Thursday, March 31, 2005

An FBI Perspective on Compliance

With Ronald L. Dick, director of national security and foreign affairs at Computer Sciences Corp.'s homeland security group. Prior to joining CSC three years ago, Dick was an FBI agent for 25 years. His last assignment at the bureau was as director of the National Infrastructure Protection Center and deputy assistant director of the FBI. As NIPC director, Dick was responsible for detecting and reporting on cyber and physical threats to U.S. critical infrastructures.

An FBI Perspective on Compliance

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VenChar: History is written by the winners

From Venky Ganesan : "This is a bit outdated but still worth noting. On March 11th, Marketwatch had an article on Vani Kola and Certus. Now Vani is a terrific entreprenuer and I respect her immensely. She has done a great job in running both Rightworks and Certus and is a strong positive role model for women entreprenuers. However this article gets the facts wrong and I am sure its partially the reporter's fault. Full disclosure: my firm is an investor in OpenPages which is a competitor to Certus."

VenChar: History is written by the winners

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Making Sense of Sarbanes-Oxley Compliance Requirements

The message was clear during Ziff Davis Media's Sarbanes-Oxley compliance eSeminar held Wednesday: Don't wait to get your (IT) house in order for compliance, lest your company executives wind up in jail.

"If you're in IT management, you really need to look at the ramifications because failure to comply with some mandates under the Sarbanes-Oxley Act could land your executives in trouble," said Oli Thordarson, president of Alvaka Networks and a panel member. "You need to make sure you have compliance in place to deliver the goods."

The eSeminar, part of Ziff Davis Media's Virtual Tradeshow series, homed in on technology strategies to help IT professionals make sense of compliance requirements. The panel also focused on strategies companies can use to move from pilot to program status, particularly as they move past the April 15 deadline—public companies with a market capitalization of $75 million or more are mandated to comply with Section 404 of the Sarbanes-Oxley Act by next month.

Making Sense of Sarbanes-Oxley Compliance Requirements

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SOX: Get the Right People

Everyone agrees that Sarbanes-Oxley (SOX) compliance comes at a price, although evaluating that price as excessive or necessary is all a matter of perspective. One component of SOX that isn't controversial, though, is that it requires dedicated human resource commitment across both its technology and process components.

The quality of the human capital resources in that equation, says Sarbanes-Oxley Group CEO Sanjay Anand, is a make-or-break factor in your drive towards achieving and maintaining compliance. Unfortunately, he says, there's no way of easily vetting that quality. "There are professionals out there who claim to have SOX-related knowledge, but there are no standards."

SOX: Get the Right People

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UK company law reform follows in Sarbanes-Oxley footsteps

‘Not as tough as Sarbanes-Oxley but a step in that direction’ is the overriding message on UK company law in Deloitte’s latest Corporate Governance Update. Reacting to the recent publication of the Company Law Reform White Paper, the Update warns of tougher penalties for accounting offences and liability for legislation breaches extending beyond directors and company secretaries.

Deloitte Audit Partner Martyn Jones said: “The Government has taken a lead from the US in deterring corporate misconduct although the measures outlined in the White Paper are not as severe as Sarbanes-Oxley legislation.

“The consultation period is an opportunity for directors to shape a new framework of company law which is relevant to business needs. Giving input to the regulatory impact assessment on the costs and benefits of implementing the Government’s proposals will help ensure the new law supports the UK’s competitive position internationally.”

UK company law reform follows in Sarbanes-Oxley footsteps

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Wednesday, March 30, 2005

Accounting board to meet on internal controls

The board that oversees public accounting companies will meet Thursday morning to consider proposing a new rule that would allow auditors to report corrections to corporate accounting problems earlier. Under Section 404 of 2002's Sarbanes-Oxley Act, companies must report "material weaknesses" in their financial statements and have outside auditors double-check them. The law was passed in the wake of corporate scandals at Enron and WorldCom, among others.

Thursday, the Public Company Accounting Oversight Board will vote on whether to propose for comment a standard that would allow auditors to report on corrections to those weaknesses as much as a year earlier than they can now.

Accounting board to meet on internal controls

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Ten questions about Sarbanes-Oxley compliance

Imagine this scenario: You are a CIO at a publicly traded company in turmoil, and your chief financial officer was forced to resign at the end of last quarter after material weakness concerns were raised by your external auditors. Three months ago, the Securities and Exchange Commission got involved and launched a formal investigation, and your company is now constantly scrutinized. It's time for your CEO to report earnings, and it's not good news.

Now your general counsel adds more bad news. Under the Sarbanes-Oxley Act, your management must demonstrate that adequate internal controls have been established to safeguard confidential information from being compromised during the "blackout." With the rumor mill running rampant, you know the likelihood of an internal disclosure concerning earnings information is high.

However, you have no means to detect these communications if they are leaked in a Web mail or a post to an Internet bulletin board. Even if you could detect this, what information should you protect? Is there a blueprint compliance strategy that could be deployed in a way that could detect all electronic disclosures?

Ten questions about Sarbanes-Oxley compliance

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IT Compliance Institute

The IT Compliance Institute (ITCi) strives to be a global authority on the role of technology in business governance and regulatory compliance. Through comprehensive education, research, and analysis related to emerging government statutes and affected business and technology practices, we help organizations overcome the challenges posed by today's regulatory environment and find new ways to turn compliance efforts into capital opportunities.

ITCi's primary goal is to be a useful and trusted resource for IT professionals seeking to help businesses meet privacy, security, financial accountability, and other regulatory requirements. Targeted at CIOs, CTOs, compliance managers, and information technology professionals, ITCi focuses on regional- and vertical-specific information that promotes awareness and propagates best practices within the IT community.

ITCi sponsors a worldwide membership program, topical bi-weekly newsletters, educational online seminars, an in-depth research program, and an informative profile-based alert system. The ITCi Regulations Database is a unique resource, available only to ITCi members, that holds the most comprehensive online repository of regulation descriptions, IT-centric analysis of statutory impact, and key compliance dates. Together with timely articles, vendor resources, and topical alerts, the Regulations Database rounds off one of the most useful and informative sites addressing compliance-related technology issues.

IT Compliance Institute

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Mutual Insurers Resist Sarbanes-Oxley-Like Mandate

For more than a year, the National Association of Mutual Insurance Companies has contended that efforts by insurance regulators to transfer elements of the federal Sarbanes-Oxley law to insurance solvency regulation are misguided. Working doggedly to fit a square peg into a round hole, solvency regulators have greeted our pleas with a collective shrug of indifference.

But the dynamic changed in early March. That’s when the executive committee of the National Conference of Insurance Legislators unanimously directed its president, Texas Representative Craig Eiland, D-Galveston, to write a letter to the National Association of Insurance Commissioners opposing the initiative on both substantive and procedural grounds.

Applying rules to non-public insurance companies that were designed by Congress to protect public company shareholders will benefit no one, the letter declares.

Mutual Insurers Resist Sarbanes-Oxley-Like Mandate

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Scrushy defense: others out to save selves

A defense attorney for fired HealthSouth CEO Richard Scrushy sought to portray two former executives Wednesday as out to save themselves in the days before an FBI raid exposed a huge accounting fraud at the medical services chain.

Under cross-examination, former HealthSouth financial chief Weston Smith said that in March 2003 he was tipped off by another top executive, Bill Owens, that Owens was recording conversations at HealthSouth's headquarters in Birmingham for the FBI.

"He pointed to himself and mouthed, 'I'm wired,'" Smith said.
href="http://www.businessweek.com/ap/financialnews/D895EJO82.htm?campaign_id=apn_home_down">Scrushy defense: others out to save selves

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Hundreds of late annual reports blamed on Sarbanes-Oxley law

Hundreds of companies have delayed filing annual reports in recent weeks, citing stringent new rules imposed under a 2002 corporate-responsibility law. Nearly 300 publicly traded firms have said they will miss deadlines for filing their annual reports, up from 70 during January to mid-March last year, according to Securities and Exchange Commission filings. Many of the companies said they are having trouble reviewing and vouching for the strength of their financial controls, a new step required under the Sarbanes-Oxley Act to help prevent fraud and mistakes.

Announcements of delayed filings are breathing new life into complaints by companies that the law is too cumbersome and expensive. Financial Executives International, a trade group for corporate-finance executives, released a study earlier this month suggesting that the average cost of complying with the law rose to $4.3 million per company, a 39 percent increase from when it surveyed members last year.

Hundreds of late annual reports blamed on Sarbanes-Oxley law

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Tuesday, March 29, 2005

Sarbanes-Oxley could have unwelcome outcome

US-listed companies are likely to see their share prices tumble if they are forced to admit having inadequate internal controls by the Sarbanes-Oxley Act, research has found. Three-quarters of investors and analysts said they were likely to sell or mark down the shares of companies that reported ineffective internal controls against fraud, research by Mori and PwC revealed.

Sarbanes-Oxley could have unwelcome outcome

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Scrushy's defense targets ex-CFO

A defense attorney for fired HealthSouth CEO Richard Scrushy attempted to show Tuesday that a former finance chief at the medical services chain profited financially while scheming with other executives to inflate earnings.

But Weston Smith, the fifth former CFO to testify for the government at Scrushy's corporate fraud trial, testified there was no pleasure when the executives met to devise bogus financial figures for quarterly reports.

"There was no laughing," he said. "If anything, it was a disgusting feeling sitting in those meetings."

Scrushy's defense targets ex-CFO

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Checking the books is worth the hassle

Corporate America keeps complaining that new regulations forcing companies to assess their accounting procedures are a big waste of time and money that could be better spent elsewhere. Shareholders at Eastman Kodak Co., MCI Inc. and Chiron Corp. might beg to differ, though. They are seeing firsthand how those federal compliance rules can push companies to reveal poor financial reporting practices that should be stopped.

And for investors all around, the exercise of having corporate controls fully analyzed may give them more trust in the numbers that appear on financial statements.

Given all that, this surely sounds like time and money well spent.

Checking the books is worth the hassle

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Brown: Tougher oversight needed in business

The editorial criticized as excessive the 2002 Sarbanes-Oxley law, Congress' response to the scandals at WorldCom, Enron and other companies. Many corporate executives and business organizations have taken pot-shots at this and other reform efforts.

They have it backwards: The battle against corporate wrongdoing hasn't gone too far; it's not yet gone far enough.

You may recall a Securities and Exchange Commission proposal to give shareholders limited rights to nominate their own candidates to corporate boards. Facing enormous pressure from groups like the Business Roundtable, the SEC has backed off and the idea is all but dead.

Similarly, there is an intense lobbying effort from business to block sensible new rules requiring companies to count executive and employee stock options as expenses.

Brown: Tougher oversight needed in business

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Monday, March 28, 2005

Red flags: At least 9 companies snagged by Sarbanes

After spending millions of dollars and putting in months of effort to comply with the law's Section 404, which kicks in this year, many companies are reporting serious problems with their internal controls. At least nine public companies in Washington, ranging in size from smaller concerns like Internet security provider Watchguard Technologies Inc. to giants like Shurgard Storage Centers Inc., have reported deficiencies or "material weaknesses" in their internal controls. Even Starbucks Corp. was swept up in the fray.

Eleven percent of public companies nationwide have reported such deficiencies or weaknesses, according to the Washington, D.C.-based CFO Executive Board, a division of business research company Corporate Executive Board.

Many of the problems relate to calculating, reviewing and accounting for taxes, particularly income taxes and international tax issues. Other companies are saying they lacked the necessary personnel and expertise to review internal controls, perhaps due to a decade of corporate downsizing of finance and accounting departments, according to the CFO Executive Board as well as a Business Journal review of the Securities and Exchange Commission filings of local companies.

Red flags: At least 9 companies snagged by Sarbanes

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Stricter rules just a step toward fair accounting

When former WorldCom chief executive Bernard Ebbers was convicted recently of the $11 billion in accounting frauds that destroyed his company, the reaction from some quarters of the business establishment was predictable. An editorial in the Wall Street Journal put it this way: "Now that the man at the center of the biggest accounting fraud in U.S. history will pay for his own crimes, it is only fair that the rest of American business shouldn't have to."

The editorial criticized as excessive the 2002 Sarbanes-Oxley law, Congress' response to the scandals at WorldCom, Enron and other companies. Many corporate executives and business organizations have taken pot-shots at this and other reform efforts.

They have it backwards: The battle against corporate wrongdoing hasn't gone too far; it's not yet gone far enough.

Stricter rules just a step toward fair accounting

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Sarbanes-Oxley Costs Soar, Says Roundtable Group

According to the group's third annual survey of CEOs from 160 companies, the number of firms reporting that their estimated compliance costs were more than $10 million nearly doubled, jumping to 47 percent from 22 percent that was reported in 2004. Close to one-third of respondents reported costs in the range of $6-to-10 million.

Sarbanes-Oxley Costs Soar, Says Roundtable Group

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Sarbanes-Oxley rules causing delays in annual reports; Nearly 300 firms say they will miss this year's deadline

Nearly 300 publicly traded firms have said they will miss deadlines for filing their annual reports, up from 70 during January to mid-March last year, according to Securities and Exchange Commission filings. Many of the companies said they are having trouble reviewing and vouching for the strength of their financial controls, a new step required under the Sarbanes-Oxley Act to help prevent fraud and mistakes.

Announcements of delayed filings are breathing new life into complaints by companies that the law is too cumbersome and expensive. Financial Executives International, a trade group for corporate-finance executives, released a study earlier this month suggesting that the average cost of complying with the law rose to $4.3 million per company, a 39 percent increase from when it surveyed members last year.

Sarbanes-Oxley rules causing delays in annual reports; Nearly 300 firms say they will miss this year's deadline

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Sarbanes-Oxley sets standards, seeks to restore public's confidence

A string of corporate fraud cases and accounting scandals -- WorldCom, Enron, Adelphia, HealthSouth and Xerox -- from 2000 to 2002 prompted federal lawmakers to enact the Sarbanes-Oxley Act, which was signed into law in July 2002. Under Sarbanes-Oxley, the Public Company Accounting Oversight Board was authorized to create new standards of professional conduct and ethics for auditors and corporations.

Sarbanes-Oxley sets standards, seeks to restore public's confidence

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Sunday, March 27, 2005

Effect of Sarbanes–Oxley Act doesn’t trickle down

Sarbanes-Oxley (SOX) legislation passed by Congress in 2002, requiring tough new auditing standards to combat a flood of corporate scandals, has boosted the bottom lines at the big-four accounting firms; however, Central New York audit firms have seen little impact.

According to a recently released survey of Fortune 500 companies conducted by the Association of Audit Committee Members (AACM), auditing fees at the big four firms increased 100 percent in 2004. The top two gainers, PriceWaterhouse-Coopers (134 percent) and KPMG (109 percent), both have offices in Central New York.

Smaller, local accounting firms, however, have not experienced a trickle-down effect. For starters, Sarbanes-Oxley (SOX) only applies to publicly held companies, says Dermody, Burke & Brown, LLC partner Brian DuMond. He claims the lack of growth stems from the fact that most local accounting firms deal primarily with private companies, individuals, and non-profits unaffected by the new SOX rule changes.

“There is not a tremendous amount of publicly held companies located here,” says DuMond, “so we have not seen a big increase in demand for our services.”

Effect of Sarbanes–Oxley Act doesn’t trickle down

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Saturday, March 26, 2005

Case against former CEO not healthy for HealthSouth

Evidence in Richard Scrushy's fraud trial has made the goings-on at HealthSouth Corp. sound more like an episode of "The Dukes of Hazzard" than the operations of a Fortune 500 company.
After eight weeks of testimony, a picture has emerged of a Southern-fried culture at the rehabilitation and medical services chain. According to testimony, Scrushy and another executive met in the middle of a sprawling Alabama lake known for floating beer bashes and bass fishing, and Scrushy once told a chief financial officer that they all needed to stay aboard "this pickup truck" HealthSouth despite its financial problems.

Scrushy is the first chief executive tried under the Sarbanes-Oxley law, passed in 2002 to clamp down on fraud in response to increasing corporate scandals. He also is charged with conspiracy, fraud, obstruction of justice, perjury and money laundering.

Case against former CEO not healthy for HealthSouth

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Friday, March 25, 2005

Balance Sheet: All is finally right post-Enron. April Fool!

As Leonardo da Vinci said about looking at his paintings, it's all a matter of perspective. April 1, known in some countries as April Fools' Day, is extra special this year because it will bring the first large wave of reports by U.S. public companies and their auditors under the internal control requirements of Section 404 of the Sarbanes-Oxley Act.

To the Securities and Exchange Commission and the Public Companies Accounting Oversight Board, all is finally getting right with the post-Enron world, as recreant managements finally shape up under threat of the new legislative sanctions.

But not all will agree. There are at least three reasons for doubt.

Balance Sheet: All is finally right post-Enron. April Fool!

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Sen. Sarbanes to critics: New law is working

Since November, federal law has required public companies to have internal accounting controls to ensure that their financial reporting is accurate. That's just one of the provisions of the 2002 Sarbanes-Oxley Act that riles businesses. We asked the co-author of the law, U.S. Sen. Paul S. Sarbanes, D-Md., to respond to critics.

Sen. Sarbanes to critics: New law is working

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Debate Rages Over New Accounting Rules

Corporate America keeps complaining that new regulations forcing companies to assess their accounting procedures are a big waste of time and money that could be better spent elsewhere. Shareholders at Eastman Kodak Co., MCI Inc. and Chiron Corp. might beg to differ, though. They are seeing firsthand how those federal compliance rules can push companies to reveal poor financial reporting practices that should be stopped.

And for investors all around, the exercise of having corporate controls fully analyzed may give them more trust in the numbers that appear on financial statements.

Given all that, this surely sounds like time and money well spent.

Debate Rages Over New Accounting Rules

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Ecora Enterprise Auditor Simplifies Sarbanes-Oxley Compliance

Ecora Software, the leader in total configuration management software, has released the latest version of its Enterprise Auditor software suite, which includes a new Sarbanes-Oxley (SOX) Report Pack that helps IT staffs to simplify the preparation of documents to prove compliance with SOX mandates in an ongoing and timely manner.

“Companies are just now learning of the time and costs associated with the internal controls provisions stated under Section 404 of the Sarbanes-Oxley Act,” said Alex Bakman, founder and CEO of Ecora. “With Enterprise Auditor, we’ve made multi-platform configuration reporting such a simplistic task that our customers are moving from a reactive to a proactive mode in how they approach SOX compliance.”

Ecora Enterprise Auditor Simplifies Sarbanes-Oxley Compliance

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Foolproof Compliance For Your IT Systems

In the context of Sarbanes-Oxley compliance, IT really does matter. Systems access, security and change management controls within IT's domain can make or break compliance efforts. Yet many CIOs and CFOs remain confused about how Section 404 applies to their company's information technology infrastructure.

In Auditing Standard No. 2, its lengthy interpretation of the Sarbanes-Oxley Act, the Public Company Accounting Oversight Board (PCAOB) indicated that it will be strict in monitoring external auditing firms' approach to examining and reporting on the technological aspects of their corporate clients' financial reporting processes. That decision, audit experts say, pushes external auditors, IT managers and finance executives to cultivate a deeper understanding of the data that courses through financial systems.

CFOs now confront much larger IT challenges than figuring out whether the CIO is overspending on technological bells and whistles. They need to know that the data which flows into IT's labyrinth of systems and applications emerges securely and accurately. Sound corporate governance increasingly depends on policies and procedures that demonstrate, document and communicate that knowledge.

Foolproof Compliance For Your IT Systems

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Thursday, March 24, 2005

Regulation Has Curbed Abuses, But Experts Say Diligence Is Needed

But Sarbanes-Oxley had another, perhaps more important impact, Shackelford said. By the 1990s, corporate auditing had become so pro forma that it lost virtually all its profitability for the major accounting firms. They turned to higher "valued-added" efforts, such as consulting and tax shelters, to boost their bottom lines.

The plethora of new accounting regulations and penalties codified in Sarbanes-Oxley have once again made auditing a highly profitable business, Shackelford said. Not only do the big firms not need the money from their shelter business, they do not want to "slay the goose laying the golden egg" by jeopardizing their audit business with negative attention from the IRS, Shackelford said.

"They're walking the straight and narrow right now," he said.

Regulation Has Curbed Abuses, But Experts Say Diligence Is Needed

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Sarbanes-Oxley Compliance in the Brave New World

After the passage of Sarbanes-Oxley there are now real teeth in the laws governing corporations. It was always a criminal offense for a corporate executive to use his or her position for personal gain at the expense of the investor under common law fiduciary principles. The passage of Sarbanes Oxley codified these principles into a very actionable tool for prosecutors.

The primary way of enforcing the reporting requirements of Sarbanes-Oxley is through audits. There is a certain irony here. It was the breakdown of the audit function overseeing fiduciary obligations of corporate officers and providing opinions regarding conflicts of interest situations that prompted Sarbanes-Oxley to be enacted in the first place. The improper auditing and misconduct of now defunct accounting firms has brought a bonanza of work to the remaining firms.

When one examines the provisions of Sarbanes-Oxley, it becomes apparent that there are two distinct reporting requirements of the Act—setting up the initial audit and performing an on-going audit on a quarterly basis. Most public companies are just now completing their first post Sarbanes-Oxley audit and perhaps feeling relief from getting through it. What awaits them is the next quarter’s on-going audit. What also awaits them is a surprise when they realize the scope of what is included in the audit.

Sarbanes-Oxley Compliance in the Brave New World

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Ninth Circuit upholds key Sarbanes-Oxley provision

Leading Wednesday's corporations and securities law news, a US Court of Appeals for the Ninth Circuit [official website] upheld a district court's ruling which froze $37.6 million in termination pay and bonuses to two Gemstar TV Guide International [corporate website] officials. The SEC had settled with the two executives, former CEO Henry Yuen and former CFO Elsie Leung over their roles in the company overstating revenue by $223 million in January. The ruling is important in that strengthened the SEC's power in curbing payments to executives who are being investigated for fraud. This is a major provision of Sarbanes-Oxley Act which is meant to keep the money in escrow to keep the money available for fines or repayment if the fraud is proved.

JURIST Ninth Circuit upholds key Sarbanes-Oxley provision

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Hundreds of companies miss U.S. compliance deadline

Hundreds of publicly traded U.S. companies have missed the deadline to file expanded versions of their annual reports, citing the cumbersome requirements of legislation intended to crack down on corporate fraud. Companies are largely blaming it on the Sarbanes-Oxley Act of 2002. The landmark corporate-reform legislation mandates audited statements attesting to the status of internal procedures for ensuring clean accounting.

In the debate leading up to the law's passage, many companies had said that the extra work would suck up resources, and cost money. It also appears to be taking companies' and auditors' time.

"This is the first time they're actually having to report on the status of their control structures," said Eisha Tierney Armstrong, managing director of the CFO Executive Board, a research firm based in Washington.

Between Jan. 1 and March 15, 2004, a total of 70 companies told the Securities and Exchange Commission they needed more time to file their Form 10-K, or annual reports, with the agency.

Hundreds of companies miss U.S. compliance deadline

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Wednesday, March 23, 2005

Analysis: Ticking off the list

The Sarbanes-Oxley Act continues to make the headlines as the telecoms giant O2 joins the ranks of dual-listed European companies de-listing in the US. Sophie Evans looks at the real cost of the controversial US legislation and how some companies are dramatically responding to their mounting compliance bills.

European companies are causing a bit of a stir in the US, with a flurry of well-known names making good on their threats to de-list from the New York Stock Exchange. Having totted up the multi-million pound costs of complying with Sarbanes-Oxley, they have also terminated their US reporting regulations by de-registering with the Securities and Exchange Commission (SEC).

What started out as a trickle of companies a couple of years ago, has now grown to a steady stream, large enough to be making the SEC contemplate further rule changes. There has been a lot of talk of sledgehammers, and nuts on the part of Europe’s disgruntled US-listed companies.

Analysis: Ticking off the list

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Public Companies Find SarbOx Compliance Expensive

Companies are spending much more than originally anticipated to comply with Section 404 of the Sarbanes-Oxley Act, according to a recent survey. Section 404 of the Sarbanes-Oxley Act of 2002 requires all public companies to establish an ironclad method of developing and maintaining an internal control structure and procedures for financial reporting, as well as a way to assess the effectiveness of the structures and procedures.

Expected benefits from Section 404 compliance include more reliable and accurate financial reports, leading to greater investor confidence.

Public Companies Find SarbOx Compliance Expensive

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Average large-cap company spent $4.4 mln on Sarbanes-Oxley in 2004

The survey of companies with average revenues of $5 bln, showed that spending for SarBox compliance averaged $4.4 mln in 2004. That's higher than the average $3.1 mln companies estimated that they would spend in 2004 in a similar survey conducted in July 2004. Expenditures for external services such as consulting averaged $1.7 mln in 2004, up from an expected $1 mln in the July survey, while auditing costs averaged $1.3 mln, compared with the $820,000 expected in July.

Average large-cap company spent $4.4 mln on Sarbanes-Oxley in 2004

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Corporate backlash over Sarbanes-Oxley: Disclosure law called overly onerous; firms cite compliance costs

In mid-2002, amid a national wave of revulsion over scandals at corporations such as Enron and WorldCom, Congress overwhelmingly passed tough new accounting and public-disclosure rules intended to curb abuses that cost shareholders billions of dollars.

The Sarbanes-Oxley Act is a sweeping piece of legislation that regulates, among other things, how companies report financial results and disclose executive compensation. What's more, the law holds both company executives and external auditors directly accountable for the accuracy of financial reports and seeks to protect employees who blow the whistle on suspected fraud.

Now there's a welling backlash against Sarbanes-Oxley. And the fiercest ire of business is focused on four paragraphs, about 170 words, buried in the center of the voluminous text.

Corporate backlash over Sarbanes-Oxley: Disclosure law called overly onerous; firms cite compliance costs

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Finance -- On Balance

Not surprisingly, given the personal attention they must pay to corporate governance and financial compliance issues as a result of the 2002 Sarbanes-Oxley Act in the U.S. and similar regulations elsewhere in the world, senior executives remain hesitant to outsource finance functions. They fear a loss of control that could result in extremely serious consequences. Indeed, 51% of the 203 senior executives responding to a recent online Accenture survey said concerns over their ability to maintain governance and compliance best practices were standing in the way of their companies deciding to outsource finance functions.

However, an impressive 43% of executives in companies that had already outsourced some finance function reported that the change had actually improved the quality of governance and compliance. And 44% said that outsourcing had made no adverse impact on, and did not diminish the quality of, governance and compliance at their companies.

Finance -- On Balance

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Tuesday, March 22, 2005

Sarbanes-Oxley Spending In 2004 More Than Expected

The first year of complying with section 404 of the Sarbanes-Oxley Act has come at a steep cost for many businesses, with greater-than-anticipated personnel, consulting, auditing, and software expenses, according to a survey by Financial Executives International, a professional association of CFOs, treasurers, and financial controllers.

The good news is that the cost of compliance efforts is expected to decrease this year as IT projects undertaken to meeting the financial-reporting requirements of section 404 progress.

The survey, conducted in March among companies with average revenue of $5 billion, showed that spending for section 404 compliance averaged $4.4 million in 2004. That's higher than the average $3.1 million companies estimated that they would spend in 2004 in a similar survey conducted last July.

Expenditures for external services such as consulting averaged $1.7 million in 2004, up from an expected $1 million in the July survey, while auditing costs averaged $1.3 million, compared with the $820,000 expected in July.

Sarbanes-Oxley Spending In 2004 More Than Expected

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Add It Up: Compliance Doesn't Come Cheap

Of all the regulations companies face--from the USA Patriot Act to the Health Insurance Portability and Accountability Act--Sarbanes-Oxley is consuming the most effort. This year, spending to comply with Sarbanes-Oxley will reach $6.1 billion, according to AMR Research. And 60% of 223 business and IT executives surveyed by the research company have Sarbanes-Oxley compliance efforts under way.

Personnel tops the list of Sarbanes-Oxley-related costs at $2.6 billion. Much of that is being spent on consultants and external auditing firms. Technology and services account for $1.7 billion each. Companies will spend about $1 million on compliance-related efforts for every $1 billion in revenue.

Add It Up: Compliance Doesn't Come Cheap

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Sarbanes-Oxley Compliance Costing 39 percent More Than Expected

Public companies are paying about 39% more for complying with section 404 of the Sarbanes Oxley Act than they had expected, according to a survey by Financial Executives International (FEI). FEI found that year one section 404 costs came to an average of $4.36 million, compared with $3.14 million estimated in an FEI survey last July. FEI says the additional expense comes largely from a 66% jump in external costs for consulting, software and other vendors and a 58% increase in the external-auditor fees.The SOX compliance breakdown, says FEI, is an average $1.34 million for internal costs, $1.72 million for external costs and $1.30 million for auditor fees.In other findings, FEI says that 55% of companies polled believe that section 404 gives investors and other external audiences more confidence in a company's financial reports, with that figure climbing to 83% of large companies with more than $25 billion in assets.

Sarbanes-Oxley Compliance Costing 39 percent More Than Expected

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Good Things Come From Sarbanes-Oxley

Although many C-level executives may not feel this now, Sarbanes-Oxley really is a good thing. Truly. While compliance may be “proving an unusually burdensome” task according to news reports, transparency in financial accounting should reduce the sleepless nights for chief executives and financial officers.

But compliance in the long-term pays off and can render additional unforeseen benefits.

Control over numbers is the key. While this may seem like a simple statement, it still is not surprising to see corporations with finance functions spread around the world, increasing chances for reporting and human error. Moreover, many of these functions are duplicated causing inefficiency and waste of resources.

Good Things Come From Sarbanes-Oxley

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BSM, SLA, ITIL, SOX: tying it all together

In a commentary, Jasmine Noel, an expert in infrastructure management, says that business service management (BSM), service level agreements (SLA), IT infrastructure library (ITIL), and Sarbanes-Oxley (SOX), are all closely related "acronym initiatives" that lead IT organizations to the same place. And that's where you'll find better alignment between IT activities and business outcomes, clearer and streamlined IT processes and communication, and improved automation through management technology, according to Noel.

BSM, SLA, ITIL, SOX: tying it all together

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Monday, March 21, 2005

FEI Survey: SOX 404 Compliance Costs Up 39 percent

Compliance with Section 404 of the Sarbanes-Oxley Act has become a far more expensive proposition than originally thought, as the average cost of complying with the internal controls mandate has hit $4.36 million, a 39 percent jump from 2004 estimates, according to a recent survey from Financial Executives International.

The organization of financial professionals, which surveyed 217 public companies with average revenues of $5 billion and asked them to gauge their Section 404 compliance costs, said that the out-of-pocket increase stems from a 66 percent leap in external costs for consulting, software and other vendors, and a 58 percent increase in the fees charged by external auditors.

In a breakdown, FEI said that 404 compliance averaged $1.34 million for internal costs, $1.72 million for external costs and $1.30 million for auditor fees. The auditor fees are in addition to companies' financial statement audit fees.

FEI Survey: SOX 404 Compliance Costs Up 39 percent

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E-mail snooping becomes business standard

More prosaically, Sarbanes-Oxley and the Health Insurance Portability and Accountability Act, or HIPAA, in the medical area have stiffened penalties for companies that fail to show that employees are complying with data handling and privacy rules.

Banks and hospitals were among the first private-sector firms to begin monitoring e-mails. But others have followed - some to cut down on offensive or explicit language that could leave companies open to claims of hostile workplace environments, others to keep tabs on employees who may be spilling insider information.

"What we're seeing is the adoption of these same tools by industries that are not mandated by regulations to do so, because the risk created by not managing this content is unacceptable," said Zantaz Inc. CEO Steve King. The Pleasanton, Calif.-based firm makes software that lets companies such as Delaware Investments archive and monitor their e-mail.

E-mail snooping becomes business standard

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Sanjay Anand, CEO of Sarbanes Oxley Group

The key challenge is, and has always been, finding, hiring, training and retaining top talent. Sarbanes-Oxley is no different. While the “mechanics” of the legislation have had executives and others focusing on the process and technology aspects of compliance, it is ultimately the quality and the caliber of the people that will ultimately determine the outcome of the project.

Sanjay Anand, CEO of Sarbanes Oxley Group

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European companies push Sarbanes-Oxley campaign

European companies have stepped up a campaign against the strictures of American corporate governance legislation, sending a forthright letter calling on US regulators to make it easier for foreign groups to escape the rules.

The letter, sent to the Securities and Exchange Commission last week by eleven European employers' federations, offered concrete suggestions for loosening the share ownership tests that determine whether companies can deregister from the SEC and avoid the provisions of the Sarbanes-Oxley Act.

The move comes less than three weeks after European industry lobbyists won a concession on section 404 of Sarbanes-Oxley, the most onerous part of the legislation, as the SEC agreed to give non-US issuers an extra year to comply with the rules.

European companies push Sarbanes-Oxley campaign

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Sarbanes-Oxley Compliance Costs Exceed Estimates

Public companies have had to dig even deeper than previously estimated to pay the costs of complying with Section 404 of the Sarbanes-Oxley Act, according to a just-completed survey by Financial Executives International (FEI). FEI is the leading professional organization of Chief Financial Officers (CFOs) and other senior financial executives.

Companies' total costs for year one Section 404 compliance averaged $4.36 million, up 39 percent from the $3.14 million they expected to pay, based on FEI's earlier July 2004 cost survey. The increase stems largely from a 66 percent leap in external costs for consulting, software and other vendors and a 58 percent increase in the fees charged by external auditors.

With March 16 as the general deadline for public companies to complete an assessment of their internal controls over financial reporting, FEI recently surveyed 217 public companies with average revenues of $5 billion to gauge Section 404 compliance costs. Their total cost of compliance averaged $1.34 million for internal costs, $1.72 million for external costs and $1.30 million for auditor fees. The auditor fees are in addition to companies' financial statement audit fees, on average 57 percent higher. (See http://www.fei.org for more details.)

Sarbanes-Oxley Compliance Costs Exceed Estimates

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Sarbanes-Oxley Act forcing US Inc to dig out 'skeletons'

If the list of companies confessing to having a weak handle on financial reporting was small, critics of the internal control segment of the Sarbanes-Oxley Act might have a case. But the roster is long and has grown rapidly recently. So for all the huffing and puffing about the costs of complying with one of the final mandates of Sarbanes-Oxley, introduced in ’02 after a series of huge corporate scandals, there are clear signs that Section 404 of the Act is forcing companies to uncover some deeply buried accounting skeletons.

Regulatory estimates from a few weeks ago put the number of companies that have been forced to come clean at 500-600, of more than 10,000 corporations registered with the Securities and Exchange Commission (SEC).

Critics have argued the millions of dollars in extra auditing fees, to determine if financial controls are adequate, is money poorly spent, with no quantifiable return.

Yet, Section 404 may be keeping Corporate America honest, or at least focused, say accounting experts, adding that the benefits of raising investor confidence will, over time, substantially outweigh the upfront expenses.

Sarbanes-Oxley Act forcing US Inc to dig out 'skeletons'

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Sunday, March 20, 2005

Gaining Strength From Sarbox

To hear many company executives tell it, the Sarbanes-Oxley Act has been a monumental burden, sucking up time and resources without making their businesses more competitive.

At MasterCard International Inc., complying with Sarbanes-Oxley financial-reporting regulations required 45,000 staff hours of work provided by its consultant, Deloitte & Touche, and its external auditor, PricewaterhouseCoopers. "The cost has been overbearing," says Chris McWilton, CFO at the charge-card company with $2.6 billion in revenue.

But MasterCard is trying to get something back from that investment. A post-mortem of its Sarbanes-Oxley compliance effort, looking at what worked and didn't work, found poor documentation of financial controls that could have been automated, but weren't. Among the lessons learned is that "standardization of processes minimizes the risk of misstatements on financial reports," McWilton says.

Gaining Strength From Sarbox

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Saturday, March 19, 2005

Bagging the big boys

As sagas of fraudulent behavior at several major corporations unfolded over the last few years, one common if cynical refrain was, "They'll never get the big guys who caused all this." That refrain only grew louder when it became clear that billions of dollars in stockholder equity had vanished into the night, along with the jobs and retirement savings of thousands of ordinary workers. The cynical refrain even had its own little epilogue: "Even if they do nail those crooks, the bad guys will get off with slaps on their wrists. Robber barons always do."

The "they" in this refrain - federal prosecutors - have proved the skeptics wrong. Their successful prosecution of former WorldCom CEO Bernard Ebbers, who was convicted Tuesday on charges that he orchestrated the $11 billion fraud that brought down his company, is just the latest heartening proof that cynicism doesn't always yield good predictions.

In case after high-profile case, prosecutors aren't fishing for small fry - or letting big fry off their hooks. They have charged those at the very top with serious crimes. Then they have set out to prove their complex cases to juries. In the cases of former Tyco CEO Dennis Kozlowski and former Credit Suisse First Boston investment banking star Frank Quattrone, they have made repeat efforts to enforce the law as they read it. Quattrone's first trial on obstruction of justice charges ended in a hung jury. He was convicted in his second trial and sentenced to 18 months in prison. Kozlowski's first trial on charges he looted his company of some $600 million ended in a mistrial. His second trial is under way.

Bagging the big boys

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Friday, March 18, 2005

Hollywood discloses internal control problems, restates earnings

Hollywood Entertainment Corp. disclosed problems with its internal accounting for lease transactions in financial statements and restated earnings for 2002, 2003 and the first three quarters of 2004. Hollywood, like many companies, reviewed its internal control procecures following a Feb. 7 letter issued by the Office of the Chief Accountant of the Securities and Exchange Commission to the American Insittute of Certified Public Accountants. The letter clarified the SEC's position on accounting for certain operating lease matters.

In its annual 10K report, filed Thursday, Hollywood said it concluded it needed to correct its accounting procedures for leases and restate earnings for the affected periods.

Hollywood discloses internal control problems, restates earnings

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Nanophase Technologies notes compliance with Sarbanes Oxley 404

Nanophase Technologies Corp., a technology leader in nanomaterials and nanoengineered products, noted its initial compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
Jess Jankowski, Nanophase's CFO, stated, "We are pleased to announce our initial compliance with Sarbanes-Oxley Section 404, with no material weaknesses in internal controls identified. While we have consistently endeavored to ensure transparency and integrity in our financial reporting even before the enactment of the Sarbanes-Oxley Act, Section 404 compliance demonstrates the continued strength of our reporting and governance process, and confirms the high standard of accountability that our shareholders deserve and expect."

Nanophase Technologies notes compliance with Sarbanes Oxley 404

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Kintera Announces Internal Controls in Compliance with Sarbanes-Oxley

Kintera Inc., a technology provider to nonprofits, reported today that its Annual Report on Form 10-K discloses that it has effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and that its independent auditors attested to the effectiveness of those controls as required under Section 404 of the Sarbanes-Oxley Act of 2002.

"Public companies of all sizes and types are facing new reporting challenges to comply with the rigorous mandates of Sarbanes-Oxley and the Public Company Accounting Oversight Board," said Harry Gruber, Kintera's co-founder and CEO. "Kintera has worked to maintain and document a sound financial management infrastructure. The conclusion of management, attested to by our independent auditors, that these controls are effective is a validation of our efforts."

Gruber notes that the company's compliance will benefit its thousands of nonprofit customers in light of the recent move, spearheaded by Sen. Charles Grassley (R-Iowa), toward requiring Sarbanes-Oxley-like regulation of the nonprofit sector. "Congress and other governmental agencies are expected to require nonprofits to adopt self-regulatory measures similar to Sarbanes-Oxley in the near future. Nonprofit organizations are realizing the importance of increased accountability to build consumer and regulatory trust."

Kintera Announces Internal Controls in Compliance with Sarbanes-Oxley

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Ex-HealthSouth CFO ruffled but unwavering on the stand

A former HealthSouth executive lashed out at both prosecutors and the defense yesterday but stuck by his claim that fired CEO Richard Scrushy was in on a massive earnings overstatement.

Under cross-examination for a second day, former Chief Financial Officer Tadd McVay grew testy as Scrushy lawyer Jim Parkman suggested he was lying about Scrushy's involvement in the fraud to gain favor with prosecutors, including Richard Wiedis, who questioned McVay earlier.

In a firm voice, McVay denied Parkman's claims. And McVay recalled Wiedis asking a judge to send him to prison for five years during his sentencing hearing in 2004.

Wiedis, McVay said, made him sound like "the scum of the earth" while he was "begging" the judge for prison time.

"I'm not sure I like dealing with Mr. Wiedis much better than I like dealing with Mr. Parkman," McVay told Parkman, prompting laughter in the courtroom.

Ex-HealthSouth CFO ruffled but unwavering on the stand

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Thursday, March 17, 2005

Some still not complying with Sarbanes-Oxley

Almost half of public companies don't even realize they are not complying with certain provisions of the Sarbanes-Oxley Act, according to a former U.S. Securities and Exchange Commission official.

For example, some 40 percent of the roughly 10,000 public companies that have to abide by the new rules aren't filing 8-K statements with the SEC within four days after approving significant items -- or "material changes" -- such as new compensation for executives, said Brian J. Lane. Lane, a partner of the Washington, D.C., law firm Gibson, Dunn & Crutcher LLP, was director of the SEC's corporate finance division from 1996 to 2000.

Some still not complying with Sarbanes-Oxley

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Sarbanes-Oxley compliance delays Cray filing

Supercomputer maker Cray Inc. said its annual report will be delayed due to a review of internal controls required by the Sarbanes-Oxley Act of 2002. The review is likely to "identify one or more material weaknesses, including inadequate review of third-party contracts and lack of software application controls and documentation, and that it will conclude that its system of internal controls was not effective," Cray (NASDAQ: CRAY) said in an announcement.

"The company's auditors have expressed their serious reservations ... as to whether the company will be able to complete its assessment and whether the auditors will be able to render an opinion on either the company's assessment or its internal controls," the statement said.

Sarbanes-Oxley compliance delays Cray filing

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Whiter the Whistleblowers

Many of the recent corporate corruption scandals and court cases would not have come to light were it not for an internal whistleblower. But what if you encounter questionable behavior -- and wonder whether the risk of tattling backlash is worth bringing a possible crime to light? How many would-be whistleblowers keep mum because of fear?

Whiter the Whistleblowers

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Sarbanes Oxley: An Overview for HR Professionals

In response to the accounting scandals at Enron, WorldCom, and other companies, Congress passed the The Sarbanes-Oxley Act.
As a consequence, many companies are reviewing and updating their ethics process and internal control practices. This webcast provides key information needed for organizations either currently or soon to be affected by Sarbanes Oxley.

Sarbanes Oxley: An Overview for HR Professionals

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FIMA Conference Focuses on IM Security

Instant messaging has revolutionized the way colleagues communicate, but increasing regulations and a growing number of security breaches in the medium have businesses concerned about how much sensitive information might be getting into the wrong hands.

With corporate interest in enterprise IM peaking, mostly because IM increases productivity and reduces communication costs, moves to secure those networks have accelerated amid growing regulatory requirements and general concerns that public IM networks are unsafe for businesses.

"Secure IM for business is important because people don't want their corporate secrets leaking out via IM," Graham Lawlor, chairman of the New York-based Financial Instant Messaging Association (FIMA).

On Tuesday, Lawlor's group hosted a Public IM and Gateway Roundtable discussion at the UBS Warburg headquarters in New York. The conference brought together the three largest gateway vendors -- FaceTime, IM Logic and Akonix -- with public IM vendors America Online and Microsoft.

The forum also included financial service representatives whose increasing reliance on the technology gives them a high stake at the IM table.

FIMA Conference Focuses on IM Security

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USATODAY.com - Ignorance isn't bliss for execs on trial

If there ever was a golden age of CEO ignorance, a time when the top executive could claim to be unaware of their company's financial health, that era is long over. Just ask Bernie Ebbers, the ex-WorldCom CEO who was convicted by a jury in Manhattan on Tuesday of being part of a conspiracy to cook his company's books.

Ebbers' defense was that as CEO, he acted like a basketball coach, identifying the best players available and putting them on the court. As WorldCom's boss, he delegated large parts of his job — involving finance and technology — to others. He wasn't ashamed of his ignorance, but displayed it proudly, even on the witness stand: "I know what I don't know," he testified.

But the jury of seven women and five men disagreed, ultimately coming around to the prosecution's point of view. They decided that given the magnitude of the fraud at WorldCom, and how much of an impact the company's stock price would have on his net worth, Ebbers had to have known about the conspiracy to cook the company's books.

"The figures just don't lie," says Theodora Evans, a retired New York City Transit employee who served as jury foreman. Evans says she and other jurors didn't believe the government's primary witness in the case, former WorldCom chief financial officer Scott Sullivan, but she added that Ebbers lacked credibility as well.

USATODAY.com - Ignorance isn't bliss for execs on trial

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Small Investor Protection Association: What are the issues for Small Investors?

Elliot Spitzer, the New York State Attorney General set the U.S. investment industry on its ear with his Bureau of Investment Protection headed by David Brown (not the OSC Chair), former assistant attorney general. The Bureau was enabled to act on the basis of the New York State Securities Law, commonly known as the Martin Act, and the Sarbanes/Oxley law, formally titled The Public Company Accounting Reform and Investor Protection Act.

Spitzer pursued a strategy based on investment protection rather than regulation. The Bureau was alerted to wrongdoing by whistleblowers because they are protected in the U.S. by legislation. Spitzer’s office accomplished what the mighty Securities and Exchange Commission could not. Wall Street brokerage firms and mutual fund companies lined up to pay fines and avoid extended litigation that would have destroyed their firms. Some of the firms suffered considerable damage just from the publicity. Here in Canada the OSC is still investigating market timing, which is really a non-issue as far as extreme investor loss is concerned.

Small Investor Protection Association: What are the issues for Small Investors?

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Wednesday, March 16, 2005

Men's clothier says trading costs on Nasdaq outweigh benefits

Richmond-based retailer S&K Famous Brands Inc. said yesterday that it has filed to have its common stock deregistered. S&K announced the decision in its fourth-quarter earnings release, saying that the costs of meeting increasing regulatory requirements outweigh the benefits of keeping the stock listed.

As a result of the voluntary filing with the Securities and Exchange Commission, S&K said its common stock has ceased to be listed on the Nasdaq stock market, although it will continue to trade on the over-the-counter market. The stock closed yesterday at $17.50, down 21 cents.

The deregistration also frees S&K from having to file annual and quarterly financial reports with the SEC, but the company said it will still provide quarterly information on its Web site.

Men's clothier says trading costs on Nasdaq outweigh benefits

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Audio: Sarbanes-Oxley created a windfall of sorts

Today is the deadline for companies to report to regulators on the measures they've taken to control fraud. It's all part of The Sarbanes-Oxley Act... the measure passed in 2002 after the Enron and WorldCom scandals. Among other things, the act increased management's accountability for companies' books and created new internal controls. But Sarbanes-Oxley has created something else: an unexpected windfall for small and mid-sized accounting firms. Alisa Roth reports from New York.

Audio: Sarbanes-Oxley created a windfall of sorts

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Veritas Software delays filing annual report

Veritas Software delayed submitting its annual report to the U.S. Securities and Exchange Commission until the end of March, saying it wanted to provide company auditors with more information about internal financial controls, according to a regulatory filing Wednesday.

Mountain View, Calif.-based Veritas (VRTS) requested the 15-day extension to file the report to provide the information to its auditors, KPMG, required by the Sarbanes-Oxley Act, its filing said. The company was due to file the annual report Wednesday.

The storage software firm, which has agreed to be acquired by Symantec Corp. (SYMC) in a stock-based deal originally worth $13.5 billion, also said it hadn't identified any material weakness in its internal controls. The company added that it does not expect to make any adjustments to its previously announced results for last year.

Veritas Software delays filing annual report

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The Sarbanes-Oxley Conference and Exposition

Join your peers – including CEOs, CFOs, CTOs, CAOs, CCOs, Controllers, VPs of Finance, VPs of Tax and Compliance Officers – in Baltimore this September at The Sarbanes-Oxley Conference & Exposition. This definitive event for finance and accounting executives will address the legal, financial, tax and technology concerns facing today’s compliance and reporting owners. Additionally, informative educational sessions and expert panel discussions will supply timely information for first-time filers as well as private and global companies seeking compliance.

The Sarbanes-Oxley Conference and Exposition

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Ebbers' legacy: Accountability

Even before he was convicted Tuesday of directing an $11 billion fraud that triggered the largest bankruptcy in U.S. history, Ebbers' legacy would include the Sarbanes-Oxley Act. The legislation heightened the focus on executive and director accountability when it came to financial management, oversight and disclosure.

In short, "I didn't know" doesn't cut it anymore.

"For corporate executives, the day when that excuse flies is long past. If you are a senior executive of a public company, then you need to know what's going on. You need to be on top of what's in the books," said Morgan Burns, a partner in the corporate practice group of Faegre & Benson. "Directors of public companies have had a lot more duties thrust upon them. You have to be more diligent."

Sarbanes-Oxley effects are felt by small as well as big businesses and private as well as public companies: "This is the new order," said Rider Bennett attorney David Dean.

Ebbers' legacy: Accountability

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Five Ways To Fail a Sarbanes-Oxley Audit

Although the primary purpose of SOX is to assure corporate governance standards of financial reporting and auditing, wider interpretation can include IT operational processes that support a companies business. Company's executives are now reaching out to IT to access and provide record of policies, process, and procedures that control access and protect the integrity of financials systems and business applications, across networks, servers and into databases where the data is stored. As IT organizations start to address SOX, questions are being raised on how far does it reach, what if affected, and what should be reviewed and reported. Although there is guidance available from various sources, there has yet to appear a definitive set of guidelines that is not open to interpretation. Offered only as examples to assist in meeting compliance, here are five potential ways an organization might fail an upcoming audit if not properly prepared...

Five Ways To Fail a Sarbanes-Oxley Audit

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Tuesday, March 15, 2005

Corporations protest cost to comply with law

When President Bush signed the Sarbanes- Oxley Act into law in July 2002, the problems at WorldCom Inc. were fresh on everyone's mind because the telecommunications giant had sought bankruptcy protection just nine days earlier.

Nearly three years later, WorldCom's former chief executive has been found guilty of fraud and faces a maximum prison term of 85 years, potentially one of the stiffest sentences yet in a parade of white-collar criminals.

But many businesses remain disgruntled about the government's remedy to corporate corruption.

Companies have grumbled about the impact of Sarbanes-Oxley on their bottom line since the law was enacted. Lately, the grousing has reached a fever pitch as the costs to meet one requirement under the law have skyrocketed beyond expectations.

And that has caught the attention of federal regulators.

Corporations protest cost to comply with law

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MRO Software Selects Movaris Certainty for Sarbanes-Oxley Act Compliance; Enterprise Licensing Powers Worldwide Deployment

Movaris(R), a leading provider of financial control management (FCM) software, today announced that MRO Software (Nasdaq:MROI), the leading provider of strategic asset and service management solutions, chose Movaris Certainty(R) to automate its Sarbanes-Oxley Act Section 404 control testing and create a central repository for testing results and other compliance documents. With operations in the United States, Europe and Asia/Pacific, MRO Software will implement Movaris Certainty to drive Sarbanes-Oxley compliance across all geographic and organizational boundaries. Further, MRO Software selected Certainty for its logical hierarchy of risks and controls mapped to the COSO framework.

"Under Movaris' enterprise licensing terms, all participants in our US, European, Asia-Pacific, and Latin American control organizations can complete required tasks without restriction," said Mark Johnson, vice president, planning, budgeting and analysis for MRO Software. "Globally, we will test our key controls repeatedly throughout the year, so we needed an application that could generate the volume of control activity and reduce the time we have to spend manually managing each test."

"Unlike the massive documentation projects of 2004, many companies recognize that sustaining compliance requires generating tens of thousands control activities for tests, evaluations, and exceptions," said Eric Keller, chief executive officer of Movaris. "All companies can greatly reduce the time and costs of compliance with an application like Certainty that automatically manages each activity from initial testing through issue resolution."

Movaris Certainty provides MRO Software with pre-built action plans that contain specific instructions, to direct specific individuals to complete specific tasks for each control activity. Automatic scheduling and delivery of email reminders for control activities in the action plans ensures that staff complete control tasks in a timely and consistent manner. Certainty attaches, links, or includes all associated reference information, thereby building a complete body of evidence. As each control participant performs a control activity, Certainty automatically detects exceptions, organizes review, and notifies management of the exceptions and weaknesses in the financial control environment. Finally, Certainty tracks issues to resolution, as early as possible in the financial period.

MRO Software Selects Movaris Certainty for Sarbanes-Oxley Act Compliance; Enterprise Licensing Powers Worldwide Deployment

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Entomo Inc. Launches Web-Hosted Sarbanes-Oxley Compliance Solution for Channel Management and Sell-Through Revenue Recognition

Entomo®, Inc. a leading provider of Web-based business process improvement, cost-reduction and risk mitigation solutions for distribution channel and supply chain management, today announced that it had released its newest offering for sell-through distribution channel management and Sarbanes-Oxley compliance.

Entomo SmartHub/SFR(TM) consists of both software to automate the "POS data collection through revenue reporting" cycle, as well as On-Demand application hosting services that allow customers to access the software, as a service, via the Web.

"As companies migrate channel sales from the sell-in model of revenue recognition to sell-through, the sales, inventory and return data used for forecasting, sales operations and revenue recognition is increasingly found in their partners' business systems rather than their own," noted Entomo President and CEO Sanjoy Chatterji. "As a result, these companies must put new processes and systems in place to collect this data from their channel partners' systems, normalize it, analyze it, then resolve discrepancies so that it can be used for revenue recognition and financial reporting. Also, these processes and systems must satisfy Sarbanes-Oxley."

Entomo Inc. Launches Web-Hosted Sarbanes-Oxley Compliance Solution for Channel Management and Sell-Through Revenue Recognition

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Ebbers found guilty

Bernard Ebbers, the former CEO of WorldCom, was found guilty Tuesday for his role in the mammoth accounting scandal that resulted in the largest bankruptcy in U.S. history. A federal jury in New York, on its eighth day of deliberations, convicted Ebbers on all nine counts that he helped mastermind a $11 billion accounting fraud at WorldCom, now known as MCI.

Ebbers, 63, had been charged with one count of conspiracy, one count of securities fraud and seven counts of filing false statements with securities regulators. He faces up to 85 years in prison, but sentencing guidelines are expected to result in a much shorter term.

Sentencing is scheduled for June 13.

Ebbers found guilty

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Baxter to restate results since 2001

Baxter International Inc. on Monday said it will restate financial results since 2001 as the medical device maker moves to correct accounting errors linked to income taxes. The company said it will restate financial results for 2001 to 2003, and the first three quarters of 2004. The restatement is limited to income tax accounting errors on its balance sheet, and will not impact previously reported net income or revenue.

Accounting problems were discovered as Baxter went about its compliance with accounting rules that are to be enforced this year.

Baxter to restate results since 2001

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RiskCenter Launches 'SarboxAlert' Newsletter To Address Sarbanes-Oxley Compliance

RiskCenter, a Wall Street-based media company that provides an online syndicated news service for financial risk management professionals, has developed a bi-weekly newsletter, SarboxAlert, devoted to executives responsible for executing Sarbanes-Oxley compliance programs.

To address Sarbanes requirements, these compliance professionals must not only have a comprehensive understanding of Sarbanes-Oxley regulations, but stay current on these ever-changing laws. Compliance plans must be deployed efficiently and seamlessly with tangible Sarbox tasks and customized to each unique corporate environment. Clear communications and documentation is imperative of progress and methodologies.

RiskCenter Launches 'SarboxAlert' Newsletter To Address Sarbanes-Oxley Compliance

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Compliance: Ease the pain and cut the costs

More than 150 finance and IT executives met at a Butler Group event last week to discuss the challenges and potential benefits of regulatory compliance work. Software tools can help businesses steer through the minefield of meeting compliance regulations and offer real cost savings, analyst firm Butler Group said last week.

When organisations first began to get to grips with Sarbanes Oxley two and a half years ago, there were very few software tools to help them, said Tim Jennings, research director at Butler Group.

Businesses relied on simple software tools, such as Excel spreadsheets, to collect data, produce documents and assist in analysing the compliance of their IT systems when they met the first round of Sarbanes-Oxley compliance.

But suppliers are beginning to offer more sophisticated tools that could make compliance easier in future, said Jennings.

Compliance: Ease the pain and cut the costs

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Monday, March 14, 2005

The Boards: As Directors Feel Their Oats, Chiefs Are Put Out to Pasture

Amid a new culture of corporate openness, boards have acted to punish poor performance and ethical lapses to stem potential fallout from regulators, major customers and large investors. Their newfound vigilance stems in part from new federal rules and stock-exchange requirements that boards have more independent directors and act in a more transparent manner. The changing culture of boards themselves, after a series of ugly corporate scandals this decade, has also heightened their sensitivity to public-relations embarrassments.

That so many chief executives have been ousted amid signs of an improving economy and market shows the strength of the trend toward greater scrutiny, said Evan Scott, president of the Evan Scott Group International, an executive search firm in Philadelphia.

"This is not coincidental at all," Mr. Scott said. "Boards are flexing their muscles and beginning to take on the role they are supposed to take on, and that is very healthy for American business."

The Boards: As Directors Feel Their Oats, Chiefs Are Put Out to Pasture

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Genuine Curiosity :: What if there was a Sarbanes-Oxley Act for how you manage your life?

I work with a lot of companies who are changing how they operate because of the Sarbanes-Oxley Act. These companies are being asked to do a lot of things to hold them accountable for how they use company resources to maintain and increase the value of shareholders, then report accurately on the results.

On my latest cross-country flight, I was wondering what it'd be like if I were suddenly forced to be scrutinized by an independent auditor. If I were held accountable for attesting to how I've been using my time and energy, then report accurately on the results of those efforts, how would I fare?

Genuine Curiosity :: What if there was a Sarbanes-Oxley Act for how you manage your life?

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Companies Will Spend 80 Billion Dollars on Compliance over 5 Years, Says AMR Research

AMR Research predicts the cost of compliance over the next five years will reach the $80 billion mark. In the near term, the analysts estimate that organizations will spend close to $15.5 billion on compliance-related activities in 2005. Though an average company will spend approximately $500,000, leading businesses are using these mandates as an opportunity to identify and transform business areas that need improvement. Most are centralizing initiatives under an executive-level compliance officer.

“Compliance is an all-encompassing set of activities that cross business and IT groups,” said John Hagerty, vice president of research at AMR Research. “Companies that see the big picture will put these mandates to work for them and use them as a catalyst to improve or even rethink many parts of their organizations.”
Compliance is forcing businesses to look at what contributes to financial success, not just how to report financial performance. Through compliance mandates, companies are streamlining processes and reducing exposure to financial risk.

Companies Will Spend 80 Billion Dollars on Compliance over 5 Years, Says AMR Research

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Lease Accounting Gets Uglier

Lease accounting, in which companies rent out or "lease" factories, buildings or equipment instead of buying them outright, is fast becoming the most troublesome area of accounting. Accounting watchdog Jack Ciesielski, publisher of the Analyst's Accounting Observer in Baltimore, Md., so far counts 145 companies that have been hit with lease-accounting problems. Companies have either restated, or plan to restate, their financials due to improper lease accounting. Other companies have taken a cumulative catch-up charge to fix their lease accounting, or say they are suspicious that they have a problem.

Lease Accounting Gets Uglier

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MetricStream Extends Compliance Solution for Sarbanes-Oxley

Enterprise software provider MetricStream has rolled out a new solution for Sarbanes-Oxley (SOX) 404 as part of its Compliance Suite, providing a platform for companies to attain SOX conformity while laying the groundwork for other compliance initiatives in the future.

MetricStream provides solutions to help companies ensure compliance with a variety of regulation, such as FDA's 21CFR Part 11, USDA's HACCP; industry mandates such as Automotive Industry's TS16949/2002 and ISO9000; and corporate initiatives such as environmental health and safety standards, internal policies and the like.

"With this announcement, we have extended our ... solution to support Sarbanes-Oxley 404 compliance", said Shellye Archambeau, CEO of MetricStream. "Most companies have to comply with multiple government regulations and industry mandates but are forced to deploy a separate compliance system for every regulation, leading to a very high cost of compliance. MetricStream is singularly focused on enabling its customers to reduce the cost of compliance and gain comprehensive visibility into compliance-related risk across all operating units by providing a single solution for multiple regulations."

MetricStream Extends Compliance Solution for Sarbanes-Oxley

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Firms face increased risks to computer networks

Flom addresses corporate-information security, a hot topic now as government regulations and a litigious public push companies to prove their networks are secure.

Even smaller companies could be asked to comply if they work for governments or larger companies in fields ranging from health care to banking.

Some consultants say the new emphasis on information security stems from the Sarbanes-Oxley Act passed in the wake of scandals at Enron Corp. and WorldCom Inc. In addition, the Health Insurance Portability and Accountability Act and the Gramm-Leach- Bliley Act put the security onus on health care and banking companies.

But Sarbanes-Oxley doesn't actually mandate information security, said Ira Solomon, head of the accounting program at the University of Illinois at Champaign-Urbana.

Still, Solomon said, companies are being held to a greater level of accountability for privacy and data integrity. "Companies are collecting more and more data, so there's more and more at risk," he said.

Firms face increased risks to computer networks

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Avoid Taxing Problems When Making IT Buys

Companies could be losing millions of dollars every year by not factoring tax considerations into IT purchases, according to a new report by IDC and Deloitte Consulting. The report says with the emergence of Sarbanes-Oxley and HIPPA regulations, new management groups focusing on compliance, risk management and taxes are increasingly joining the traditional IT, finance, human resources, legal and operations teams.

However, according to the report's survey results, of all these functions, tax ranked dead last in frequency among those participating in the IT acquisition process. As a result, companies that fail to include the tax function in the IT purchase decision process may end up with financial systems that are inadequate in addressing their compliance, planning and tax reporting needs.

This, in turn, could result in underpayment of tax and substantial fines and penalties.

Avoid Taxing Problems When Making IT Buys

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Auditor costs soar

Complying with the federal Sarbanes-Oxley Act is proving even more costly and onerous than the dire predictions corporate financial executives made last year. Public companies in Washington are reporting auditor fee increases of 80 percent to 160 percent or more, according to a review of filings made by press time. Those fees don't include what companies spent on accounting consulting firms to help them prepare for Sarbanes-Oxley audits or the internal costs of staff time and effort.

For example, Weyerhaeuser Co. is reporting audit fees of $8.3 million for 2004, compared with $3.2 million in 2003, an increase of 153 percent. Puget Energy Inc. is reporting audit fees of $2.1 million, 145 percent higher than last year. And Onyx Software Corp.'s fees are $800,000, 167 percent higher than in 2003.

Auditor costs soar

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Sunday, March 13, 2005

Software Combo Manages SarbOx Compliance

Business-integration software vendor Tibco Software Inc. and Protiviti Inc., a provider of internal audit tools, have debuted a system built to help companies comply with the financial reporting requirements of the Sarbanes-Oxley Act. The system, incorporating Protiviti's SarbOx Portal and Tibco's Staffware Process Suite, helps document, test, assess, and monitor internal controls over financial reporting, in accordance with Sarbanes-Oxley's section 404.

The combined SarbOx Portal/Staffware Process Suite provides a base for managing all phases of a Sarbanes-Oxley section 404 compliance program. Among its promised benefits are reduced cost of compliance, enhanced business performance, and better information for decision-making.

Software Combo Manages SarbOx Compliance

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Saturday, March 12, 2005

Material Weaknesses and Share Price

Just 12 of 18 companies that made material-weakness disclosures in February saw their share price fall the day after, according to a recent analysis. And in 6 of the12 cases, the decline was less than 2 percent. Investors don't seem to be punishing companies that report material weaknesses in their internal controls under Section 404 of the Sarbanes-Oxley Act, according to an analysis conducted by Compliance Week. (As for whether the CFOs of these companies will pay the price anyway, that's a matter of wait-and-see.)

The publication's website, citing data from Raisch Financial Information Services, found that just 12 of 18 companies that made material-weakness disclosures in February saw their share price fall the day after the disclosure. And in 6 of the12 cases, the decline was less than 2 percent.

Material Weaknesses and Share Price

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Friday, March 11, 2005

SEC evaluating Sarbanes-Oxley rules

The Securities and Exchange Commission is evaluating its implementation of corporate governance rules in the Sarbanes-Oxley Act of 2002, SEC Chairman William Donaldson said in a prepared statement Friday. Testifying about the SEC's 2006 budget request before a House subcommittee, the chairman repeated that the agency will host a discussion about the financial reporting provisions of the law in April.

SEC evaluating Sarbanes-Oxley rules

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Sarbanes, Oxley: Give Rules a Chance

Sen. Sarbanes warns of the threat of ''collective amnesia'' about the recent ''systemic breakdown'' in the financial markets, and Rep. Oxley points to ''sobering news'' about revelations of earnings smoothing. The two legislators whose names will forever be linked to the most dramatic overhaul of corporate governance rules urged their colleagues to resist efforts to revise some of the provisions.

Sen. Paul S. Sarbanes (D-Md.) and Rep. Michael G. Oxley (R-Ohio) told a Washington meeting of corporate lawyers that the 2002 law that bears their names has been a success, according to The Washington Post.

Sarbanes, Oxley: Give Rules a Chance

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Law on CEO Awareness on Trial With HealthSouth's Scrushy

Within days of the 2002 law, Smith refused to certify documents that he feared could expose him to prison time for inflating profit. Then, under pressure from co-workers, he wavered and agreed to sign them. Months later, the HealthSouth Corp. finance chief wavered again -- turning in the company he worked for and touching off the nation's first major prosecution of a chief executive under the new law.

Since opening statements six weeks ago, the criminal trial of Smith's former boss, Richard M. Scrushy, has underscored how high the stakes have become for top corporate executives. Under the law, key executives at more than 12,000 companies are required personally to vouch for the numbers they provide regulators and investors in securities filings. If those numbers are phony, they face a maximum of 20 years in prison.

Law on CEO Awareness on Trial With HealthSouth's Scrushy

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Thursday, March 10, 2005

Senator Paul Sarbanes and Representative Michael Oxley Claim Corporate Legislation Works

A pair of lawmakers who led the fight to approve a major corporate-responsibility initiative said yesterday that the law should be given more time to work before Congress decides whether to tinker with its sometimes controversial and costly provisions.

Making a rare joint appearance at a Washington meeting of corporate lawyers, Sen. Paul S. Sarbanes (D-Md.) and Rep. Michael G. Oxley (R-Ohio) said the 2002 law that bears their names mostly has worked as intended, to crack down on financial abuses that hurt investors.

The law created a tough, new oversight panel for auditors, increased criminal penalties for document tampering, gave corporate board members heightened responsibility and barred companies from making loans to their top executives.

Business groups have been complaining that parts of the law are too expensive and unwieldy, pointing to language that requires executives to vouch for the accuracy of financial controls at their companies. Surveys indicate those efforts could cost more than $5 million at a large publicly traded firm. The U.S. Chamber of Commerce and the Financial Services Roundtable are calling on Congress to make what they say are technical changes to the Sarbanes-Oxley Act.

Senator Paul Sarbanes and Representative Michael Oxley Claim Corporate Legislation Works

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Time to reassess 404 compliance

Dual-listed companies should take time to reassess their compliance programmes for section 404 of the Sarbanes-Oxley Act, experts have warned. The advice comes after the decision to extend the deadline for non-US companies by a further year.

Last week the US Securities and Exchange Commission, headed by William Donaldson, announced that companies registered with the body but listed in other countries now have until their financial year ending on or after 15 July 2006 to comply with section 404.

Time to reassess 404 compliance

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Sarbanes-Oxley: The Whistleblower Provisions

With Adam Edmunds, president, CEO and founder of SilentWhistle, a company that provides an online confidential and anonymous whistleblower protection service. Prior to founding SilentWhistle, Edmunds worked for large organizations such as EDS, Franklin Covey and the LDS Church.

Sarbanes-Oxley: The Whistleblower Provisions

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Despite SOX Extension, CFOs Must Still File Internal-Control Certifications

Even with the new compliance deadline of July 2006 granted to smaller public companies and foreign companies, executives need to execute and file certifications about their internal controls under Section 302 of the Sarbanes-Oxley Act, said accounting firm J.H. Cohn.

"Quarterly certifications for Section 302 indicate, among other things, that there have been no material changes in internal controls and that any material weaknesses in internal control have been disclosed," said Anthony Zecca, partner-in-charge of Cohn Consulting Group (CCG). "They require that CEOs and CFOs have a basis for the quarterly assertions they make.

"Therefore, we are recommending to all of our clients that management, at a minimum, complete a full assessment of their internal control over financial reporting and disclosure controls in 2005, and only postpone to 2006 the actual full testing of the effectiveness of controls."

Despite SOX Extension, CFOs Must Still File Internal-Control Certifications

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NCOIL Rejects Sarbanes-Oxley Rules for Mutuals

Insurers battling to keep regulators from making new federal corporate disclosure and accounting rules apply to non-public carriers said opposition voiced by the National Conference of Insurance Legislators may aid their cause.

Their comments came in advance of the National Association of Insurance Commissioners Meeting, which is considering a rule requiring mutual insurers to use new procedures concerning use of auditors, internal control evaluations and executive signoffs, that are part of the federal Sarbanes-Oxley Act.

At NCOIL's spring meeting that ended this week, the group's executive committee voted to have their president, Texas Rep. Craig Eiland, D-Galveston, send the NAIC a letter expressing the group's opposition to the new audit requirements.

NCOIL Rejects Sarbanes-Oxley Rules for Mutuals

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A New Mood in Congress to Relax Corporate Scrutiny

In what has seemed a daily ritual, the Senate in the last two weeks has defeated the most modest attempts by Democrats to curb bankruptcy abuses by corrupt or troubled corporations and their senior executives. The votes illustrate a new reality and a sharp swing of the pendulum in the Senate, which has nearly completed its work on the legislation that everyone expects will soon become law.

Just two and a half years ago, in the midst of plunging stock markets and widening business scandals that left many thousands of workers unemployed and without their retirement savings, fearful lawmakers rushed by a vote of 97 to 0 to adopt the Sarbanes-Oxley Act. It was the most aggressive federal anticorruption law Congress had adopted in decades. On the day of the Senate vote, the Dow Jones industrial average was down as much as 440 points. Days earlier, WorldCom executives disclosed the first details of the largest accounting fraud in history.

A New Mood in Congress to Relax Corporate Scrutiny

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Wednesday, March 09, 2005

SEC delay worries Senator Paul Sarbanes

A key lawmaker on Wednesday, March 9, expressed concern over the Securities and Exchange Commission's decision earlier this week to give small businesses and non-U.S. companies an additional year to comply with an important provision of the anti-fraud Sarbanes-Oxley Act.

"Unless we move forward we will have different companies operating with different standards," Sen. Paul S. Sarbanes, D-Md., ranking member of the Senate Commerce Committee, told SEC Chairman William Donaldson at a hearing on the securities industry.

SEC delay worries Senator Paul Sarbanes

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White Collar Crime Prof Blog: Look What Sarbanes-Oxley Has Wrought

The Sarbanes-Oxley Act requires corporate counsel and directors to investigate all reports of potential wrongdoing at a corporation, and an anonymous tip appears to have led to the removal of Boeing CEO Harry Stonecipher because he was having an affair with another Boeing executive. A press release issued by the company (here) discusses an investigation of Stonecipher by inside and outside cousnel that led to the Board's decision to fire him.

White Collar Crime Prof Blog: Look What Sarbanes-Oxley Has Wrought

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E-mail archiving and Sarbanes-Oxley: A chat with Mike Gundling

As part of our ongoing look at e-mail archiving issues, writer Peter Bochner spoke with Mike Gundling, iLumin Software Services Inc. Gundling is senior vice president of product management. He is responsible for the company's suite of secure and compliant products.

E-mail archiving and Sarbanes-Oxley: A chat with Mike Gundling

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Getting strategic

James Stynes, the head of Americas M&A for Deutsche Bank Securities Inc., has seen them all — in one deal. His client, Adolph Coors Co., merged last month with Molson Inc. despite an opposition campaign waged by deposed executive Ian Molson. At the same time, hedge funds gobbled enough shares to block the deal from getting a two-thirds majority approval, requiring Coors' advisers, including Stynes, to add a dividend to the deal, and then boost the dividend. Stynes recently talked to The Deal about today's merger wave, how Sarbanes-Oxley may drive hostile takeovers, and, of course, the influence of hedge funds.

Getting strategic

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Europe fights change in company law

The eighth directive on company law may not have the same ring to it as Sarbanes-Oxley but the European Union's proposed legislation is designed to have a similar effect to the sweeping US corporate governance rules. It has also prompted an intense debate between ministers, investors and companies.

The European Commission decided to modernise the EU's corporate law provisions after accounting scandals in the US such as Worldcom and Enron. It was also concerned to avoid a repetition of European governance disasters such as Ahold and Parmalat.

Europe fights change in company law

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Sarbanes-Oxley: Transaction Integrity Monitoring

Transaction integrity monitoring provides the quality assurance of financial reporting that Sarbanes-Oxley demands. By monitoring the integrity and accuracy of financial reporting, transaction integrity monitoring allows executives to confidently signoff on financial reports and control assessments.

Sarbanes-Oxley: Transaction Integrity Monitoring

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Who cares about business intelligence

The staid and perfunctory applications that allow companies to closely monitor their financial and logistical performance have undergone a renaissance of late, thanks in part to the creative accounting of several executives at Enron. The US legislation that resulted from that accounting scandal, such as Sarbanes Oxley, has forced chief executives everywhere to have a much more transparent view of their firm's financial dealings.

The best tools for improving financial insights are analytics and reporting software from companies such as Business Objects, Hyperion and Information Builders. But the consolidation pressure affecting much of the software industry is also being felt by these BI providers as they attempt to position themselves at the top of the tree when it comes to catering for all the needs of enterprise customers. While there is still a lot of consolidation to be done — analyst Gartner claims some firms may have up to 23 different BI tools deployed across the organisation — no one firm has emerged as the BI equivalent of Microsoft.

Who cares about business intelligence

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Bodies warn against US-style internal control

Profession and industry responds to Turnbull guidance, with principles-based approach heralded as the way forward. The first consultation phase of the review into Turnbull's guidance on internal control has just concluded. Here are some of the views over what direction any revised recommendations should follow.

Bodies warn against US-style internal control

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Tuesday, March 08, 2005

Tech Vendors Form Compliance Advisory Group

The collection of companies, called the Compliance and Management of Electronic Information working group, is working under the auspices of the Internet Law Policy Forum. The group will develop and publish best practices, checklists, and summaries of legal and regulatory requirements to provide compliance guidance for businesses.

The group will hold forums where technology vendors, regulated entities, government leaders, and policy experts discuss the impact of compliance law on businesses, and develop recommendations and guidelines for companies to facilitate compliance without hindering business operations.

The group includes Hewlett-Packard, Hitachi Data Systems, Network Appliance, Open Text, Oracle, Plasmon, Sun Microsystems, and Veritas Software.

InformationWeek > Compliance > Tech Vendors Form Compliance Advisory Group > March 8, 2005

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More U.S. Companies Drop Out, Clam Up

In an era of greater scrutiny, a number of U.S. companies are deciding being public just isn't worth the hassle anymore. After the collapse of Enron Corp, WorldCom Inc. and others, regulators and lawmakers raised financial reporting and corporate governance standards for publicly traded companies to increase accountability and transparency.

In the latest and final phase of the reforms, known as Section 404, companies must assess internal financial controls and report findings to the Securities and Exchange Commission.

More U.S. Companies Drop Out, Clam Up

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Computerworld Premier 100: IT execs see need for 'blended culture'

Understanding works both ways. Foreign business partners are becoming more aware of U.S. regulatory requirements, such as the Sarbanes-Oxley Act's financial and accounting disclosure rules, and are helping U.S. companies comply, said Saum Mathur, vice president, Americas IT, at Hewlett-Packard Co. Companies such as SAP AG are also providing systems that are adapted to country-specific rules, he added.

Computerworld Premier 100: IT execs see need for 'blended culture'

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CEOs and CFOs Must Still Execute and File Internal-Control Certifications Despite SEC Extension of Sarbanes-Oxley Deadline, Advises J.H. Cohn LLP

The chief executive officers (CEOs) and chief financial officers (CFOs) of certain midsize and foreign public companies must still execute and file certifications about their internal controls under Section 302 of the Sarbanes-Oxley Act, even though the Securities and Exchange Commission (SEC) last week gave them an extra year to comply with Section 404, says one of the country's largest corporate governance consulting units.

“Quarterly certifications for Section 302 indicate, among other things, that there have been no material changes in internal controls and that any material weaknesses in internal control have been disclosed,” says Anthony Zecca, partner-in-charge of Cohn Consulting Group (CCG). “They require that CEOs and CFOs have a basis for the quarterly assertions they make. Therefore, we are recommending to all of our clients that management, at a minimum, complete a full assessment of their internal control over financial reporting and disclosure controls in 2005 and only postpone to 2006 the actual full testing of the effectiveness of controls.”

CEOs and CFOs Must Still Execute and File Internal-Control Certifications Despite SEC Extension of Sarbanes-Oxley Deadline, Advises J.H. Cohn LLP

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Monday's Other Termination

In the Boeing case, of course, the CEO was the one fired (the executive with whom he had the affair hasn't been identifed, so it's hard to say if there was a penalty there). It's worth pointing out that it was the Board that fired Stonecipher, but the Forbes story nevertheless doesn't mention the Sarbanes-Oxley Act, a major development since the Agee-Cunningham romance. As Barbara Hackman Franklin recently editorialized on PBS's National Business Report...

Monday's Other Termination

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Gartner Tells SMBs To Use Sarbanes-Oxley Extension

Small- and medium-sized businesses should put the time to good use recently awarded them by the Security and Exchange Commission (SEC) as it extended the deadline for compliance with Sarbanes-Oxley, a research firm said.

Last week, the SEC extended the compliance date a full year for financial disclosure set by Section 404 of Sarbanes-Oxley for those U.S. companies with a market capitalization under $75 million. These companies must now report their internal control processes for the fiscal year ending on or after July 15, 2006.

"This extension is not a sign that the SEC is caving in to pressure groups' claims that the cost of Sarbanes-Oxley is too much for the U.S. economy to bear or that it's bad for business," said John Bace, an analyst with Gartner, in an online research note. "A 'kinder, gentler' SEC is not on the horizon."

Gartner Tells SMBs To Use Sarbanes-Oxley Extension

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IT should take the lead on Sarbanes-Oxley

The US Sarbanes-Oxley legislation aims to make companies more financially transparent and better at dealing with business risks. It is looming over all organisations with a US listing, or those planning a US listing. Unless there is a relaxation in its current requirements, all affected organisations issuing financial information after July 2005, such as their annual accounts, will have to include a statement that the management are responsible for maintaining adequate internal controls; an assessment of the effectiveness of the internal controls; and a statement identifying the framework used to assess the effectiveness of the internal controls.

Organisations must report any material changes to internal controls on a quarterly basis. The organisation's external auditors will have to attest to the management's statement once they have tested the internal controls.

IT should take the lead on Sarbanes-Oxley

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Are fraudsters hiding in your SOX

The complex and copious amounts of data being stored on corporate networks post-Sarbanes-Oxley may actually be creating greater opportunities for fraud – even though the law was a reaction to the huge corporate frauds which rocked Enron and WorldCom. And data "gluttony", as one analyst branded it, may be setting companies up for a fall further on down the line.

Peter Dorrington, head of fraud solutions at SAS, told silicon.com companies are blindly storing vast amounts of data while giving little thought to what is actually being stored.

"There is just a lot of storage going on," said Dorrington. "But there is no interpretation of that data."

Are fraudsters hiding in your SOX

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It's About Time

We are just completing work on our regional survey of accounting firms, the results of which will appear in the April issue of Practical Accountant. Without going into specifics as to the results of the survey, I will note that one of the themes that I saw is the return of the importance of, and demand for, compliance services.

The impetus for this I believe is a number of factors, not the least of which is Sarbanes-Oxley. Public companies are turning to CPA firms for the new Section 404 internal control work created by the legislation. It goes beyond that as not-for-profits and private companies are focusing on governance. The fact that the IRS is aggressively going after tax shelters, many promoted by the Big Four, is also causing clients to question their relationship with the Big Four.

It's About Time

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Monday, March 07, 2005

Sarbanes-Oxley breathing space gives impetus to compliance

Sir, The announcement by the US Securities and Exchange Commission that it has deferred the date by which foreign filers have to comply with section 404 of the Sarbanes-Oxley legislation, which covers internal controls against fraud, ("SEC gives year's grace to foreigners", March 3) is welcome.

However, the decision throws up several important issues for the companies affected.

Implementing Sarbanes-Oxley has created considerable strain for SEC-registered companies in Europe, in terms of both management time and financial cost.

Sarbanes-Oxley breathing space gives impetus to compliance

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Tech Heavies Throw Weight Into Compliance

A coalition of eight tech companies has formed the Compliance and Management Electronic Information (CMEI) working group in a bid to give companies a hand in formulating a comprehensive compliance framework for their business. The group, made up of Oracle, Hewlett-Packard, Veritas, Sun Microsystems, Open Text, Hitachi Data Systems, Network Appliance and Plasmon, expects to have resources available on the Internet Law & Policy Forum (ILPF) Web site in the next six months.

The ILPF is a non-profit organization that provides a neutral forum for challenges posed by the Internet on law, policy, technology and businesses worldwide. Outside the CMEI, the organization hosts working groups focused on spam, self-regulation, security and policy, content liability, electronic authentication and jurisdiction.

The CMEI site will host documentation on best practices for information retention and maintenance regulations, provide counsel and exchange information with various businesses, legislative bodies and regulatory agencies in various workshops, and publish checklists and summaries of legal and regulatory requirements for interested companies.

Officials say the many information compliance regulations worldwide cause undo headaches for companies trying to abide by them, both in money and time spent adhering to conflicting regulations. As an example they point to a company, based in the United States with offices in the United Kingdom, that severs its ties with a customer. Under U.S. law, companies must retain records for seven years, but in the U.K. they must immediately destroy all customer information.

Tech Heavies Throw Weight Into Compliance

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Paid time off abuse adds up

While the Sarbanes-Oxley act attempted to provide more security for some business procedures, at least one area remains a potential trouble spot for employers. It's a well-known perk that most employees use. But experts say this benefit -- paid time off, or PTO -- is being abused by some employees and is poorly managed by employers, costing millions of dollars.

PTO is defined as a regular workday in which the employee has the day off but still receives regular pay. It can include vacation days, holidays, sick leave and personal days. On average, new employees nationwide are allotted 14 days a year; paid time off often increases with length of tenure.

While abuse of PTO may not be the most scandalous of indiscretions, not accounting for PTO is a little faux pas that can add up to a real liability.

"In most companies, senior management views this area with a sense of apathy, knowing that abuse exists, but paying little attention to it," according to a report released by AppMail, a San Mateo-based software and applications developer for the human resource sector. "The underlying assumption is that there is little return on investment associated with managing PTO."

Paid time off abuse adds up

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Accounting - Go on... admit it

The debate rages over the effectiveness of Sarbanes-Oxley and the impact it has on the corporate strategy of multinational organisations worldwide, as well as on transatlantic trade, listings and merger activity. However, at the risk of upsetting FDs and their staff, whose companies have a US listing or who work for subsidiaries of US-quoted companies - all of whom are doubtless struggling to comply and spending millions in the process - Sarbanes-Oxley seems to be working.

While the entire burden of Sarbanes-Oxley has fallen on preparers of accounts, the intended beneficiaries are the shareholders who should be able to place greater reliance on the financial information presented to them. According to evidence obtained from Parson Consulting, a US financial management consultancy, the percentage of companies in the Standard & Poor's 500 stock index that missed analysts' earnings per share projections fell to just under 30% in third-quarter 2004, an 18-month low.

Accounting - Go on... admit it

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Hidden fraud risk in Sarbanes-Oxley

The complex and copious amounts of data stored on corporate networks after the enactment of the Sarbanes-Oxley Act may be creating greater opportunities for fraud, analysts said. That's even though the law was a reaction to the corporate misdeeds that rocked Enron and WorldCom.

Peter Dorrington, head of fraud solutions at the SAS Institute, said companies are storing vast amounts of data but giving little thought to what is being stored. "There is just a lot of storage going on," Dorrington said. "But there is no interpretation of that data."

That situation could make the occasional instances of fraud or anomalous data far more difficult to spot, he said.

Hidden fraud risk in Sarbanes-Oxley

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Europeans Divesting From the US

According to the Wall Street Journal, many European businesses are removing themselves from the American stock market. Before you start to think this is radical activism on the part of blue-chip Euro companies, take a step back--

"The rush to delist and deregister is, in the first instance, about money: Being a U.S. reporting company is about to get a whole lot more expensive. This is because of Section 404 of the Sarbanes-Oxley Act..." (This act is designed to cut down on Enron-style corporate fraud by imposing more financial reporting requirements on companies. One should note, however, that the US already has much higher reporting requirements than Europe--the latter's companies need only publish annual reports, but US companies must publish quarterly. Many argue that this makes American companies too focused on short-term gains.)

Europeans Divesting From the US

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Law Makes Company Account for Past Sins

Three months ago Roderick C. McGeary took the helm of a troubled company. A grand jury in California is investigating BearingPoint Inc.'s federal contracts. A former employee of the McLean consulting firm recently pleaded guilty to a conspiracy charge. The previous chief executive left abruptly and not on good terms with the firm. And several overseas units are bleeding cash.

But McGeary said the biggest thing that makes him toss and turn at night is a federal regulation called the Sarbanes-Oxley Act.

Law Makes Company Account for Past Sins

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Firms find shortage of CPAs

Some Silicon Valley companies are finding it tough to get a Big 4 accounting firm to audit their books, exposing them to unwanted attention from both analysts and the federal government. The federal Sarbanes-Oxley Act requires that publicly traded companies use separate CPA firms for internal and external audits. This has produced a chronic shortage of public certified accountants and has led companies with revenues under $130 million to scramble for CPA firms to handle the audits.

"Virtually all CPA firms, large and small, have had to ration their services this year," says Robert Clarkson, a partner with the Menlo Park office of Jones Day, a legal firm that advises companies on financial issues. "And how do they traditionally base their assessment (on who to drop)? By liability risk assessments."

Firms find shortage of CPAs

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Sarbanes-Oxley extension welcomed by non-US business

As well as SOX, European dual-listed companies are also facing the move to International Financial Reporting Standards, and the EU Financial Services Action Plan. In addition, UK companies also face the imminent introduction of the Companies Bill, which is designed to reform company law, and is due to take effect from next month.

The new extension means foreign private issuers, as well as US-based "non-accelerated filers", will have an extra year to comply with the internal control over financial reporting. Those companies will now have until the first fiscal year ending on or after July 15, 2006 to comply with Section 404.

Sarbanes-Oxley extension welcomed by non-US business

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Saturday, March 05, 2005

Primer: 404 Internal Controls

A series of checks and balances to help companies detect and prevent fraud and mistakes in financial statements as well as limit employee access to sensitive financial data. First required in a 1977 law dealing with foreign bribes and financial abuses, subsequently strengthened in Section 404 of the 2002 Sarbanes-Oxley Act.

Primer: 404 Internal Controls

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LA Chapter of Financial Executives International Announces Presentation on Audit Committee Best Practices

The monthly meeting of the Los Angeles chapter of Financial Executives International (FEI) will feature a presentation by Ron Conlin, partner at J.D. Power and Associates, of his firm's recently released, "2004 Audit Committee Best Practices Report." Authored by Mr. Conlin, the report is a comprehensive study of audit committee performance in the wake of the Sarbanes-Oxley Act of 2002 and is based on interviews conducted over the past year with over 1,000 audit committee chairs and 900-plus chief financial officers. The report details the successes audit committees have achieved since 2003 and notes the significant challenges that remain. The dinner program will be held on Thursday, March 17, beginning at 6 p.m. in the Reagan Dining Room on the third floor of the Jonathan Club, 545 S. Figueroa St., Los Angeles.

LA Chapter of Financial Executives International Announces Presentation on Audit Committee Best Practices

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New anti-fraud rules cause upheaval

And more confessions are expected: As many as one in five public companies across the country is expected to admit shortcomings as the latest deadline nears for complying with the 2002 corporate-crackdown law known as Sarbanes-Oxley. Securities and Exchange Commission officials estimate that 500 companies nationwide have already noted some level of problems.

Under Sarbanes-Oxley, every public company is supposed to prove -- by mid-March in many cases -- that it has strong internal systems that can catch an employee trying to commit fraud or flag accounting errors before a company tallies its official profits. If a company knows about problems with its control systems along the way, it is obliged to disclose what it has uncovered -- thus the current flood of mea culpas.

New anti-fraud rules cause upheaval

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Friday, March 04, 2005

Fairfax Unveils Clean Internal Control Report

As a non-U.S. company, Fairfax is not currently required under the Sarbanes-Oxley Act to undertake an assessment of the effectiveness of its internal control over financial reporting or to obtain its independent auditors' opinion thereon.

Fairfax voluntarily elected to do so, two years ahead of its compliance deadline, in order to assess for itself the integrity and quality of its internal control over financial reporting and to provide its shareholders and debtholders with the greatest assurance of the effectiveness of its internal control over financial reporting.

Fairfax Unveils Clean Internal Control Report

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HealthSouth Witness Says He Tried to Quit

Richard Scrushy's lawyer began a combative cross-examination of a former HealthSouth Corp. executive Friday, suggesting the government witness got to play golf as part of his punishment for a $2.7 billion fraud. Defense attorney Jim Parkman went on the attack as soon as former HealthSouth chief financial officer Mike Martin completed testimony over four days depicting Scrushy as a key player in the fraud while CEO of the medical rehabilitation chain.

Martin has pleaded guilty in the scheme, and Parkman brought out that his punishment of six months of home detention included seeing his wife and children, watching a big-screen TV and once even playing golf at a swanky country club.

HealthSouth Witness Says He Tried to Quit

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Making Your Firm a Merger Candidate

The growth and health of national and big regional firms and the fallout from Sarbanes-Oxley has made mergers upstream increasingly attractive for smaller firms. "There are very few situations where a merger is not a good idea from the viewpoint of the smaller firm," says Marc Rosenberg, president of the consultancy The Rosenberg Associates. Adds Cono Fusco, managing partner of mergers and practice integration in the New York office of Grant Thornton, "The firm that makes the truly strategic decision with a merger can instantly get into a league that otherwise it could 20 years to create."

Bruce Bauman and Larry Gray, principals at Misceo, a consulting firm that helps small and medium-size businesses with M&A, stress that getting one's own house in order is among the very first steps, with particular attention to understanding and documenting key operational processes, and the operational culture.

"Merging can be a fabulous way for a firm to improve profits as well as service deliverables to clients, but it also comes with some risk and sleepless nights," adds Allan Koltin, president and CEO of the Chicago-based consultancy PDI Global.

Making Your Firm a Merger Candidate

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End User Driven Research Highlights Important Role of Identity Management Solutions as a Key Sarbanes-Oxley Control Component

Thor Technologies, the most experienced and proven provider of identity management solutions, today announced the availability of a study by the Aberdeen Group that identifies user provisioning solutions as one of the key controls recommended by auditors for cost-effectively complying with Sarbanes-Oxley (SOX). The findings come from a survey and in-depth interviews among more than 40 leading enterprises worldwide, sponsored by Thor and conducted by the Aberdeen Group. They are summarized in a study, “The Value of User Provisioning for SOX Compliance,” newly published as part of Aberdeen’s Business Value Research Series. This new research builds on prior Aberdeen research stating that when properly implemented, the cost savings generated from lowered costs in IT generally pays for provisioning software in less than a year.

“Among the large and mid-sized enterprises we surveyed, user provisioning is widely regarded as a critical component of SOX auditing and compliance,” said Jim Hurley, Aberdeen vice president of research and the principal author of the report. “In their own words, companies involved in compliance initiatives reported that user provisioning is ‘a big deal for us.’ ”

End User Driven Research Highlights Important Role of Identity Management Solutions as a Key Sarbanes-Oxley Control Component

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CBI wins delay of 'costly' new rule on accounting in the US

The CBI has estimated that up to 60 European companies were ready to pull their US listings over the implementation of Section 404 of the Sarbanes-Oxley Act, which they say will be too costly. Delegates from UK and European companies, including Cadbury Schweppes, BASF and Siemens, visited Washington in December and warned US regulators that they faced an international backlash over the rule.

Sir Digby said: “The CBI lobbied hard for extra time for European companies to deal with the demands of Section 404 and we are pleased that the SEC (Securities and Exchange Commission) has granted a meaningful extension.

“Poorly implemented regulation destroys wealth, with no upside for the consumer or investor.

“That is why it is essential that the right balance between corporate governance and wealth creation is achieved.”

CBI wins delay of 'costly' new rule on accounting in the US

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PriceSmart settles shareholder lawsuit

Last week, the company said it was considering a plan to go private due to the costs of remaining a public company, including expenses from Sarbanes-Oxley Act accounting requirements.

PriceSmart settles shareholder lawsuit

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Thursday, March 03, 2005

Accounting reforms hit junk-bond issuance

Junk bond market participants believe that restrictions imposed by the Sarbanes-Oxley accounting reforms may be partly responsible for a sudden drop in new US issuance. In the new environment of corporate accountability, investment bankers said issuers were seemingly more cautious about offering new bonds before potential investors could see their full audited accounts.

Companies have filed their full-year earnings, but some annual reports are to come.

"People used to put out flash estimates of their numbers before their full financials were on file, but under Sarbanes-Oxley, they're being more careful about waiting for the final numbers," said one high-yield investment banker.

Accounting reforms hit junk-bond issuance

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Breathing space on Sarbanes-Oxley

Sarbanes-Oxley corporate governance legislation is proving onerous and expensive for most businesses affected. That is why the decision by the US Securities and Exchange Commission to give foreign companies an additional year to comply with its most complex provisions will be widely welcomed. It is a big victory for European business groups, which had lobbied strongly for some breathing space.

The SEC has said that foreign companies with New York share listings will have until July 15 next year to comply with section 404 of the legislation. This is the section of the rules that covers internal controls against fraud. It requires directors to vouch for the effectiveness of the measures they have put in place to catch fraud. It exposes them to potential legal challenge.

Breathing space on Sarbanes-Oxley

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Foreigners given a breather on US Sarbanes compliance

The decision by the US Securities and Exchange Commission was announced yesterday after it recently suggested it was preparing to give ground on the legislation - known as section 404 - which sets out rules on internal financial controls to prevent fraud.

The decision, the third delay for the section, means Australian companies listed in the US will not have to comply until July next year at the earliest. Section 404 was originally to be implemented in July last year.

The section has been the subject of intense lobbying of the SEC, particularly by European companies. They have complained about the costs and complexity of the rules, which require a company to codify its internal reporting procedures and force the chief executive, the chief financial officer and an external auditor to sign off on them.

Foreigners given a breather on US Sarbanes compliance

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The web data pipelines

The operational data pipeline is largely concerned with availability, quality of service, consistency, correctness, etc. Some of the analysis needs to be available in real-time, and some of it much less so. A lot of the analysis is accounting, but there’s statistics involved for things like failure prediction.

The financial data pipeline is all about the money. If you can’t account for it, you can’t charge for it. Since Y! is largely ad-driven, it’s important to get this aspect right. A 10% “fudge” won’t sit right with advertisers, nor with shareholders, nor with the fine folks who brought you Sarbanes-Oxley. Not everything needs to be collected (e.g. click paths aren’t very interesting), just metrics like ad views and clickthroughs. It’s not real-time, but needs to be available relatively soon after a campaign ends, or at the end of an accounting quarter. This is largely straight accounting, yet there are statistics involved, for things like detecting click fraud.

The web data pipelines

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Mises Economics Blog: Not Your Father's CFO

Because your father never had to deal with Sarbanes-Oxley. A great article in the new issue of Strategy + Business: "Not Your Father's CFO." The CFO is no longer a bean counter with a few ties to tax and treasury. CFOs, nowadays, are strategic activists with roles in strategy and operations, as well as bean countering.

Mises Economics Blog: Not Your Father's CFO

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Following Sarbox Rush, Compliance Apps May Attract New Interest

In the rush to meet compliance deadlines for the Sarbanes-Oxley Act, or Sarbox, some companies have resorted to cutting corners and putting stopgap measures in place to get their review and audit processes in line. The tide will change, though, now that many firms are nearing the end of their Section 404 Sarbox process reviews and audits, says Meta Group analyst John Van Decker.

Now, enterprises will begin investigating how they can sustain the measures they have put in place and consider what kinds of software will help in that endeavor.

Following Sarbox Rush, Compliance Apps May Attract New Interest

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Extension on New Governance Rules

The Securities and Exchange Commission has given smaller and foreign companies an extra year to comply with internal control provisions of the 2002 Sarbanes-Oxley law on governance.

The extension, announced yesterday, comes as the S.E.C. prepares to vet complaints about the internal control rules at a meeting scheduled next month. United States companies have contended that the rules, required by Section 404 of the Sarbanes-Oxley Act, are costly and onerous.

Extension on New Governance Rules

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Ebbers defense puts blame on ex-CFO

The top lawyer for former WorldCom Inc. chief Bernard Ebbers on Thursday pinned the telecommunications company's massive accounting fraud squarely on former chief financial officer Scott Sullivan.

"Virtually every allegation of wrongdoing at my client, Mr. Ebbers, came directly from a highly impeachable source, Scott Sullivan," lawyer Reid Weingarten said in his closing argument at Ebbers' fraud trial.

Weingarten said while he listened to the government's closing argument on Wednesday, accusing Ebbers of ordering the fraud, "I thought I was in the wrong courtroom."

Ebbers defense puts blame on ex-CFO

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Encore Capital Group Announces Successful Completion of Sarbanes-Oxley Section 404 Requirements

Encore Capital Group, Inc. (Nasdaq:ECPG - News), a leading accounts receivable management firm, today provided an update of the status of its compliance with Section 404 of the Sarbanes-Oxley Act, commonly referred to as "SOX," which requires companies to satisfy certain internal controls requirements.

Barry Barkley, the Company's Chief Financial Officer, stated, "We are extremely pleased to announce that we have successfully completed the requirements of Section 404. Our compliance plan encompassed the identification, documentation and testing of a sweeping set of controls. Through completion of this project, we have invested approximately $1.2 million in this process and have spared no effort to meet these requirements."

In substance, Section 404 requires annual management assessments of the effectiveness of the company's internal controls over financial reporting, and a report by its independent auditors addressing these assessments. Encore previously reported that it was uncertain as to its ability to satisfy SOX 404 requirements for the fiscal year ending December 31, 2004 on a timely basis.

Encore Capital Group Announces Successful Completion of Sarbanes-Oxley Section 404 Requirements

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IT Job Confidence Lags

Job confidence among IT pros last year was second-highest among the four other sectors surveyed by Hudson, who also tracks accounting and finance, healthcare, and manufacturing. Compliance work related to Sarbanes Oxley helped make the accounting and finance sector the most confident industry last year; those regulations also buoyed that job optimism among IT pros, according to Hudson.

IT Job Confidence Lags

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Accounting rule exposes problems, stirs debate

More than 500 public companies have reported deficiencies with their internal accounting controls under a controversial new federal rule -- a figure sure to feed the continuing debate about the cost and usefulness of recent efforts to strengthen corporate governance.

To backers, the volume of disclosures demonstrates that the new rule, part of the 2002 Sarbanes-Oxley corporate-accountability law, is pushing a lot of U.S. companies into line. But business groups complain that it's costing them a lot of money and effort to turn up deficiencies that in most cases are inconsequential.

The rule, section 404 of Sarbanes-Oxley, requires companies to assess the internal controls they have in place to ensure their financial reporting is accurate and reliable -- and requires accounting firms to vouch for those controls.

Accounting rule exposes problems, stirs debate

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SEC grants extra year for Sarbanes-Oxley filing

The US Securities and Exchange Commission has confirmed that it is giving non-US companies an extra year to comply with the internal control requirements of the Sarbanes-Oxley Act. The amendments require a company to include in its annual reports a report by management on the company's internal control over financial reporting and an accompanying auditor's report.

Under the latest extension, a company that is not required to file its annual and quarterly reports on an accelerated basis (non-accelerated filer) and a foreign private issuer filing its annual reports on Form 20-F or 40-F, must begin to comply with the internal control over financial reporting requirements for its first fiscal year ending on or after July 15, 2006. This is a one-year extension from the previously established July 15, 2005, compliance date for non-accelerated filers and foreign private issuers. The Commission similarly has extended the compliance date for these companies relating to requirements regarding evaluation of internal control over financial reporting and management certification requirements.

SEC grants extra year for Sarbanes-Oxley filing

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Sarbanes silver lining could be false dawn

There is a hint of sunshine for snow-covered London lawyers in the unlikely shape of US securities regulation, which is not only providing work for the English but promises to slow down US firms’ City advance.

This is because European companies are finally making good on threats to de-list from the US after groaning for months over the costs and regulatory burden of complying with Sarbanes-Oxley reforms. Not surprisingly, the European queue for new US listings is now also short to non-existent.

Such a state of affairs, should it continue, will have notable consequences for the legal profession, which has for 20 years based much of its international expansion around the transatlantic securities pipeline.

And the initial losers will be US advisers who, with a couple of partial exceptions, are still heavily reliant on the securities card to worm their way into European companies.

Sarbanes silver lining could be false dawn

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SEC Grants Extensions

Regulators yesterday gave small public companies and foreign businesses whose stock trades on U.S. exchanges a one-year extension for complying with controversial new rules on financial controls.

Under the new timetable, those companies must begin certifying the effectiveness of their internal controls for the fiscal years ending on or after July 15, 2006. Controls cover such things as requiring multiple signatures on payroll checks and limiting computer access to a company's sensitive financial data.

SEC Grants Extensions

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Wednesday, March 02, 2005

MasterCard Incorporated Reports Compliance With Sarbanes-Oxley Section 404

MasterCard Incorporated, the parent company of MasterCard International, is pleased to announce that it has achieved compliance with Section 404 of the Sarbanes-Oxley Act (SOX 404) one year ahead of the deadline for non-accelerated filers with the U.S. Securities and Exchange Commission.

Robert W. Selander, MasterCard president and CEO, said "While we have had transparency of our financial results since becoming a SEC-registered company in 2002, achieving SOX 404 compliance demonstrates the continued strength of our reporting and governance process, and builds on the high standard of accountability that our shareholders deserve and expect. The SOX 404 process both confirmed the strength of our processes and took us to a higher standard of internal control compliance."

"SOX 404, which requires management of SEC-registered companies to document and evaluate the design and effectiveness of their internal controls over financial reporting, was a major challenge for corporate America in 2004," said Chris McWilton, MasterCard's chief financial officer. "MasterCard is pleased to report that we have achieved compliance, and no material weaknesses were identified during testing."

MasterCard Incorporated Reports Compliance With Sarbanes-Oxley Section 404

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Advanced Communications CEO Asks Congressman Oxley to Lift Burdens from Small Businesses

Advanced Communications Technologies, Inc. (OTC Bulletin Board: ADVC) CEO Wayne Danson has asked Congressman Michael Oxley to take action to help reduce legislative burdens on small businesses. ADVC is a vertically integrated technology services company with subsidiaries specializing in the repair and distribution of computers, peripherals and consumer electronics.

Danson recently attended a meeting with Congressman Oxley to discuss the immense burden placed on small businesses by the Sarbanes-Oxley Act of 2002. The act lays out a set of rules and accountability standards for public companies. Oxley was a major contributor in drafting the legislation, which was initiated in response to a number of corporate scandals, such as the Enron scandal that became public in November 2001.

Danson said that implementing Section 404 requirements of the legislation are costing small businesses enormous and debilitating amounts of time and money. Such companies also are experiencing difficulty in finding competent, qualified professionals to serve on their boards of directors as well as financial experts to chair board audit committees due to a lack of available D&O insurance. Danson said the personal liability and potential consequences for independent directors is making it increasingly difficult for these small businesses to attract competent people.

Advanced Communications CEO Asks Congressman Oxley to Lift Burdens from Small Businesses

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Four Out of Five Agree: High Compliance Costs Outweigh Benefits Say Investors

Most investors applaud recently instituted reforms intended to prevent corporate abuse, however they express deep reservations about the costs to implement them, according to a poll of institutional investors conducted in February by Broadgate Consultants LLC. In addition, with bonuses soaring for CEOs at the nation's top corporations, investors also believe that transparency surrounding executive compensation is not sufficient and should be improved.

An overwhelming majority (83%) of the 105 institutional analysts and portfolio managers from across the U.S. responding to the survey, which covered a range of capital markets issues, say that the new rules relating to auditor testing and certification of companies' internal financial controls, required under Section 404 of the Sarbanes-Oxley Act of 2002, should be modified to make compliance more cost-effective.

So-called Section 404 requirements now apply to approximately 4,000 public companies that have at least $75 million of publicly-held securities. A number of company executives have claimed that certifying internal financial controls as required under Section 404 is becoming a costly and time-consuming burden and institutional investors appear to agree, particularly with the explosion of delayed earnings announcements attributed to Section 404 compliance.

Survey respondents were not on the same side of the fence with corporate executives on the topic of compensation disclosure, however. Nearly 90% of the fund managers surveyed strongly advocate more transparency about executive pay. With studies showing CEO bonuses at record high levels, nearly two-thirds of the Broadgate survey respondents say most companies have not adjusted their compensation policies in response to the claims of executive excess.

Four Out of Five Agree: High Compliance Costs Outweigh Benefits Say Investors

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BI tools gain higher rank in enterprises

Meanwhile, vendors are moving to meet user demands for new BI tools that can link disparate sources of performance data. Hyperion Solutions Corp. this week will unveil its Compliance Management Dashboard, which marries internal control data with financial data to help companies track compliance with the Sarbanes-Oxley Act. The new dashboard will accompany the unveiling of a new version of Hyperion's performance management offering.

Earlier this month, Actuate Corp. rolled out the Actuate Financial Performance Management Suite.

Spectra-Physics Inc., a Mountain View, Calif.-based manufacturer of laser systems, has been using an earlier version of Hyperion's performance suite to integrate inventory data from multiple systems into dashboards.

"The [dashboard] application provides summary and detail-level visibility to inventory worldwide," said Mark Rowell, Spectra's IT director.

BI tools gain higher rank in enterprises

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Paradigm Shifts: Twenty changes that rocked your world

Hyperbole? Consider this: 20 years ago, risk management involved buying insurance, not guarding against terrorist attacks. Competition from overseas meant Japan, not China. Two decades back, CFO magazine wrote about the vexations wrought by FAS 87; these days, Sarbanes-Oxley can make pension accounting look like a walk in the park. And finally, the idea of a finance executive being a strategic partner was just that — an idea.

Paradigm Shifts: Twenty changes that rocked your world

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The Intersection Of The Wall Street Journal And My Life

Today I received the first paper of my subscription to The Wall Street Journal. On the front page was an article entitled “Accounting Rule Exposes Problems But Draws Complaints About Costs” which discusses the business implications of the 2002 Sarbanes-Oxley corporate-accountability law.

This is exactly the impetus behind the project on which I’ve been working for the past few months (we plan on going live this weekend).

Editor: A new solution for Sarbanes-Oxley compliance, perhaps? Stay tuned.

The Intersection Of The Wall Street Journal And My Life

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Commentary: The Virtue of Nonprofits

The cultural assumption of late has been that Sarbanes-Oxley was necessary; the corporate agenda is greed and CEO indulgence. Similar revelations have surfaced among charities such as National Capital Area United Way and “questionable” nonprofits collecting millions for tsunami relief.

So in the naive belief that virtuous decisions can be legislated—and despite the onerous cost of Sarbanes-Oxley—the rush to more charity oversight began. The United States Senate and the Internal Revenue Service (IRS) are at the forefront; the benefit to the uniquely generous and often sacrificial compassion sector remains in question.

Waning public confidence in charities is the battle cry. After extensive interviews questioning enhancement strategies, the IRS Advisory Committee on Tax Exempt and Government Entities report of last June concluded that the IRS plays a “crucial ‘clearinghouse’ role in helping assure the donating public that organizations granted exempt status are legitimate and worthy of support.”

Assuring legitimate exempt status is a reasonable mission for the IRS. However, nonprofit worthiness placed at the mercy of the Internal Revenue Service should be a cause for concern among even the most casual nonprofit donors.

Commentary: The Virtue of Nonprofits

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Forbes.com: Nautilus Names Meadowcroft CFO

Meadowcroft joined Nautilus in 2000 and has served as the company's principal accounting officer, treasurer and corporate controller. Nautilus said he spearheaded its successful compliance with Sarbanes-Oxley, renegotiated credit arrangements for both consumers and commercial customers, and is consolidating financial systems and organizations following three acquisitions.

Forbes.com: Nautilus Names Meadowcroft CFO

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Preparing for a SOX audit

In a recent interview, Alex Bakman, CEO of Ecora Software Corp., in Portsmouth, N.H., offered his top five tips for IT administrators when preparing for a Sarbanes-Oxley (SOX) audit.

Preparing for a SOX audit

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Why We Need Bubbles

Preventing bubbles would do more to protect incumbents and inhibit innovation and economic progress than Sarbanes-Oxley squared and a ban on silicon and software combined. The capital raised in bubbles is the explosive charge which launches the technologies that change the world.

Nothing great has ever been accomplished without irrational exuberance!

Radical new technologies suffer from a chicken and egg problem. Railroad tracks are useless without trains and vice versa. Modern roads and modern cars require each other and a network of fueling and repair stations to be useful. The modern Internet required a two order of magnitude growth in infrastructure, an enormous investment in access, huge amounts of content, and a critical mass of users – all at once.

Why We Need Bubbles

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The I-Blog: Sarbox Impact on Product Roadmaps

A friend of mine emailed me the other day asking to compare notes on presenting product roadmaps. He runs Product Management for a well-known, well-funded startup offering enterprise software. Having been in the business for quite a while, he has great experience presenting product roadmaps. However, the corporate controller recently approached him and expressed concern over the content of his roadmap presentations. Specifically, the implied commitments created exposure from a revenue recognition perspective -- according to the controller.

The I-Blog: Sarbox Impact on Product Roadmaps

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Tuesday, March 01, 2005

Movaris secures 10 million dollars in financing

Adobe Ventures and Granite Ventures co-led a third round of funding which has added $10 million for financial control software maker Movaris, Inc. The Cupertino company makes software which helps companies in their compliance with the Sarbanes-Oxley law.

Movaris says it will use the money to expand its sales, professional services, and development organizations to meet the rapidly expanding demands of the market for Sarbanes-Oxley and financial control management applications.

Movaris secures 10 million dollars in financing

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Information Strategy: Life after Sarbanes-Oxley Compliance

There is none - life after Sarbanes-Oxley compliance, I mean. Why? Because there is no "after" when it comes to being in compliance with the 2002 Sarbanes-Oxley Act. Sarbanes-Oxley (SOX) compels public corporations to file annual reports with the SEC that detail the process by which corporate management has established and maintained internal governance structures and processes for financial reporting. It also requires companies to report on the effectiveness of those efforts. In short, SOX compliance requires an ongoing effort on the part of all public (and a growing number of private) companies to put their financial reporting houses in order and to keep them that way.

If your company is like many others, you found some significant problems with your IT infrastructure during the process of complying with SOX regulations. The problems range from unnecessary complexity in data structures, processes and systems to insufficient alignment between IT and businesspeople, to ineffective use of technology to make corporate governance more efficient and successful.

Information Strategy: Life after Sarbanes-Oxley Compliance

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Sarbanes-Oxley's Men in Black

Under the Sarbanes-Oxley Act (SOX) of 2002, public companies are required to not only disclose the data in their accounting books, they also have to show how they arrived at those numbers in the first place. But who will be watching to see if companies comply in the wake of the scandals surrounding the likes of Enron and WorldCom, whose cooked books resulted in millions in investor losses?

If problems are found, a publicly traded company is responsible for disclosing them and fixing them. "They are supposed to do it by law," said Alex Bakman, CEO of Ecora Software Corp., in Portsmouth, N.H. Lack of compliance with it results in not only company liability, but personal liability as well, including criminal actions against chief executive officers and chief financial officers. "The SEC is not messing around," he said. "This thing has teeth."

Sarbanes-Oxley's Men in Black

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New Study By The Aberdeen Group Identifies The Missing Control Link

A new study by the Aberdeen Group 'The Value of User Provisioning for SOX Compliance' sponsored by Thor Technologies, the most experienced and proven provider of identity management solutions, identifies user provisioning solutions as one of the key controls recommended by auditors for cost-effectively complying with Sarbanes-Oxley (SOX). The results from the survey and in-depth interviews, conducted among more than 40 leading enterprises worldwide, is part of Aberdeen's Business Value Research Series and builds on prior Aberdeen research stating that, when properly implemented, the cost savings generated from lowered costs in IT generally pays for provisioning software in less than a year.

New Study By The Aberdeen Group Identifies The Missing Control Link

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Hyperion launches compliance software

Hyperion has launched software to help organisations match internal controls data with financial data to meet compliance regulations such as Sarbanes-Oxley. The product, called Hyperion Compliance Management Dashboard, will give finance directors a clear view of their companies’ compliance status and potential risks, according to Hyperion. It will also improve reporting accuracy and confidence in financial statements and disclosures, Hyperion added.

"Now that most companies have passed the first critical deadline for Section 404 of Sarbanes-Oxley compliance, progressive organisations are focused on ensuring sustainable compliance and achieving value from compliance investments," said Kathleen Wilhide, an analyst at IDC.

Hyperion launches compliance software

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HIPAA and Sarbanes-Oxley Compliance Impacts Everyone

Every time I write about SOX/HIPAA issues with compliance, data storage, security and such, I get several people writing in for more information about how it may be impacting their systems. It was no different with yesterday's editorial mention about SOX data stores and pulling meaningful data out of the systems you keep. Since several of you did write in, I thought I'd pass along a few links for more information and tips for your review.

HIPAA and Sarbanes-Oxley Compliance Impacts Everyone

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Compliance tasks offer extra benefit

Businesses that completed their IT projects for Sarbanes-Oxley and other financial compliance regulations last year are re-visiting their work to look at more effective means of implementation.

Although Sarbanes-Oxley compliance has been a complex task for businesses, many are realising that compliance requirements can help improve the efficiency of their operations.

John Worrall, vice-president for marketing at RSA Security, said, "Many firms that rushed systems into place to meet the end-of-year deadlines are coming back and saying, 'I got through the first part, now what can I improve?' Whether that would be improving business processes or becoming more efficient."

Sarbanes-Oxley is raising interest in single sign-on technology to authenticate the identities of staff connecting to IT systems, RSA said.

"If you talk to companies, compliance is the number one or number two issue," said Worrall.

Compliance tasks offer extra benefit

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US recorded largest number of IPOs in 2004 since internet bubble

Last year saw the largest number of IPOs in the US since the internet bubble. In 2004, 260 IPOs were completed, nearly a threefold increase over the 88 deals completed in 2003, according to U.S. IPO Watch, a quarterly report issued by PricewaterhouseCoopers' Global Capital Markets Group.

Total US IPO proceeds rose from $18.6bn in 2003 to $51.9bn in 2004 and the average deal size increased from $113m in 2003 to $150m in 2004 - excluding the ten largest IPOs in each year.

The largest US IPO of the year 2004 was Genworth Financial, the spin-off of General Electric's life insurance and mortgage business, at $2.8bn, followed by Chinese Semiconductor Manufacturing at $1.8bn and accident and health insurer Assurant at $1.76bn. Google's IPO was the year's fourth largest at $1.7bn. The ten largest deals in 2004 accounted for a smaller proportion of overall IPO proceeds - 30 per cent in 2004 compared with 48 per cent in 2003.

US IPO activity in 2004 increased across virtually all industry sectors in 2004. Biotechnology led the way with 30 deals, followed by real estate investment trusts with 24, banking and software with 21 each, and healthcare with 20.

US recorded largest number of IPOs in 2004 since internet bubble

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