing fraud-prevention program, the American Institute of Certified Public Accountants today issued guidance to help U.S. audit committees understand one of the most significant of fraud risks: management override of internal controls.
The guidance, Management Override of Internal Controls: The Achilles' Heel of Fraud Prevention -- The Audit Committee and Oversight of Financial Reporting, is available free of charge and may be found on the Audit Committee Effectiveness Center page of the AICPA website.

"Our guidance outlines specific steps audit committees can take to address the risk of management overriding established internal safeguards," said John Morrow, AICPA Vice President -- The New Finance. "Had audit committees taken these steps, many financial frauds may have been prevented.

"Proper guidance for audit committees is particularly important in the wake of such widely reported financial-reporting frauds as WorldCom and Enron," Morrow added.

One of the most common examples of management override is the posting of fictitious journal entries to overstate revenues or understate expenses. In this scenario, the Chief Financial Officer and Controller generally are the architects of the fraud, with lower-level accounting employees serving -- usually through fear of losing their jobs or naivete -- as accomplices.

In most instances, the fraud is intended to be a temporary solution to a missed earnings target. One false financial report, however, invariably leads to another, resulting in a domino effect that culminates in the collapse of the company. According to the Association of Certified Fraud Examiners' 2002 Report to the Nation on Occupational Fraud and Abuse, the average length of time from inception of a financial-statement fraud to its detection is 25 months.

AICPA Addresses Fraud in Audit Committee Guidance

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SEC poised to ease rules for foreign listings

The Securities and Exchange Commission is on Tuesday expected to signal a relaxation of registration requirements for foreign companies which want to escape US corporate governance rules.

William Donaldson, chairman of the US regulator, is due to give a speech at the London School of Economics indicating a "change of tone" on the question, according to an insider.

This follows lobbying by British and German business leaders concerned that foreign companies with shares traded in the US cannot avoid costs associated with the Sarbanes-Oxley reforms - even if they are willing to give up their US listing.

The main focus of their anger has been the act's Section 404, which requires managements to state, in year-end filings, the adequacy and effectiveness of internal controls.

International companies with US listings will have to meet these expensive requirements from July 15 2005 onwards.

SEC poised to ease rules for foreign listings

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A Dream of Simpler Accounting

Don Nicolaisen, the Securities & Exchange Commission's accounting chief, doesn't like clock radios. What he prefers is a plain old alarm clock -- one that's reliable, easy to set, and unembellished with soft rock or ocean sounds.

What does that have to do with accounting regulation? A lot, it turns out.

A major goal for his office in the coming year is to reduce the level of complexity in accounting. To Nicolaisen, simpler really is better, just like he prefers his 20-year-old alarm clock to the high-tech version he found blaring music when he walked into his hotel room on a recent trip. He outlined his hopes for simplification and other priorities in a keynote speech at a conference of the New York State Society of Certified Public Accountants on Jan. 24.

How do you transform today's accounting regulations (with 800 pages devoted to derivatives accounting alone) into a code as simply functional as an alarm clock? Technology may be part of the solution, and Nicolaisen says he's in favor of companies using XBRL, which stands for Extensible Business Reporting Language, to tag data points in their electronic filings. That would allow investors to manipulate and analyze financial data in new ways. It will also be a gargantuan undertaking that's just being studied now.

Nicolaisen said the Commission and accounting regulators in the U.S. are looking at other ways to make accounting more straightforward, such as by segregating operating income from companies' other income streams to allow investors to better evaluate management's moves. He also hinted that his staff would be looking at ways to simplify some aspects of revenue recognition as well as accounting for derivatives.

A Dream of Simpler Accounting

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SEC to rethink post-Enron rules

The US stock market watchdog's chairman has said he is willing to soften tough new US corporate governance rules to ease the burden on foreign firms.
In a speech at the London School of Economics, William Donaldson promised "several initiatives".

European firms have protested that US laws introduced after the Enron scandal make Wall Street listings too costly.

The US regulator said foreign firms may get extra time to comply with a key clause in the Sarbanes-Oxley Act.

SEC to rethink post-Enron rules

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Monday, January 24, 2005

Outfoxing SOX

Sarbanes-Oxley banned sweetheart loans to greedy executives. So, corporations are giving them free money instead. Greedy corporate executives were briefly constrained by Sarbanes-Oxley, the federal legislation passed two-and-a-half years ago in response to massive abuses at Enron, WorldCom, and others. But wily CEOs are now devising clever new methods to circumvent one of SOX's most popular provisions: the ban on sweetheart loans to executives and directors.

In the old days, companies regularly made loans to the likes of Dennis Kozlowski, the former CEO of Tyco who's currently on trial (for the second time). He received a $61 million relocation loan pre-SOX. Bernie Ebbers, the former WorldCom chieftain who's also now on trial, owed his company just over $400 million at one point. Largely because of these abuses, Sarbanes-Oxley outlawed such favorable loans.

But now companies have realized they can avoid the ban if they give money away to their top executives instead of loaning it. The amounts aren't as eye-popping as the loans made to Ebbers et al., but hey, it's free money. These giveaways are disclosed with varying levels of clarity in the company's SEC filings and are almost always on top of the other compensation and routine perks that top executives receive. Here are some of the new strategies...

Outfoxing SOX

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U.S. zeal for reform cooling as trials heat up

The U.S. wave of corporate governance reform, widely emulated in Canada and elsewhere, has stalled, critics warn, even as the showcase trials of alleged boardroom bad boys Kenneth Lay, Bernie Ebbers and others are finally at hand.

If Big Business has its way, a spate of regulations to deal with the ethics meltdown, including some key parts of the watershed Sarbanes-Oxley law, may now be watered down, meekly enforced or simply forgotten.

"The pace of reform has come to a grinding halt," said John Coffee, a securities law professor at Columbia University in New York.

This month marks a crucial milestone as several disgraced CEOs go on trial.

Canadian-born Bernie Ebbers, who guided WorldCom to the largest bankruptcy in U.S. history, went to court last week in New York. Also last week in New York, former Tyco chief executive officer Dennis Kozlowski began his second trip to court (the case ended in a mistrial last year).

Two other landmark cases are also gearing up.

U.S. zeal for reform cooling as trials heat up

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The Higher Price of Staying Public

The shares of Fidelity Federal Bancorp have always been thinly traded, and its executives often wondered why it bothered to be a public company at all. Still, they never really considered delisting the stock until Congress passed the Sarbanes-Oxley law, with its myriad new reporting rules, in 2002.

In November, the bank announced that it was "going dark" - delisting its stock from the Nasdaq market. That means it will no longer need to file reports with the Securities and Exchange Commission.

Donald R. Neel, the chief executive of Fidelity, which is based in Evansville, Ind., says the bank's accounting and management would easily pass any scrutiny. But he says going dark will save $300,000 a year, a substantial sum for a bank with just $200 million in assets.

"Sarbanes-Oxley was designed to provide additional corporate transparency and safeguards for the investing public," Mr. Neel said. "Instead, it is prompting companies like ours to become less transparent."

That is not an option for huge companies, of course. Their identities and structures are inextricably linked with their status as publicly listed entities. But the passage of Sarbanes-Oxley, with its requirements that companies report in greater detail not just the numbers, but also their methods for compiling and checking them, has served as a catalyst to make smaller companies rethink the idea of being public.

The Higher Price of Staying Public

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MSNBC - Midsize companies now struggle with Sarbanes-Oxley compliance

Complying with new federal laws designed to boost investors' confidence in public companies is costing millions of dollars and countless work hours at local midsize corporations -- and frustrating finance and accounting teams.

"The intention of all this was to catch the next Enron or WorldCom. That didn't happen. So in that sense this is a tremendous waste of time and money," said Stephen Hall, chief financial officer of TriPath Imaging Inc. in Burlington.

Hall, who admits his nickname is "cheap financial officer," echoes the opinions of many executives and managers working inside public companies.

Like the CFOs at other midsize public companies, Hall and his staff are in the midst of their toughest assignment: reorganizing the tracking of money through their corporation and creating new oversight for managers in every department to comply with the so-called Sarbanes/Oxley regulations.

It's an arduous task.

MSNBC - Midsize companies now struggle with Sarbanes-Oxley compliance

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Sunday, January 23, 2005

Certification Fears and Filing Delays

Did a provision of Sarbanes-Oxley encourage a small but fast-growing company to delay the filing of its year-end and quarter-end results? Medical-imaging software company Vital Images Inc., which had planned to announce its financial results on February 17, has postponed the release until March 3.

Bear in mind that chief financial officer Gregory S. Furness resigned earlier this month, effective February 8. The company announced at the time that Michael Carrel, senior vice president of consulting firm Technology Solutions Co., would join Vital Images on January 17 as its interim CFO, though he would continue working for Technology Solutions.

On Friday, Vital Images announced that "we are delaying our earnings report to give Mike sufficient time to become familiar with our accounting processes and thoroughly review our full-year and fourth-quarter results," according to a statement by president and chief executive officer said Jay D. Miller.

The company did not elaborate further. One possible reason for the delay, however, could be related to Sarbanes-Oxley requirements that the CEO and CFO certify their company's annual results. It's possible that the company and Carrel both felt that he needed more time to be fully confident that the financials were in order before he signed off on the results. After all, he did happen take the job just as the year-end books were closing.

Certification Fears and Filing Delays

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Companies wary of rushing to judgment

US companies and their auditors are reluctant to exercise more judgment in work on accounts despite the Securities and Exchange Commission's call for a principles-based approach.

They fear challenges by regulators, lawyers or the media, according to the head of the body that writes US financial reporting rules.

The statement by Robert Herz, chairman of the Financial Accounting Standards Board, underlines the scale of the task if the US is to switch to a financial reporting regime based on principles rather than rules.

The SEC, the chief US financial regulator, in 2003 called on the US to ditch its tradition of complex accounting rules and adopt financial reporting standards rooted in principles.

The report, mandated by the 2002 Sarbanes Oxley legislation, was a response to the fall in investor confidence in US accounting rules after the Enron scandal. But the switch to a reporting regime rooted in principles would require companies and their auditors to exercise far greater judgment as to whether financial statements complied with accounting standards.

Mr Herz told the Financial Times he believed auditors would like to exercise more judgment but felt inhibited by regulators, the trial bar and the business media.

"There is clearly a fear, not only among auditors but among [companies] and audit committees, of being second guessed," he said.

Companies wary of rushing to judgment

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Corporate idiots

Mark it down. This year could be a memorable one for the depth and breadth of corporate malfeasance on the docket. Consider what we have to look forward to - a hall of fame lineup of alleged corporate rogues.

W. Michael Hoffman, the director of the Center of Business Ethics at Bentley College in Waltham, Mass., tells me that the main figures in current and upcoming corporate scandal trials - L. Dennis Kozlowski, Bernie Ebbers and Kenneth Lay - would all be "first vote members of the business hall of shame" for the amount of losses to shareholders and workers and the sheer audacity of their alleged con games.

I talked to Hoffman recently because he was one of the first academics in the country to secure a government grant to start studies in business ethics.

That was in the 1970s when the concept of business ethics was unrefined.

"The joke used to be summed up by a Wall Street Journal headline I remember from the early 1970s. ‘Business ethics is an oxymoron,’" Hoffman said.

One wonders what Kozlowski of Tyco, Ebbers of WorldCom and Lay of Enron think about business ethics. The three will all face a jury of their peers who could possibly not take kindly to either their alleged crimes nor their so-called "idiot" defenses.

Corporate idiots

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Risky business for corporate directors

When lawyers for New York State Comptroller Alan Hevesi first sat down for settlement discussions with a group of former WorldCom directors 18 months ago, the lawyers made a shocking demand.

The directors, who presided over WorldCom as it headed toward the largest bankruptcy filing in U.S. history, would not be allowed to settle their part of a class-action suit unless they paid a significant percentage of their combined net worth.

Attorneys for the directors were stunned. Impossible, they said. Directors never pay. Insurance companies do, or sometimes, if they aren't in bankruptcy proceedings, the companies at which the alleged fraud occurred provide money for settlements. To make board members dip into their own pockets would set a dangerous precedent. Who would serve on a board if their financial lives could be upended by other people's fraud?

"To put in mildly, we did not receive the request warmly," said one person close to the former WorldCom directors. Another person close to the talks was less restrained: "People were jumping out of windows." Another said, "I've spent 45 years trying not to do this exact thing."

Risky business for corporate directors

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Friday, January 21, 2005

The Glass is Not Broken: Evaluating the State of U.S. Corporate Governance

For the past two years, enormous media attention has been trained on the alleged corporate board and governance failures at Enron, WorldCom, Tyco, Adelphia, Global Crossing, and others. Top executive compensation is routinely criticized as inefficient, excessive, or both.

According to Steven N. Kaplan, a professor at the University of Chicago Graduate School of Business, and Bengt Holmstrom of Massachusetts Institute of Technology, these criticisms and turmoil lose sight of one overarching fact-the U.S. stock market and the U.S. economy have performed remarkably well relative to the rest of the world.

"To read the financial press, you would think that the U.S. corporate governance glass is completely broken," says Kaplan. "We argue that the glass is not broken, but, rather, is more than half full."

In their study, "The State of U.S. Corporate Governance: What's Right and What's Wrong?," Kaplan and Holmstrom analyze the failures and concerns that have served as catalysts for recent legislative and regulatory change. Given the positive performance and those changes, the greater risk in the current environment is overreaction by the political and regulatory systems.

The authors argue that the data on U.S. stock market performance and overall country productivity is not consistent with a deeply flawed U.S. corporate governance system. Rather, the data is consistent with a system that is well above average. The system demonstrated its strength by responding to extreme events in a swift and effective manner, through public outrage, legislative change such as the Sarbanes-Oxley Act of 2002, and regulatory change such as the new governance guidelines from the NYSE and NASDAQ.

The Glass is Not Broken: Evaluating the State of U.S. Corporate Governance

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Technology - crossed wires trigger IT failure

Audit committees and IT departments are failing to communicate effectively, according to a new report from Ernst & Young, seriously undermining risk-management capabilities.

A communication gap between audit committees and IT departments in the UK could threaten the ability of business to manage risk effectively, according to a new report by Ernst & Young.

The survey of heads of internal audit and CIOs, found that only 28% of CIOs thought their audit committee was sufficiently aware of IT risks, and just 34% felt the committee spent enough time discussing the subject.

Erol Mustafa, head of internal audit services at Ernst & Young, said: 'Today the audit committee must be prepared to, not only discuss, but robustly challenge the IT-related threats and risks facing their business.'

Accuracy and security of data have become vital for businesses as they deal with new international financial reporting standards and face up to internal controls requirements, plus tough new regulation in the form of Sarbanes-Oxley.

Technology - crossed wires trigger IT failure

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Study: Sarbanes-Oxley May Be Improving Earnings Projections

The Sarbanes-Oxley Act, along with the Securities and Exchange Commission's accelerated reporting guidelines, appear to be improving the accuracy of companies' earnings forecasts, according to a report by management consultancy firm Parson Consulting.

The percentage of companies among the Standard & Poors 500 stock index that missed analysts' earnings-per-share projections by at least 10 percent fell to 29.7 percent in the 2004 third quarter -- the lowest level since Parson began the quarterly study in the first quarter of 2003.

According to Parsons, the SEC accelerated reporting deadlines and federal Sarbanes-Oxley Act -- which shortened the timeframe in which companies must report their quarterly and annual earnings to the SEC, while demanding transparency and accuracy of financial information -- are having a beneficial effect. This need to report more quickly to the SEC is leading companies to streamline their processes and employ more sophisticated financial systems that improve the accuracy of forecasts, Parson experts say.

Study: Sarbanes-Oxley May Be Improving Earnings Projections

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NPR : The Marketplace Report: Dealing with Sarbanes-Oxley (audio)

NPR's Alex Chadwick talks with Tess Vigeland of Marketplace about the increasing number of corporations scrambling to comply with the 2002 Sarbanes-Oxley Act, a new law that often requires them to restate their earnings.

NPR : The Marketplace Report: Dealing with Sarbanes-Oxley (audio)

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Sun Brings Compliance, Content Management to One Screen

Sun Microsystems Inc. has introduced a product it says will help midsized and large businesses comply with regulatory requirements and corporate governance policies while managing content in a more comprehensive way than its previous offering.

The Sun Compliance and Content Management Solution is built on the compliance platform from records compliance management vendor AXS-One Inc. of Rutherford, N.J. The product allows users to manage all electronic records—including e-mail, messaging, documents, databases and images—from a single platform.

This process allows financial institutions, government agencies and others to more easily comply with a variety of federal regulations by providing fast and comprehensive access to information, said Ed Valdez, Sun's vice president of solutions marketing. The regulations include Sarbanes-Oxley, HIPAA (Health Insurance Portability and Accountability Act), SEC 17a-4 and Gramm-Leach-Bliley.

Sun Brings Compliance, Content Management to One Screen

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Thursday, January 20, 2005

Fitch: How Sarbanes-Oxley 404 May Affect Companies' Ratings

Implementation of section 404 of Sarbanes-Oxley (SOX 404) will likely cause internal control problems to surface more frequently than in the past, according to a report issued by Fitch Ratings. Accordingly, Fitch expects that material weaknesses will be reported for a number of companies during the next year or two. The method and level of disclosure by a company reporting material weaknesses in their internal controls under SOX 404 may factor into credit actions by Fitch.

SOX 404, effective for fiscal years ended after Nov. 15, 2004, requires management and its auditors to express an opinion on the adequacy of controls over financial reporting and disclosure. Should a weakness be disclosed or new weakness identified, negative rating actions may occur if the disclosure and/or further discussion with management reveals it to have a significant effect on a company's future financial standing, or calls into question the data on which analysis has been based. Though significant deficiencies are not required to be reported on a Form 10-K, such control weaknesses may have analytical implications.

Negative rating actions, if any, will be case-specific and may be in the form of a Rating Outlook revision, a Rating Watch Negative placement, or a downgrade, depending on the situation. Fitch's action will depend on whether the weaknesses in the company resulting in the statement have already been identified by Fitch, whether or not such weaknesses are already reflected in the ratings, and management's plans to remedy the situation.

Evaluating the reliability of financial data and assessing the internal controls over such data has always been an implicit part of Fitch's rating process. For example, serial restatements call into question financial reporting integrity. That said, Fitch places substantial reliance on a company's internal control framework and external auditors and regulators in determining that financial statements and disclosures accurately reflect a company's financial condition.

Fitch does not expect implementation of SOX 404 to be straightforward. The costs and time involved in establishing easily accessible evidence that controls over all elements of financial reporting that exist can be immense. To expect that all but a few companies will meet these challenges immediately is unrealistic, and as such, Fitch anticipates material weaknesses to be reported by management and its auditors for a number of the companies it rates during the next year or two.

'Sarbanes-Oxley Section 404: Fitch's Approach to Evaluating Management and Auditor Assessments of Internal Controls,' dated Jan. 19, 2005, is available on the Fitch Ratings web site.

Fitch: How Sarbanes-Oxley 404 May Affect Companies' Ratings

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Sun targets $6bn compliance market

Sun Microsystems today unveiled its Compliance and Content Management Solution, a package which integrates the firm's existing compliance and storage products with regulatory compliance software from AXS-One.

The offering is designed to help customers address US regulatory compliance and business governance requirements including Sarbanes-Oxley, HIPAA, SEC 17a-4, Gramm-Leach-Bliley, and their equivalents such as Basel II, around the world.

Through integration with the AXS-One Compliance Platform, customers using the product have a single platform for the management of all corporate electronic records, Sun claimed.

The system incorporates Sun's Solaris 10 and the Sun StorEdge SAM-FS file system software. It allows firms to monitor and manage classes of data/records including email, messaging, documents, databases, enterprise resource planning and images.

"In the past few months, complying with government regulations has become a top priority for organisations around the world," said Ed Valdez, vice president of integrated solutions at Sun.

Sun targets $6bn compliance market

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Research And Markets Study on Basel II, Patriot Act, Sarbox Sees Growth in Technology

Dublin-based Research And Markets has released a study, which concludes that the changes in accounting standards and reporting, mandated by the Basel II (Solvency II) accords in Europe and the Patriot Act and Sarbanes-Oxley in the U.S. will create opportunities "to consolidate investment in new technology and centralise data management operations."

"After witnessing a dramatic decline in IT spending in the retail financial services industry recently, the strategic drivers of IT shifted from revenue-building areas, such as CRM and the front-office, to efficiency measures, including infrastructure consolidation and outsourcing," said the announcement. "A balance has now returned to the market, with the US in particular looking more towards revenue-generating sectors. The Retail Financial Services Technology: Future growth and the impact of compliance, core systems renewal and outsourcing is a strategic management report that analyses the implications of changing IT spending habits and pinpoints future investment opportunities."

The consulting firm's new publication, "The Retail Financial Services Technology Outlook: Future Growth and the Impact of Compliance, Core Systems Renewal and Outsourcing," offers insights concerning these developments.

Research And Markets Study on Basel II, Patriot Act, Sarbox Sees Growth in Technology

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Wednesday, January 19, 2005

Restatements Up 28 Percent in 2004

The number of restatements to companies' financial reports spiked by 28 percent last year, according to a study to be released today by Huron Consulting Group Inc.

Researchers attributed the record 414 restatements, up from 323 in 2003, to problems uncovered in reviews of financial systems mandated by the 2002 Sarbanes-Oxley Act and to tighter oversight from regulators after recent accounting scandals cost investors billions of dollars.

"An unprecedented period of scrutiny is bringing these problems to light," Joseph J. Floyd, the leader of the disputes and investigations unit at the Chicago consulting firm, said in an interview. "It's almost a cleansing of the system."

Restatements Up 28 Percent in 2004

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Max and Erma's to leave Nasdaq

Max & Erma's Restaurants Inc. plans to leave the Nasdaq National Market and end reporting to the Securities and Exchange Commission as it attempts to cut the expense of complying with the Sarbanes-Oxley Act.

Max & Erma's (Nasdaq:MAXE) told the SEC on Wednesday that shareholders will vote on the proposal at their annual meeting in April. The transaction would take about 30 days to complete following the vote.

The company said its shares likely would trade on the pink sheets, a daily publication of stock prices provided by market makers.

The Columbus-based restaurant chain said costs imposed by the Sarbanes-Oxley Act of 2002 prompted the proposal. Max & Erma's expects it will save $450,000 in compliance costs in the first year after the change, and $350,000 a year after that.

Max and Erma's to leave Nasdaq

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Sarbox and IT: The Long Haul

With the last of the requirements of the Sarbanes-Oxley Act finally taking effect, it would have been easy to suspect that corporate America's drive to comply with corporate governance rules would be nearing completion. Yet finance executives who are leading the compliance charge say they do not expect to complete this work any time soon.

More than 60 percent of respondents to a recent survey by CFO Research Services and Capgemini identify regulatory compliance as a long-term rather than a short-term issue. True, many companies are wrapping up their initial efforts to meet the requirements of Section 404 of Sarbanes-Oxley, which requires that companies document and attest to the effectiveness of their internal financial controls. But many CFOs are still looking for long-term solutions to ensure that their control structure remains effective, recognizing that compliance promises to be an ever-evolving process as their organizations grow and change over time.

"Even if a business is relatively static, you have to guard against complacency to make sure your talent and your skills are sharp, to make sure that you are alert to possible breakdowns in controls, and to ensure that you pursue continuous improvement in controls and documentation," says Dan Farell, senior vice president for energy company TXU Corp., who is overseeing a broad-based business process outsourcing contract the utility recently entered into with an outside vendor. "We look at it as a continuous process," concurs Brendan Condon, senior vice president of finance and operations for America Online Media Networks (a unit of Time Warner). "Our view is to never assume that what you're doing is the best you can do."

Sarbox and IT: The Long Haul

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European companies shun managed storage

A survey of European IT managers has found that the vast majority do not fully trust managed data storage services, preferring instead to keep systems in-house.

Building private networks for data centres was preferred by 40 per cent of respondents, while only 13 per cent wanted a managed service from a carrier. The story was even worse for unmanaged carrier services, which only one manager in 50 would consider.

It also appears that legislation is not driving companies to review their storage policies. Barely a quarter of those polled felt any pressure to modify their storage strategy in light of legislation.

Newly drafted rules on storage contained in Sarbanes-Oxley and Basel II require companies to keep all data for fixed time periods so that it can be examined by regulators.

European companies shun managed storage

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Kubota USA to Manage Sarbanes-Oxley Compliance with Movaris; U.S. Subsidiary of Japanese Firm Uses Movaris Certainty to Reduce Compliance Time and Costs

Movaris(R), a leading provider of financial control management (FCM) software, today announced that Kubota USA, Inc., the U.S. subsidiary of Kubota Corporation of Japan (NYSE:KUB), has selected Movaris Certainty to manage its internal financial controls and Sarbanes-Oxley Act compliance requirements for Sections 404 and 302. Kubota chose Movaris Certainty for its ease-of-use, advanced email reminders to complete control-related tasks, and ability to track and escalate financial control issues to executives for action.

While the SEC considers extending the Sarbanes-Oxley Act compliance deadline for foreign corporations, Kubota intends to deploy advanced financial control management technology to manage compliance now. With several locations in North America, Kubota wanted an application that would reduce the workload of compliance, and make compliance-related information and issues much easier to track. Movaris Certainty delivers easy-to-use email reminders of upcoming compliance tasks for all Kubota's control participants. The system automatically detects non-compliance issues, and again uses email to automatically alert management about the issues, exceptions, and weaknesses in the financial control environment. Certainty's Financial Control Console aggregates information about the status of all control activities, and allows Kubota's executives to pinpoint the status and progress of each outstanding activity.

"We could not manage the documentation and testing of our 500 control objectives with office applications," said Susan Wood, director of internal control with Kubota. "Movaris Certainty's active financial control action plans for evaluations, tests, and self-assessments, centralized repository of evidence, and links to other reference information organize our internal control information -- at any given time, we can see the control items that need action. Down the road, we plan to expand our use of Certainty into operational controls as well."

Kubota USA to Manage Sarbanes-Oxley Compliance with Movaris; U.S. Subsidiary of Japanese Firm Uses Movaris Certainty to Reduce Compliance Time and Costs

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Tuesday, January 18, 2005

The Silver Lining In SOX

Most large public companies are in the throes of their first annual audits under the financial reporting provisions of the Sarbanes-Oxley Act (SOX). Processes have been documented, risks defined and controls put in place, yet few companies have made the fundamental changes to financial systems and processes that will enable them to comply with the law efficiently.

Consider the impact on competitiveness and profitability if you could close financial reports more quickly, provide accurate and consistent information to the field sooner, and expand the scope of financial data to include more operational figures and predictive performance indicators.

Long-term solutions for SOX compliance all but demand financial systems redesign. Rather than take a piecemeal approach focused on compliance alone, look for process and system changes that will have a broader impact. By eliminating manual steps and automating wherever possible, you can improve finance department efficiency and corporate decision-making while also building in compliance controls and avoiding costly auditing steps. You may even discover the capabilities needed to support process improvement already exist — unused or underutilized-in your enterprise resource planning (ERP), business intelligence (BI) and reporting systems.

The Silver Lining In SOX

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Accounting the new hot field

Call it the revenge of the nerds. While many professions have been slow to hire, accounting firms have been adding to their payrolls, leading to greater pay and perks for the nation's bean counters. In the last three months of 2004, the number of people working as accountants or bookkeepers rose 2.4 percent, nearly five times the rate of increase in jobs economywide, according to the government.

"It's clearly one of the hottest markets (for accountants) that I've seen," says Brent Inman of PricewaterhouseCoopers. On-campus hiring at his firm in 2004 was up 45 percent from two years earlier and is expected to grow 20 percent this year.

The increases are mostly attributed to the federal Sarbanes-Oxley law, which created new government standards in the wake of accounting scandals and led to a greater need for accountants.

Accounting the new hot field

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Sarbanes-Oxley: What IT managers need to know

The US compliance law also has repercussions for European firms, and IT is a crucial part of the equation - find out how you can set up systems to ensure your company's practices stay legal

If you work for a public company, chances are there's a Sarbanes Oxley (SOX) project underway. As a manager over a key IT area, you've been recruited to help! If your company is like many others, however, there is a shortage of IT auditing expertise in-house. So what are you going to do?

Your auditors will eagerly email you links to mountains of literature in order to assist you. But that literature is most likely written in Auditese, a language spoken by auditors and mostly incomprehensible. That's where this article comes to your rescue. We've extracted the information you need from the mountain of literature available that will help you create test plans for your company to certify that you have appropriate IT controls in place.

Sarbanes-Oxley: What IT managers need to know

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Business, regulators set for tug of war in 2005

In the words of its chief financial officer, National Instruments Corp. has never "done anything wrong" in its financial accounting throughout its 27 years in business. Yet the Austin, Texas-based software and plug-in card maker (NATI: news, chart, profile) will pay fivefold more in audit fees for 2004 as a cost of doing business -- a $3 million expense CFO Alex Davern says will be made up by outsourcing jobs to India and China.

The added cost owes to the sweeping corporate-governance laws imposed by the Sarbanes-Oxley Act of 2002. And as George W. Bush's second term gets underway, businesses like National Instruments are waging an increasingly aggressive battle with regulators to get one major part of the law scaled back. The target -- Section 404 of the act, which requires companies to include in annual reports letters from top management and outside auditors verifying their internal-control systems, and to identify financial problems. Congree intended the act to combat the type of fraud brought to light by Enron and Worldcom's collapse, but corporate leaders argue it's just hurting bottom lines and enriching auditors.

"This whole Section 404 is, in my opinion, the worst piece of regulatory legislation that's been passed in the financial arena for decades," Davern says.

Business, regulators set for tug of war in 2005

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Monday, January 17, 2005

A Fallen Tech Titan Faces a New Trial, This One in a Court of Law

In corporate history, few executives have helped create - and then watched the destruction of - as much wealth as Bernard J. Ebbers, the former chairman of WorldCom.

With resolve and salesmanship, but little training in finance or engineering, he built one of the world's biggest telecommunications companies that at its peak was worth $160 billion. But now that WorldCom has collapsed, he stands accused of masterminding a record $11 billion accounting fraud that toppled the company he created and left investors, former employees and others to pick up the pieces.

It was the largest bankruptcy ever, as measured by WorldCom's $107 billion in assets at the time of its filing in July 2002. And the fallout from the WorldCom's implosion includes the many telecommunications companies that staggered or collapsed, in part from trying to keep up with the phantom growth pace set by WorldCom's galloping ghost.

A Fallen Tech Titan Faces a New Trial, This One in a Court of Law

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VigilantMinds First to Offer SOX Pre-Audit Assessment

VigilantMinds Inc., a leader of "best-fit" managed security solutions, today announced the availability of its SOX Readiness Program consisting of pre-audit security assessments specifically designed to help companies prepare for Sarbanes-Oxley (SOX) audits.
Designed to protect investors and increase corporate accountability, the Sarbanes-Oxley Act of 2002 was enacted in the wake of Enron and requires external audits to certify the integrity of financial data and an annual assessment to verify the security of IT systems.

"By having VigilantMinds conduct a security assessment before the compliance audit, our clients are able to establish a standard of due care and build a defensible case for internal controls and implementation decisions," says Dave Keener, chief security officer, VigilantMinds. "Essentially, a pre-audit alleviates the stress associated with compliance audits and being prepared before the audit shortens the time it takes to get through it."

VigilantMinds will host a Sox Compliance Seminar on January 20, 2005 at Phipps Conservatory in Pittsburgh. Speakers include David Ries, Esq., of Thorp Reed & Armstrong; Tracy Brown, director of information security for American Eagle Outfitters; and Dave Keener, chief security officer of VigilantMinds.

VigilantMinds First to Offer SOX Pre-Audit Assessment

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Audit teams come under fire in CIO survey of risk assessment

Corporate governance regulations such as Basel 2 and Sarbanes-Oxley require companies to clearly document risks to their business and measures to mitigate them. But IT directors have serious concerns about the skills and resources of the teams used by company boards to identify IT-related risks to the business.

That was one of the conclusions of UK research published last month by professional services firm Ernst & Young, which questioned IT directors and internal audit heads about the effectiveness of IT auditors.

IT audit teams work within audit committees and should provide independent assurance to company boards about the risks to their business and the controls in place to mitigate them.

Examples of IT-related risks include computer viruses, the installation of new computer systems, and outsourcing agreements.

Audit teams come under fire in CIO survey of risk assessment

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The business of intelligence

Bernard Liautaud, the chief executive of Business Objects, is gunning to make his firm the biggest name in Business Intelligence - despite increasing competition from Oracle, IBM and Microsoft.

Following the launch of the latest version of its flagship product, Business Objects Extreme Insight (XI) ZDNet UK caught up with the company's chief executive and founder Bernard Liautaud to discuss competing with Microsoft and the impact of regulations such as Sarbanes-Oxley.

The business of intelligence

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For Directors, Bigger Risk Mean Bigger Pay

With the risks of joining a corporate board rising faster than ever, prospective directors can take solace in the fattening pay checks coming their way.

As two recent high-profile settlements demonstrate, directors' own wealth now sits in the crosshairs when things go horribly wrong at a company -- good news for investors demanding accountability.

But despite soaring risks and workloads, the good news for board members is big raises: median total compensation of a director at a Standard & Poor's 500 company jumped 22.5 percent last year to nearly $167,000.

Back-to-back announcements that WorldCom and Enron Corp. directors must cough up millions of their own dollars to settle lawsuits over the companies' collapses shows that director liability has moved from the boardroom to the living room.

And demands for personal payments, spearheaded by New York and California pension funds, are widely expected to continue.

For Directors, Bigger Risk Mean Bigger Pay

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Terex Will Restate after 404 Assessment

We'll probably see many more such announcements in coming months as companies work toward compliance with Section 404 of the Sarbanes-Oxley Act.

Diversified manufacturer Terex Corp. announced that it will restate its financials for 2001 through 2003 to correct certain errors. The company implied in a press release that it discovered these errors while conducting its review of its internal controls over financial reporting to meet the requirements of Section 404.

To comply with Section 404, Terex added, "a new financial reporting system was put in place in the later part of 2003 allowing for a more detailed and thorough review of accounts on a timely basis through analytical report writing functions, as well as automated back office functions." The company also noted that it revised its internal controls to require "monthly activity balancing and the requirement that any reconciling item that is not resolved within a specified period of time be escalated for prompt resolution."

Terex Will Restate after 404 Assessment

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Friday, January 14, 2005

Nortel heads into Sarbanes-Oxley headwind

Former Nortel Networks chief executive Frank Dunn and his financial executives are alleged to have manipulated their company's accounts -- only a few months after the passage in mid-2002 of the Sarbanes-Oxley bill in the U.S. This is the landmark legislation that compels chief executives to certify their company's accounts are accurate or risk substantial penalties.

Nortel was obviously aware of the bill's significance -- in the summer of 2002 it established a management "disclosure" committee of eight or so top executives. The group met on a near-weekly basis for a time to establish appropriate responses to a multitude of new governance rules that have recently come into effect.

Among the legislation's goals was to improve the "tone at the top" of publicly-traded companies. Since Dunn was a key member of the disclosure committee, his alleged behaviour is all the more puzzling.

Nortel reported on Tuesday that Dunn and members of his finance team had used inappropriate accounting manoeuvres to transform money-losing quarters into profitable ones early in 2003. Why would Dunn and his colleagues have left themselves so open to charges of breaching accounting rules at the dawn of the Sarbanes-Oxley era?

So far, all we have to go on are this week's extensive filings by Nortel and the report of the independent review it commissioned from the Washington law firm Wilmer Cutler. It's a detailed account, but it's still only one side of the story. Nevertheless, the report of the review does contain tantalizing clues about how the finance group got snared in such a multi-faceted probe.

Nortel heads into Sarbanes-Oxley headwind

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General Mills whistle-blower sues firm

A General Mills employee who reported questionable accounting practices to regulators sued the company Thursday, saying that the cereal and yogurt maker has violated federal law by retaliating against him.

In a case filed in federal court in Tucson, Ariz., Greg Downey alleges that General Mills violated the Sarbanes-Oxley Act by disparaging his reputation among General Mills employees and by suspending him without pay in November.

Downey originally filed the complaint with the Department of Labor, but he withdrew it in November.

"General Mills has always believed these claims are completely groundless," company spokeswoman Marybeth Thorsgaard said. "We are confident that they will be shown to lack merit when the actual facts are presented to the court."

The lawsuit provides a glimpse of the nature of the Securities and Exchange Commission investigation of General Mills, which Downey appears to have instigated during the summer of 2003.

General Mills whistle-blower sues firm

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Potential for Personal Liability From Recent Securities Settlements Heightens Importance of Corporate Governance To Directors

Last week, substantially all of the outside directors of the two companies most closely associated with corporate scandal - WorldCom and Enron - agreed to settle the securities class action cases involving those companies. Significantly, most of the directors agreed to contribute their personal funds to the settlements, in excess of the contributions from their respective directors and officers insurance policies:

Ten Enron directors agreed to contribute $13 million of their own funds to a total settlement of $168 million, with the remaining $155 million to be paid by insurers. The lead plaintiff in the case reported that the directors' contribution reflected a portion of their profits from selling Enron stock. Eight other directors also participated in the settlement, without contributing personal funds. The insurer's contribution, when combined with payments to the company's creditors and a reserve for defense fees of non-settling insured defendants, exhausts the available coverage.

Ten WorldCom directors agreed to contribute $18 million to a total settlement of $54 million, with the remaining $36 million to be paid by insurers. The lead plaintiffs reported that the $18 million represented approximately 20% of the directors' aggregate wealth, not counting primary residences and retirement accounts. An eleventh director expects to settle soon.

These settlements do not constitute an admission of liability or wrongdoing by any of the settling directors. Both settlements are subject to court approval, and the remaining defendants in WorldCom already have challenged the settlement in that case.

Potential for Personal Liability From Recent Securities Settlements Heightens Importance of Corporate Governance To Directors

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For Some, Sarbanes-Oxley Is No Hassle At All

When Paul Sarbanes and Michael Oxley came up with a bill to reform corporate America, their aim was to force companies to be more open and forthright in their accounting. The two lawmakers probably didn't realize how the bill would benefit companies such as Resources Connection (NasdaqNM:RECN), which provides accounting, auditing and consulting services.

The Sarbanes-Oxley Act, enacted in 2002, prompted dozens of companies to shift accounting work from their primary auditors -- which are often one of the Big Four accountants -- to outside consultants like Resources Connection.

Today the bill is a big driver of the company's financial growth.

"We're lucky because the Sarbanes wind came along," said Don Murray, the firm's chief executive. "But we're also structured so our ship can take advantage of it."

Murray is a former partner with Deloitte & Touche. He and others from Deloitte spun off Resources Connection in 1996 partly because of independence issues regarding the big accounting firms.

For Some, Sarbanes-Oxley Is No Hassle At All

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Thursday, January 13, 2005

Sarbanes-Oxley Draws Renewed Criticism

Less than three years after the public scandals of Enron, WorldCom and Global Crossing first came to light, a group of companies is retaliating against measures put in place to prevent other such accounting debacles. The group, comprised of several Washington-based business lobbyists, has claimed that some provisions within the Sarbanes-Oxley law are debilitating to businesses from a cost standpoint and are preparing to lobby for reforms to the law.

Sarbanes-Oxley was first drafted to establish controls on accounting and other financial management to secure better corporate governance and protect individual investors. The provision in contention is Section 404, which requires the creation of extensive policies and controls within public companies to secure, document, process, and verify material information dealing with financial results. The highly anticipated and much dreaded provision went into effect after delays on Nov. 15.

Sarbanes-Oxley Draws Renewed Criticism

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IR Web Report: Why corporate boards should blog

Despite all the changes that new laws like Sarbanes-Oxley have brought to how companies are governed and managed, one thing has still not changed: directors still don't talk to their shareholders.

Sure, boards and directors may have private meetings with high powered institutional investors on issues of corporate governance, but they almost never communicate in an informal way with rank and file shareholders and other stakeholders.

The blogging technology platform, when properly executed, provides boards and legitimate shareholders with a transparent platform to seriously engage one another on the issues. It can provide boards with a low-cost, highly effective means to establish a credible dialogue and allow directors to obtain feedback from a wider variety of shareholders with differing viewpoints.

To be sure, the concept of director bloggers is a new and dramatically different approach to board-shareholder communication. However, this is simply a case of taking an existing, proven technology and customizing it slightly for another purpose.

After carefully studying how blogs work and how the blogging community interacts, we are convinced that the technology offers a highly attractive opportunity for forward-thinking directors and boards. It enables boards to get their message out, and at the same time provide a forum for shareholders to offer informal input to their elected board representatives.

IR Web Report: Why corporate boards should blog

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OfficeMax's CFO makes quick exit

OfficeMax announced the resignation of its new chief financial officer on Wednesday and said its fourth-quarter earnings report will be delayed because of accounting problems, compounding recent financial turmoil at the nation's No. 3 office products retailer.

The latest dose of bad news sent shares in the company down $1.42, or 4.7 percent, to $28.88 -- 24 percent off its 52-week high of $38.01 reached last June.

The company declined to cite a reason for the departure of Brian Anderson, who had held the job only since November. But the resignation came as it fired four employees as the result of an ongoing internal investigation, which it said confirmed a vendor's complaint that some bills were falsified.

OfficeMax, which disclosed the investigation last month, said employees fabricated supporting documentation for about $3.3 million in claims billed to the company in 2003-04. It said the review has been expanded to look at other payments and might last until late February, when it now intends to issue fourth-quarter and full-year earnings that were originally scheduled for release Jan. 20.

Former CFO Ted Crumley is returning to the post on an interim basis while OfficeMax looks for a permanent replacement.

Anderson, who was ousted as chief financial officer at Baxter International last June in a management shakeup, would have been required to certify OfficeMax's financial statements for the year under the Sarbanes-Oxley Act, which holds CFOs and CEOs criminally liable for inaccuracies.

OfficeMax's CFO makes quick exit

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Kenneth Cole Productions Revises Fourth Quarter Expectations

Kenneth Cole Productions, Inc. (NYSE: KCP - News) today announced that the Company expects to report fourth quarter results below the Company's prior guidance and current consensus estimates. The Company now believes that it is likely to report revenues of approximately $133 to $135 million and earnings per share in the range of $0.43 to $0.45. On a full-year basis, the Company noted that earnings per share would likely be between $1.72 and $1.74, up approximately 9% versus the fiscal 2003 level of $1.59.

The Company noted that a generally challenging December, particularly in its consumer direct business, was primarily responsible for the shortfall. Additionally, the Company noted that this new expectation reflects higher than expected costs related to Sarbanes-Oxley compliance and includes an anticipated $0.01 non-recurring impairment charge.

Kenneth Cole Productions Revises Fourth Quarter Expectations

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Wednesday, January 12, 2005

COSO launches SOX Guidance for Small Biz

In an effort to aid smaller publicly traded businesses with internal controls compliance, the Committee of Sponsoring Organizations said that it would offer online guidance for internal controls assessment by the summer.

In conjunction with COSO as well as the Advisory Committee of the Securities and Exchange Commission and the Public Company Accounting Oversight Board, Big Four firm PricewaterhouseCoopers will produce the guidance materials, which will be available for a fee. PwC partner Miles Everson will spearhead the effort.

Under Sarbanes-Oxley's Section 404, SEC issuers are required to conduct annual evaluations of their internal controls. This year, public companies under $200 million will be required to meet the internal controls mandates. Companies over $200 million were mandated to assess their internal controls last year.

COSO chairman Larry Rittenberg pointed out that approximately 5,000 of the SEC's roughly 9,000 registrants have annual sales of less than $200 million.

COSO launches SOX Guidance for Small Biz

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Call for auditors to give verdict

Auditors could be given the right to more quickly reassure investors that companies have fixed weaknesses in systems that ensure accurate financial reporting, regulators said on Wednesday.

Douglas Carmichael, chief auditor at the Public Company Accounting Oversight Board, told a conference that the regulator was considering whether auditors should have the ability to give snap verdicts on remedial action taken by companies on defective internal financial controls.

Companies were warned that investors and credit rating agencies could react badly to poor disclosures by companies about any weaknesses.

Disclosures by companies about the effectiveness of internal controls are mandated by the Sarbanes-Oxley Act, and auditors must give separate opinions.

The first batch of reports are due to be filed with the Securities and Exchange Commission in March and April.

Call for auditors to give verdict

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Investors' Perspective the Focus of Conference on New Section 404 Internal Control Reporting

Stanford Law School today convened a symposium of federal regulators, industry experts and leaders from the investment community and the auditing profession to address the new internal control reporting process required by the Sarbanes-Oxley Act, the resulting reports that investors will begin to see next month and what those reports mean for investors and other market participants.

"The world of Section 404 compliance and reporting is much more complicated than most people realize," said Joseph Grundfest, W. A. Franke professor of law and business at Stanford Law School, as he opened the symposium. "We hope to demystify the world of 404 for investors so that they can appropriately interpret the flood of oncoming 404 opinions," he added.

In his keynote address, Alan Beller, director of the SEC's division of corporate finance, highlighted the responsibility of public companies and their auditors under Section 404 to provide complete and meaningful disclosure. He stressed the importance to investors of these new reports, telling the group, "... It is also incumbent on investors to demand from companies the disclosure which they need to evaluate particular material weaknesses and to review and analyze that disclosure with particular care ... [in order to evaluate the implications of given material weaknesses for reliability of financial reporting and financial statements], and also to consider what remedial steps companies are taking. Any disclosure that a company has a material weakness is a serious matter for investors, but that disclosure should also be the starting point rather than ending point for investors' analysis."

Investors' Perspective the Focus of Conference on New Section 404 Internal Control Reporting

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MCI CIO Elizabeth Hackenson: I.T. as a Portfolio

Hackenson: I believe that Sarbanes-Oxley has had a positive impact, although I know a lot of my peers have had different opinions. Over the past year, we've had to look at a number of applications in our portfolio to ensure that we are well protected, and have documented a lot of our processes.

Even though Sarbanes-Oxley is a law, there is a lot that is open to interpretation, and you have to push back. You don't have to document every single application in your portfolio. We have been very fortunate to have a member of my team who has a finance background and has been able to make sure that we are not documenting something that we don't need to and yet be diligent in adhering to the regulation.

MCI CIO Elizabeth Hackenson: I.T. as a Portfolio

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Four Out of Five Major Financial Firms Now Have a Chief Risk Officer, Reflecting Tough Regulations, Increased Scrutiny, Deloitte Survey Says

Global financial services institutions are facing growing exposure to risk from a variety of factors, including mega-mergers, off-shoring, outsourcing, greater regulation, and the need to manage an increased volume of lending. These factors are causing a very large proportion of these institutions -- 81 per cent -- to establish the position of Chief Risk Officer (CRO), according to Deloitte's biannual Global Risk Management Survey released today.

The number of large institutions with chief risk officers has increased from 65 per cent since the last survey was conducted in 2002. The survey also shows that three quarters of CROs in financial services firms report to their chief executive or the board of directors. There has also been a 25 per cent increase in board-level oversight of risk management over the last two years.

Despite the increasing emphasis on containing risk, the survey shows, however, that enterprise risk management (ERM) continues to be an elusive goal for many institutions. In fact, less than one-quarter of survey participants say they are able to integrate risk across any of the major dimensions of risk type, business unit, or geography. Their focus in ERM is on measuring economic risks including credit, market, operational, and liquidity. While 38 per cent of respondents say they have integrated the organizational structure required to deal with these risks, only 15-16 per cent reported progress in integrating methodology, data, and systems.

The survey indicates that a tougher regulatory environment and increased scrutiny of financial institutions in the post-Enron business environment have contributed significantly to a greater emphasis on risk management. Reflecting this reality, the Bank for International Settlements (BIS) this year established a new capital adequacy framework for banks commonly known as Basel II, replacing guidelines created in 1988. The new framework significantly updated credit risk measurement approaches and introduced new methodologies for measuring operational risk and related capital charges.

Meanwhile, the Sarbanes-Oxley Act in the United States and similar legislation in other countries has elevated the importance of corporate governance, board oversight, internal controls, and financial disclosures -- with the threat of criminal prosecution for non-compliance.

Four Out of Five Major Financial Firms Now Have a Chief Risk Officer, Reflecting Tough Regulations, Increased Scrutiny, Deloitte Survey Says

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Nortel comes clean: Five leave board as review fingers Dunn

Frank Dunn, the hard-driving former Nortel Networks Corp. chief executive officer, directed his management team to apply accounting policies that did not meet U.S. standards in an effort to meet profit targets and collect bonuses, according to an internal review released yesterday.

The review paints a picture of a corporate culture designed to exploit a bonus system that was tied to profitability by transferring items from one side of the ledger to the other. It found that management's "tone at the top" sent a clear message that targets could be achieved by applying practices that didn't conform with U.S. accounting rules, and also "that questioning these practices was not acceptable."

"Dunn and others exercised their judgment strategically to achieve EBT [earnings before taxes] targets," the review says.

Mr. Dunn was fired in April, along with chief financial officer Douglas Beatty and controller Michael Gollogly, followed by seven other finance employees later in the year. The review makes clear that Nortel is placing much of the blame for its continuing accounting and financial fiasco at the feet of its former CEO and his financial team.

Further, the review found that many members of Nortel's accounting staff lacked technical expertise, having learned their skills on the job. There was a lack of internal controls, and a complicated business unit structure that lacked "clear responsibility and accountability by business units and by regions."

Nortel comes clean: Five leave board as review fingers Dunn

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COSO to Help Small Businesses with Internal Controls

Small businesses are about to get help complying with the stringent new internal control requirements of the Sarbanes-Oxley Act. The Committee of Sponsoring Organizations (COSO) announced Monday that it will develop guidance that will help small firms follow the new rules without breaking their budgets, according to Dow Jones Newswires.

The new guidance, which will be produced by PricewaterhouseCoopers LLC, will be available online by June 30. COSO Chairman Larry Rittenberg estimated that 5,000 public companies with annual sales of less than $200 million can be helped from the new tips.

Even large companies, with far more resources and employees, have felt overburdened by the regulations outlined in Sarbanes-Oxley, the corporate reform legislation approved by Congress in 2002 in response to a series of massive accounting scandals.

Rittenberg said smaller companies must comply with the rules this year, and COSO hopes to address the question of how small firms can tighten internal controls without hiring more people. One way to prevent fraud is to ensure that financial responsibilities are delegated among different employees so no one person has too much control.

COSO to Help Small Businesses with Internal Controls

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European Companies Grappling with SOX Compliance

Some European companies are wondering if the benefits of being listed on U.S. exchanges is worth the cost of Sarbanes-Oxley compliance, IT-Analysis.com reported.

With public and private companies alike struggling to comply with the rigid new requirements intended to improve transparency and accountability, international companies are weighing the pros and cons. Companies with 300 or more U.S. shareholders must comply with Sarbanes-Oxley.

According to PricewaterhouseCoopers estimates, there are 470 non-US companies listed on the New York Stock Exchange, with a combined market capitalization of $3.8 trillion-or 30 percent of the total value of capitalization of companies quoted on the exchange, IT-Analysis.com reported.

In the past, there were real benefits for international companies that listed their shares on U.S. stock exchanges. These included the appearance of being a strong international presence, access to a larger group of investors and easier access to potential acquisitions, IT-Analysis.com reported. However, the new rules could outweigh these benefits for some companies.

European Companies Grappling with SOX Compliance

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Tuesday, January 11, 2005

OMB orders agencies to strengthen internal controls

The Office of Management and Budget has released new auditing rules that require agencies to review their internal controls over financial management, fix potential shortcomings and submit an annual report on their activities.

In the wake of the 2002 Sarbanes-Oxley Act, which calls for publicly held companies to obtain audits of their internal controls, government auditors and financial managers have debated whether they should follow suit. The Government Accountability Office is in the midst of rewriting its auditing guidelines, and held a meeting in late 2004 in which some auditors expressed concern that tightening federal auditing practices was unnecessary and resource-consuming. But senior GAO officials supported strengthening internal control audit requirements.

OMB sided with the faction supporting stricter rules. OMB Controller Linda Springer said effective internal controls were "the foundation of reliable financial reporting" in a press release accompanying the revised circular. GAO offers guidelines on auditing standards, while OMB's rules are legally binding.

OMB, however, stopped short of adopting the full force of Sarbanes-Oxley provisions, which would have included requiring a separate audit opinion on internal controls. The new rules do, however, allow OMB to require agencies to obtain a separate opinion on their internal controls if they fail to fix identified internal control problems.

OMB orders agencies to strengthen internal controls

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Feds Should Watch Vendors

Now that compliance with the Sarbanes-Oxley Act is a fact of life for large companies, maybe it's time to shine the light of regulation on new fields—maybe it's time to federally regulate software vendors.

SarbOx is intended, in part, to protect the public's financial investments. But what about the investments that companies make in the software used to run their businesses, which, in turn, serve the public? How do you know if your software vendor is adhering to development practices that protect your organization's financial investments and business goals? How many failures have resulted from software vendors overlooking critical security or other issues in a rush to bring another product to market? Perhaps more than anyone will admit.

In a competitive marketplace, software quality determines a vendor's survival. But in software markets dominated by a monopoly, perhaps regulation is needed. Even in markets with competition, the nature of software deployment precludes a rapid switch from one vendor's products to another's.

Federal control shouldn't be advocated lightly, but federal regulation of the automotive industry, for example, has led to safer vehicles with fewer dangerous emissions. Plenty of other industries, including pharmaceuticals, food and manufacturing, are regulated in the public interest. The benefits are obvious.

Feds Should Watch Vendors

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Anti Sarbanes-Oxley mood rises in Europe

Over the past year, corporate governance has become a phrase that is bandied about by all and is sending shivers down the spines of corporate executives worldwide. Sarbanes-Oxley is the piece of legislation that most large companies are worried about – it was intended to improve the transparency with which public companies in the US conduct their businesses, but even private companies in the US are feeling pressure to comply with its requirements.

And they are not the only ones. In Europe, growing resentment at the unwanted pressure being forced on Europe’s businesses is persuading some firms to take drastic action, with some even threatening to de-list from US stock exchanges. But this may not solve all of their problems, since companies with 300 or more shareholders in the US are also bound by the requirements of Sarbanes-Oxley and, as rules governing shareholding by US individuals and firms have been loosened recently, firms no longer need to have a presence on the US stock exchanges to generate a significant US shareholder base.

According to estimates made by PricewaterhouseCoopers, there are 470 non-US companies listed on the New York Stock Exchange, with a combined market capitalisation of $3.8 trillion – or 30 per cent of the total value of capitalisation of companies quoted on the exchange. However, the costs of maintaining a US listing are high and, combined with the costs of complying with the requirements of Sarbanes-Oxley, are making some firms question whether the cost of maintaining a US listing now outweigh its benefits.

For example, German chemicals producer BASF estimates that the extra costs of Sarbanes-Oxley compliance are somewhere between $30m -$40m per year. International companies used to list their shares on US stock exchanges to show how strong an international player they were, to get access to a wider pool of investors and to gain easier access to potential acquisitions; many feel that these are now not worth the cost. Other household names that have been quoted in the press recently as saying that they were at least considering de-listing include the Rank Entertainment Group and British Telecom from the UK.

Anti Sarbanes-Oxley mood rises in Europe

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Marketron Completes SAS-70 Type II Certification

Marketron International today announced that it has completed a SAS-70 (Statement on Auditing Standards No. 70) Type II audit of its application hosting service by an independent accounting firm. This certification can help Marketron Hosting clients and their auditors address the requirements of Sarbanes-Oxley. It also helps affirm that Marketron provides a consistent, reliable and secure operating environment to the more than 425 stations and 5,000 subscribers that utilize its hosting platform (a quarter of its total client base).

SAS-70 is an internationally recognized auditing standard developed by the American Institute of Certified Public Accountants (AICPA). A SAS-70 Type II audit analyzes a hosting service organization’s control over the information technology and processes that serve its clients. To comply with Sarbanes-Oxley mandates, public companies require SAS-70 Type II certification from their hosting service providers. In addition to offering compliance with federal regulations, a SAS-70 provides assurance to all of a service organization’s clients that the controls, processes and procedures evaluated are operating effectively.

“Marketron Hosting not only offers broadcasters secure remote access and centralization of station inventory and sales data without a costly IT investment, but it also simplifies compliance with Sarbanes-Oxley,” said Keith Winter, President and Chief Operating Officer for Marketron International. “This can translate into significant savings for any publicly traded broadcaster, as the auditing process is painstaking and extensive. For privately owned stations and groups, Marketron’s SAS-70 audit should serve as validation of the strength of our offering.’s initial survey results validate Marketron’s leadership, but more importantly, they demonstrate that our clients believe we deliver great value.”

Marketron Completes SAS-70 Type II Certification

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Monday, January 10, 2005

Former AOL, PurchasePro Execs Indicted

A federal grand jury on Monday indicted six former executives of Time Warner Inc.'s America Online unit and former business partner PurchasePro.com on charges of conspiracy to inflate revenues.

The six men, including PurchasePro's former chief executive officer Charles Johnson, were accused of conspiracy, securities fraud, obstruction of justice and wire fraud. In several places, the indictment refers to another unidentified "co-conspirator at AOL."

Asked if there would be further indictments, U.S. Attorney Paul McNulty told a news conference: "This is a very active and ongoing investigation."

Time Warner agreed last month to pay $510 million to resolve Justice Department and Securities and Exchange Commission charges that AOL had inflated revenue figures.

The former executives were charged with engaging in a scheme to artificially inflate revenue reported to the U.S. Securities and Exchange Commission through secret side deals, back-dated contracts and revenue swaps.

They forged contracts, lied to the public and destroyed documents during the investigation, said McNulty. "When you summarize it, it's a story of trying to create the appearance of success in business that's just not there," he said.

Former AOL, PurchasePro Execs Indicted

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2005 Influencers: 50 Worth Watching

Here's this year's roundup of the regulators, watchdogs, corporate leaders and academics who are quietly -- and not so quietly -- determining the future of accounting and finance.

While many voters cringed at the sharply adversarial tone of the past two presidential elections, pundits pointed out that the closely contested battles at least demonstrated that our electoral process works. A similarly contentious dynamic is currently at play in the world of finance and accounting, although the power wielded by leaders in this realm rarely matches that of the highest-ranking elected officials. "We don't have a vote at the [legislative] table, so we can only attempt to influence the decisions and process so far," says Arnold Hanish, chief accounting officer of pharmaceutical giant Eli Lilly and Co. in Indianapolis. Hanish and a select group of corporate finance executives from six other organizations are exercising their right to influence as members of the standing advisory group which serves as a sounding board and guide for the organization that's at the epicenter of ongoing change in auditing, accounting and finance: the Public Company Accounting Oversight Board (PCAOB).

The 30-strong membership of the standing advisory group (SAG) also includes pension fund directors, lawyers, academics, governance experts and public accounting professionals. The group meets regularly with the PCAOB to help it set priorities as it develops new auditing standards.

The SAG's first three meetings have demonstrated that a collision of opposing perspectives can be a positive force for change. "I think we all agree that we're there to protect the investing community," Hanish notes. "I think we all realize the impact that the last five years of audit failures and poor management judgment have exerted on the capital markets. And we need to bring investor confidence back to where it was."

2005 Influencers: 50 Worth Watching

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Upfront: Coming to Terms With Compliance

Senior corporate managers have, for the most part, overcome their initial misgivings about the administrative and financial requirements of compliance with Sarbanes-Oxley and other recent regulations, according to Hill & Knowlton Inc.'s "Corporate Reputation Watch 2004," a survey of top executives from large companies in North America, Europe and Asia. Only 8 percent of respondents said they believe that the task of meeting new financial disclosure and governance standards poses a real challenge to running a competitive business. Forty-five percent described the compliance burden as heavy but manageable, and 48 percent claimed it is reasonable.

"Moving from the denial stage to the acceptance stage, senior corporate leaders accept the recent wave of corporate governance reform measures and are now focusing their efforts on making substantive, sustainable changes to their governance profile," reports Harlan R. Teller, president of Hill & Knowlton's worldwide corporate practice and chief client officer in Chicago. "Their goal is to encourage long-term investor and customer confidence." Nevertheless, Teller says, executives see a downside to the changes.

Upfront: Coming to Terms With Compliance

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Public firms going to private

First John Q. Hammons Hotels Inc. announced it would privatize.
Then the Paul Mueller Co. announced it, too, would withdraw from the stock market.

Who's next?

The answer partly hinges on the cost of complying with 2002's federal Sarbanes-Oxley Act, which sought to increase accountability among public companies in the wake of massive fraud at Enron and WorldCom.

But increased accountability means higher costs, which are causing nationwide concern and are helping push some companies — especially smaller ones — out of the public arena entirely.

"It's a huge, huge problem for (smaller companies) because of the tremendous cost it is adding," said Larry Ellison, a partner with Springfield accounting firm Kirkpatrick Phillips & Miller, CPA PC. "... I can guarantee you there are a number of companies that are investigating the possibility of delisting and going back to private."

Public firms going to private

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Sarbanes Oxley and the Benefits of Application server Consolidation

So, you are now or will soon be SOX-compliant: what's next? Congratulations, you are on your way to or you just completed your 404!!! Internal auditors, Business, IT, everyone is breathing better and everyone should definitely be proud of it!

So, what's next?

You probably hate this, but it's now time to think about next quarter's 302... Indeed, SOX is here to stay and it is time to include SOX in the 'normal' functioning mode of your company and IT Department. Until now, you have put projects on hold to reallocate resources (Business and IT) to the various domains of SOX testing and remediation. Or you have hired high-dollar contractors to help you get the job done. In any case, this is not a sustainable model. And you are still facing quarterly repeats...

Ongoing, What will be the impact, the cost and how can you make SOX a part of your organization?

Sarbanes Oxley and the Benefits of Application server Consolidation

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Argosy Gaming Company to Implement Stellent Sarbanes-Oxley Solution

Stellent, Inc. (Nasdaq:STEL), a global provider of content management solutions, announced today that Argosy Gaming Company (NYSE:AGY), a leading owner and operator of casinos and related entertainment and hotel facilities in the midwestern and southern United States, has selected the Stellent(R) Sarbanes-Oxley Solution to support and streamline its processes for complying with the Sarbanes-Oxley Act.

More than 50 employees in Argosy's finance and compliance department will use the Stellent solution to easily manage and approve documentation related to financial and non-financial disclosures, as well as Section 404 compliance. The product also will enable Argosy to automate the controls and testing processes it manually implemented to meet compliance deadlines in 2004.

"The Stellent Sarbanes-Oxley Solution will help us achieve 'continuous compliance' by transitioning the manual project work we completed this year into ongoing, automated business processes," said Craig Robinson, vice president of internal audit for Argosy Gaming Co. "In this way, we can provide our chief executive and chief financial officer with easy-to-use, real-time monitoring capabilities that allow them to access up-to-date information at any point in time to determine the financial health of the company. The Stellent solution's robust and scalable nature means we also can roll it out to other areas of the company as needed in the future."

Argosy Gaming Company to Implement Stellent Sarbanes-Oxley Solution

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Saturday, January 08, 2005

High Court Will Hear Andersen Appeal

The U.S. Supreme Court yesterday agreed to consider Arthur Andersen LLP's appeal of the obstruction of justice conviction that pushed the venerable accounting firm into collapse. The 2002 conviction for tampering with documents related to client Enron Corp. injected powerful momentum into the federal government's effort to crack down on fraud at companies engaged in accounting abuses in the late 1990s. It also sent Andersen into a tailspin from which the company never recovered, eliminating the jobs of more than 28,000 U.S. employees, disbanding an 89-year-old business that reviewed the books of 1,300 public companies, and sharply narrowing the options of clients in the market for accounting firms large enough to perform international audits.

Bringing criminal charges against Andersen was controversial for prosecutors, as employees clad in orange T-shirts marched on Capitol Hill in protest and lawmakers such as House Financial Services Committee Chairman Michael G. Oxley (R-Ohio) declared it was a mistake for the government to indict the entire company rather than a few culpable individuals. Later, outside authorities such as the General Accounting Office (now known as the Government Accountability Office) issued reports warning of anti-competitive consequences in the audit industry after one of the nation's five biggest accounting firms got put out of business.

High Court Will Hear Andersen Appeal

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Friday, January 07, 2005

Perspectives on Internal Control Reporting (PDF)

This publication has been developed by Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP, and PricewaterhouseCoopers LLP (collectively, the Firms) to help financial market participants understand issues related to the new internal control reports mandated by Section 404 of the Sarbanes-Oxley Act of 2002, and the implementing regulations of the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB). In particular, Section 404 requires management’s assessment of a company’s internal control over financial reporting, along with an independent auditor’s report on management’s assessment and on the effectiveness of the company’s internal control over financial reporting.

The benefits to investors from the implementation of Section 404 are expected to be significant in terms of improvements in the reliability of periodic financial reports and efforts to deter fraud. Section 404 creates an ongoing requirement for management and, over time, should cause companies to continue to monitor and strengthen their internal control over financial reporting. For the marketplace to fully benefit from these reforms, market participants must be well informed about the challenges and implications of Section 404 implementation and the issues to consider in interpreting the results.

This publication discusses a number of detailed issues related to the Section 404 internal control reporting requirements in a question-and-answer format. This format is designed to allow readers to quickly and easily locate information on topics of individual interest.

Perspectives on Internal Control Reporting (PDF)

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Internal Control over Financial Reporting (PDF)

Under the SARBANES-OXLEY ACT OF 2002, U.S. public companies are now subject to new requirements for management and independent auditors to report on the effectiveness of internal control over financial reporting. Effective internal controls are fundamental to investor confidence in financial reporting because they help to deter fraud and to prevent inaccurate financial statements. With more than half of U.S. households investing in the capital markets, either directly or through retirement funds, these new requirements are expected to have a significant beneficial impact on the capital markets.

One of the most visible changes that investors will notice is the new reports by management and the independent auditor on a company’s internal control over financial reporting. Deloitte, EY, KPMG, and PricewaterhouseCoopers have created this publication is to help investors and other financial market participants better understand and interpret these new reports, which will be provided in addition to the independent auditor’s report on the company’s external financial statements.

Internal Control over Financial Reporting (PDF)

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An opening for application portfolio management

Efforts to comply with Sarbanes-Oxley will drive growth in application portfolio management software, according to Forrester Research, which notes that APM solutions are paying off already for some companies.

Forrester says early practitioners of application portfolio management report reductions of 10-30 percent in maintenance costs and returns on project investments within 12 months. Aside from compliance with government regulations, Forrester cites these major drivers of APM adoption in 2005.

An opening for application portfolio management

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Chief Executive Was Paid Millions and He Never Noticed the Fraud

As chief executive of CUC International, Walter A. Forbes presided over a company whose books told lies for more than a decade. When the fraud was uncovered in 1998, after CUC had merged into the Cendant Corporation, it was the largest accounting fraud in American history.

This week, after a trial that lasted seven months and deliberations that lasted another month, a federal court jury convicted CUC's No. 2 executive, E. Kirk Shelton. But it was unable to reach a verdict on Mr. Forbes.

That there was a fraud is not in question. For many years, CUC inflated its revenues and hid expenses. "The defense of Walter Forbes is that he didn't know about it," said Brendan Sullivan, his lawyer, in closing arguments. He blamed it all on Cosmo Corigliano, the former chief financial officer and the prosecution's chief witness. Mr. Corigliano testified that he briefed Mr. Forbes using "cheat sheets" that showed how the revenues and profits were being inflated, but Mr. Forbes denied that. Mr. Sullivan branded Mr. Corigliano a "serial liar" and a "con man."

Mr. Forbes said he saw no need to pay attention to what was happening inside the company. He worked on "the strategy vision part, talking to key clients, being the outside voice of the company," he testified. "I think I was much more valuable to shareholders doing that than being in day-to-day operations."

Chief Executive Was Paid Millions and He Never Noticed the Fraud

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Sarbanes-Oxley: A sense of siege

As a former business leader, Treasury Secretary John W. Snow is well aware of difficulties that Washington policymakers can cause for Corporate America. So it's not surprising that when company chieftains complain about the costs of complying with the Sarbanes-Oxley corporate-reform laws, he listens.

In an interview with BusinessWeek Senior Writer Rich Miller on Jan. 4, Snow shared his thoughts on what should — and shouldn't — be done in response.

Sarbanes-Oxley: A sense of siege

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Sarbanes-Oxley for feds arrives

Office of Management and Budget officials released late December a document detailing a set of tighter financial controls federal agencies must implement by the start of the next fiscal year.

The new regulations, found in a revised version of OMB Circular A-123, parallel some of the private-sector internal management strictures created by the Sarbanes-Oxley Act of 2002. The changes intend to strengthen the credibility of the annual agency management assessments of financial status the government is required to produce under the Federal Managers' Financial Integrity Act. Those assessments will now be due 45 days after the end of the fiscal year, the revised circular states.

Compliance with the circular's requirements will be mandatory starting October1; the new regulations apply to agencies also subject to the Chief Financial Officers Act of 1990. The new rules govern "everything that generates entries into your financial statement," OMB Controller Linda Springer told Federal Computer Week shortly before the circular was released.

Sarbanes-Oxley for feds arrives

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World Wrestling Chief Financial Officer Resigns

World Wrestling Entertainment said on Thursday that Philip Livingston resigned as chief financial officer and from his membership of the board of directors.
Frank Serpe, senior vice president, finance, will serve as acting CFO while WWE searches for a new CFO, the Stamford, Connecticut-based entertainment company said.

It gave no reason for Livingston's departure, but Chief Executive Officer Linda McMahon praised is role in improving investor relations and accounting and planning systems.

She said his expertise in corporate governance and Sarbanes-Oxley regulations helped prepare the company for its SOX 404 compliance.

World Wrestling Chief Financial Officer Resigns

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Thursday, January 06, 2005

No Escaping Sarbanes-Oxley

True enough, it hasn't been the easiest year for CFOs and their staffs. And there's no denying that the costs of implementing Sarbanes-Oxley are high -- upwards of $35 million on average for large companies this year alone. Complicating matters, the promised benefits of the reform movement are hard to spot and difficult to quantify: frauds that never happened, or the boost to investor confidence that has helped bring life back to U.S. markets.

Fears have thus taken hold that a backlash is under way. Clearly, executive complaints are reaching Washington: The U.S. Chamber of Commerce has targeted Securities & Exchange Commission Chairman William Donaldson and is compiling a dossier of examples of what it calls regulatory or enforcement overreach. And concern that the Administration's appetite for reform -- or support for Donaldson -- could wane in the second term were stoked in mid-December when Treasury Secretary John Snow called for more "balance" in regulation.

Yet despite the grumbling, there is increasing evidence that reform has been well worth the trouble. Already, intense scrutiny of accounting methods and internal controls has unearthed lingering problems in the way companies operate. And fixing weak financial controls has nipped a lot of accounting problems in the bud. "You know the CEOs and CFOs are doing much more due diligence inside their companies," says Neri Bukspan, chief accountant for Standard & Poor's, the credit-rating service.

No Escaping Sarbanes-Oxley

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Profiting from Their Own Mistakes

Such regulatory compliance has also added a healthy glow to CA's bottom line. While many companies gripe that complying with Sarbanes-Oxley has meant nothing but expense, for CA and other tech outfits, the rules have helped create a booming new market. They sell lots of software that helps other organizations comply with Sarbanes-Oxley by tracking assets, storing data, and searching for documents.

It's a growth business in a mature industry: Market researcher Gartner expects spending on corporate-governance software to hit $6.9 billion in '06, more than double last year's tally. Gartner says much of the spending so far on Sarbanes-Oxley compliance has gone to consulting firms doing quick fixes, but it expects companies to eventually use software to manage their oversight processes. Even then, instead of a single software package for handling compliance, there will be a patch-work of individual products.

In an odd twist, several software makers selling compliance-related products ran into accounting problems of their own in the past -- giving them an intimate understanding of how software can help prevent accounting lapses. In addition to CA, these companies include Peregrine Systems (PRGN ), Veritas Software (VRTS ), MicroStrategy (MSTR ), and Legato Software, which is now part of storage giant EMC (EMC ).

Profiting from Their Own Mistakes

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Spitzer in line of fire for taking hard line on business

The largest business group in the US launched a harsh attack on New York attorney-general Eliot Spitzer on Wednesday, the opening salvo in a campaign to curb what many companies say is overly aggressive enforcement of corporate governance and accounting rules.

Thomas Donohue, chief executive of the Chamber of Commerce, said in Washington that Mr Spitzer's tactics in cracking down on the insurance and mutual fund industries were "the most egregious and unacceptable form of intimidation that we have seen in this country in modern times. And it's going on in the application of a well-intended piece of legislation".

In particular, he said, Mr Spitzer's decision last October to force out the chief executive of Marsh & McLennan, the global insurer charged with bid-rigging, "is not the system that has been put in place in this country and that has protected our individual and institutional liberties".

Mr Spitzer has become a prominent target for growing business concerns over the Sarbanes-Oxley legislation, which was passed by Congress following the accounting scandals that engulfed Enron, WorldCom and several other large companies.

Spitzer in line of fire for taking hard line on business

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Wednesday, January 05, 2005

USATODAY.com - Restaurants have accounting trouble with leases

Buried in Krispy Kreme's disclosure that it will have to restate 2004 financial results is the hint of another accounting problem. The doughnut maker said Tuesday that for years it probably miscalculated store lease-related expenses, raising the likelihood that more earnings adjustments are coming.

Already famous for serving investors a big financial hole last year, Krispy Kreme's latest warning highlights broad concerns with how the restaurant industry accounts for lease-related expenses. The effect has been to puff up near-term earnings results without any change in company cash flows.

USATODAY.com - Restaurants have accounting trouble with leases

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Corporate governance - The process of procedure

When it comes to arguments over the value or iniquity of Sarbanes-Oxley, there is only one point to bear in mind above all. It's the culture, stupid.

It is no wonder that people in the UK are frustrated with the implementation of Sarbanes-Oxley legislation. Audience members at a conference held in London recently - featuring a panoply of US lawyers, regulators and chief accounting officers - could only listen in amazement. If anyone ever wanted a stark example of how very different, both culturally and operationally, UK and US business is, this conference was it.

The biggest difference was starkly laid out; in essence, the idea that US business adores process. And when things go wrong, the only solution is more process.

Process is, you see, demonstrable, but it doesn't stop failures such as Enron. It may make it harder, simply because there is more process, which is supposedly there to protect things from escaping scrutiny. But ego-driven fraudsters know ways around it.

Corporate governance - The process of procedure

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Tuesday, January 04, 2005

Scrushy fraud trial starts

Jury selection in Scrushy's federal trial is set to begin Wednesday. Attorneys will pick a jury of 12 members and six alternates Jan. 13. U.S. District Judge Karon Bowdre set opening statements for Jan. 18.

Because HealthSouth has more than 3,000 employees in the Birmingham area, potential jurors are not likely to be excluded for being familiar with the case or knowing someone who works for the company, said an attorney for one of 15 former HealthSouth executives who already have pleaded guilty in the fraud.

Prosecutors most likely will favor people who are familiar with business practices or own stock, said Henry Frohsin, a former federal prosecutor who represented former HealthSouth Vice President Angela Ayers.

The clerk's office said about half of the 600 people summoned are expected to qualify to serve and will be asked to fill out lengthy questionnaires about themselves and their knowledge of the case, the first tried under the Sarbanes-Oxley Act of 2002, passed by Congress amid a wave of corporate fraud allegations.

Court officials said Scrushy's trial is expected to last 10 to 12 weeks. The courtroom seats about 120 people, and another 180 people will be able to watch via closed-circuit TV in another room in the courthouse.

Scrushy fraud trial starts

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The Fire Ant Gazette - USA Economy: Less Free than Before

The United States has dropped out of the top 10 in the new list of the "freest economies" in the world. The rankings, published annually for the last 11 years by the Wall Street Journal and the Heritage Foundation, show that countries such as Ireland, Denmark and Hong Kong (coming in at #1) all rank ahead of the US. But the biggest surprise on the list is that former Soviet satellite Estonia now ranks at #4 in terms of economic freedom.

According to today's edition of the Wall Street Journal:

The Index scores economic freedom in 10 categories, ranging from fiscal burdens and government regulation to monetary and trade policy. The U.S., with its strong property rights, low inflation and competitive banking and finance laws, scores well in most. But worrying developments like Sarbanes-Oxley in the category of regulation and aggressive use of antidumping law in trade policy have kept it from keeping pace with the best performers in economic freedom.

"Sarbanes-Oxley"? Hmmm...where have I heard that before. Oh, I know: it was here; I was ranting about it just last week, as a matter of fact.

The Fire Ant Gazette - USA Economy: Less Free than Before

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The CIO and Decision-Making

The Sarbanes-Oxley Act (SARBOX) is basically a federally mandated audit of the accounting and financial records of a company. It was instituted as national defense against corporate-fraud in 2001. During the late nineteen nineties there was a surge of federal investigations into the spending and reporting practices of publicly traded companies. It was found that accounting firm's, top-level executives and major shareholders were knowingly falsifying records; profiting from these reports.

The impact that SARBOX has on IT is a serious concern for most CIO’s; firstly the audit creates a clearly defined relationship between accounting fraud and the Information Systems Department; more specifically the Database Administration and Development teams. Secondly, it gives the Information Systems Department direct responsibility of the control and accuracy of financial information. Previously, contracted accounting firms were responsible for accurate financial reporting, which allowed for the responsible persons to avoid blame of fraudulent activity.

SARBOX has established clear rules, duties and protocols for quality accounting and reporting of financial records for publicly traded companies. As a result of Congress’s implementation of SARBOX certain Board Members and Executives are held accountable, resulting in punitive action for fraudulent and unethical accounting practices; the CIO now more than ever has direct responsibility to the company to ensure that financial records are updated and financial reporting is accurate.

The CIO and Decision-Making

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The Sarbanes-Oxley Hysteria

If you can believe the recent business news coverage, the pending implementation of the Sarbanes-Oxley Act of 2002 seems to have sparked a crisis of unprecedented proportion in boardrooms around the globe. Sarbanes-Oxley was intended to restore investor confidence in the wake of Enron, WorldCom, Tyco and other corporate scandals. However, according to respected business journals, academic studies, and scores of CEO surveys by well-known organizations, the Sarbanes-Oxley compliance-related costs for legal, accounting and systems -- combined with the internal burdens placed on corporate staffs -- will create a tidal wave of company de-listings and privatizations. Many emerging companies will be discouraged and prevented from going public, according to the analysis. We are now beginning to see clear indications of these developments.

In short, the clear unmistakable signs suggest that the government has overreached its mandate with Sarbanes-Oxley. The new legislation is causing serious harm to capitalism as well as the U.S. capital market system. Newly re-appointed Treasury Secretary John Snow considers the law "absolutely essential" with no need for major modification. To paraphrase another cabinet member: "You are a public company with the laws we have." End of discussion.

The Sarbanes-Oxley Hysteria

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Sarbanes-Oxley corporate reform measure under attack

Two-and-a-half years after Congress passed the most sweeping corporate reforms since the Great Depression, trade groups are maneuvering to revise them, arguing that they are too expensive, too time-consuming and too much trouble for small businesses.

In recent weeks, industry coalitions including the American Bankers Association and the trade group AeA, formerly the American Electronics Association, have asked their members to gather complaints about costly requirements for tuning up their financial systems to help uncover fraud and mistakes.

The effort is part of a broader campaign to modify the Sarbanes-Oxley Act, passed in 2002 after financial blowups at Enron and WorldCom cost investors billions of dollars and exposed serious lapses in the way companies are governed.

Mutual-fund giant Fidelity Investments persuaded Sen. Judd Gregg, R-N.H., to insert language into a conference report in November on a fast-moving spending bill, directing the Securities and Exchange Commission (SEC) to justify a new rule that forces fund companies to appoint directors without ties to management.

The U.S. Chamber of Commerce has hauled the SEC into court over the rule.

Sarbanes-Oxley corporate reform measure under attack

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Paul Mueller Cites Sarbanes-Oxley, Scarcity of Analyst Coverage For Delisting Decision

Paul Mueller Co. (MUEL) is the latest in a list of companies that has decided it would rather be non-public than have to continue to pay the high cost of remaining public. It has filed to deregister its stock from trading on the NASDAQ (NDAQ).

U.S. Securities and Exchange Commission Chair William Donaldson recently announced the formation of an advisory committee to study the extraordinary financial toll that Sarbanes-Oxley is taking on small public companies and their shareholders.

The issue has become a major one among members of the CEO Council (http://www.ceocouncil.net), and is a key topic on this week's StreetSignals (http://www.streetsignals.com) radio program, hosted by Investrend Broadcast's Drew Connolly.

Paul Mueller said in a filing with the SEC that costs associated with being a public company "far outweigh" any benefits. NASDAQ has halted trading in the company until it has supplied the exchange with more information.

Paul Mueller also cited the absence of analyst coverage for companies of its size and business following the recent analyst shrinkage after the investment banking scandals. Most public companies are no longer covered by analysts, giving rise to standards-based independent research providers such as those who belong to the FIRST Research Consortium (http://www.firstresearchconsortium.com), and various non-standards providers.

Paul Mueller Cites Sarbanes-Oxley, Scarcity of Analyst Coverage For Delisting Decision

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Monday, January 03, 2005

PCAOB Slashes 2005 Budget

The Public Company Accounting Oversight Board last week approved a revised budget for calendar year 2005 reducing the Board’s 2005 accounting support fee from $152.5 million to $136.1 million.

The Board approved a revised budget of approximately $137.1 million in total anticipated outlays for calendar year 2005. While approximately $15.6 million less than the 2005 budget approved on October 26, 2004, the revised budget will continue to allow the Board to fulfill its statutory mandate under the Sarbanes-Oxley Act of 2002 to oversee the auditors of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports.

On October 26, 2004, the Board approved a 2005 budget of approximately $152.75 million. That budget was premised on the Board’s then-anticipated headcount of 300 by the end of 2004. From this baseline, the budget provided for a 50-percent increase in staffing during 2005, leading to an anticipated headcount of approximately 450 by the end of 2005. In the nine weeks since the Board adopted this budget, hiring has occurred at a slower-than-forecasted rate, such that the Board now expects to begin 2005 with 262 employees. In light of this development, the Board believed it appropriate to recalculate the 2005 budget from this lower baseline headcount. The result is a reduction in anticipated salary expense, and corresponding reductions in related benefits and payroll tax expenses.

PCAOB Slashes 2005 Budget

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Cottage industry of contractors grows to help firms comply with Sarbanes-Oxley

The Sarbanes-Oxley corporate reform act may be an expensive headache for public companies, but it is a treasure chest for accounting and consulting firms, lawyers, software vendors and staffing companies.

To comply with the 2002 federal law that was passed in the wake of corporate accounting scandals, companies must implement strict financial controls. That requires legal advice, tech consulting and complex new audits.

Estimates of what it costs to become Sarbanes-compliant range from $250,000 for a small company to several million dollars for large multinationals. Golden-based brewer Adolph Coors Co. spent $1.6 million in the first nine months of 2004 due to Sarbanes-Oxley.

Much of this money ends up in the pockets of a growing cottage industry of Sarbanes-Oxley contractors, which say there is no end in sight to Sarbanes-related revenue.

Cottage industry of contractors grows to help firms comply with Sarbanes-Oxley

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Sunday, January 02, 2005

Sarbanes-Oxley Work Slowed IT Spending For Some

The push to achieve compliance with the Sarbanes-Oxley Act was a prominent, and recurring, theme throughout the IT world in 2004. While the ripple effect of Sarbanes-Oxley compliance efforts will be felt for some time, a report being issued Jan. 1 indicates that one of the more immediate results for some companies was a slowdown in IT spending as executives rethought IT project priorities.

Deadline for compliance with certain sections of the Sarbanes-Oxley Act of 2002 delayed technology projects and shifted technology priorities in the last half of 2004, according to a new report from research firm B2B Analysts Inc. The report is the result of a primarily anecdotal study of 66 public companies conducted in October and November.

Although generalizations were hard to come by, B2B president David Dobrin admits, the result of Sarbanes-Oxley compliance efforts for 40% of the companies studied has been a "braking effect" on technology spending, particularly within small businesses and companies in the financial-services industry.

One of B2B's more interesting findings is that companies believe standardizing on a particular back-office software package, rather than integrating different applications from different vendors, will help with compliance in the long term.

Sarbanes-Oxley Work Slowed IT Spending For Some

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