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From Venky Ganesan : "This is a bit outdated but still worth noting.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

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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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