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 f