Tuesday, November 29, 2005

The SOX Appeal of Going Private

Is the Sarbanes-Oxley Act of 2002 one of the reasons why an increasing number of companies are opting to go private? When Georgia Pacific CEO Pete Corell attributed his willingness to sell to a private company in part because of what he viewed as onerous regulations like those contained within Sarbanes-Oxley (popularly known as SOX), the news set off market speculation about whether other public companies would follow suit.

How real is this threat? And what does it mean for investors? Standard & Poor's Chief Economist David Wyss believes SOX is a factor in the recent wave of privatizations, but a relatively minor one. He does, however, think the legislation makes it even harder to be a public company, which creates another incentive for outfits to stay or go private. "Most of the issue is, I think, transitional. Once companies learn to operate in the new environment, it should stabilize," Wyss says.

The SOX Appeal of Going Private

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Study: Sarbanes-Oxley Law Not Changing Technology Business Culture

Survey respondents agree that SOX serves to identify fraudulent activity, but they do not believe the recent cultural change among U.S. business leaders toward "institutional integrity" and fraud prevention will stick. Only 17 percent believe there will be a "shift" among technology business leaders to institutional integrity.

The survey results, available online -- demonstrate that 65 percent of respondents feel SOX has been "somewhat effective" or "very effective" in identifying incidences of financial fraud. Just 19 percent of those surveyed found SOX to be ineffective or serve to prevent fraud identification.

Study: Sarbanes-Oxley Law Not Changing Technology Business Culture

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Monday, November 21, 2005

FEI Benchmarks Sarbanes-Oxley Compliance Best Practices

Financial Executives Research Foundation (FERF), the research affiliate of Financial Executives International (FEI), released two new reports on Sarbanes-Oxley compliance and Management's Reports on Internal Controls.

"This research provides helpful insight into best practices for Sarbanes-Oxley and we are excited to publish this," said Colleen Cunningham, President and CEO of FEI and FERF. "With the bulk of Section 404 implementation in place at many companies, we believe this is an important time to assess the progress made, and to look ahead at helpful business lessons we can apply to the future. The report identifies best practices for companies in 2006 and beyond."

"Sarbanes-Oxley Section 404 Compliance - From Project to Sustainability" summarizes the compliance practices of leading companies and describes how they are improving their processes in the second year of compliance as they strive toward long-term sustainability. FERF produced this report with Dr. Robert A. Howell, Distinguished Visiting Professor of Business Administration at Dartmouth's Tuck School of Business.

FEI Benchmarks Sarbanes-Oxley Compliance Best Practices

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Thursday, November 17, 2005

Column: Below the surface of the cost of Sarbanes-Oxley:

Bashing Sarbanes-Oxley, the law Congress passed to rein in corporate-accounting abuses, is popular locker-room banter among executives. But it has gotten out of hand. On Sunday, Georgia-Pacific Chief Executive A.D. "Pete" Correll suggested avoiding the law was a reason to sell his company to privately held Koch Industries. "You get used to spending your shareholders' money" on the law's provisions, he told reporters. "But that doesn't make it right."

Some commentators took Mr. Correll's suggestion even further. Sarbanes-Oxley, my former colleague Larry Kudlow told his CNBC audience, "is clearly leading to these privatizations."

Well, slow down, folks. A little perspective is in order.

A recent study by Foley & Lardner LLP found that all the costs associated with being a big public company averaged $14.3 million last year. That was up 45 percent from the year before, due largely to the requirements of Sarbanes-Oxley. But for a company like Georgia-Pacific, it's still not that big a number.

Column: Below the surface of the cost of Sarbanes-Oxley

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Friday, November 11, 2005

Supplier Compliance: The Responsibility Lies with You

As everyone who has not been hiding in a cave the last four years knows, Section 404 of the Sarbanes-Oxley Act (Sarbox) stipulates that public companies must demonstrate proper controls over financial transactions and internal processes. Every internal system and process is subject to intense scrutiny, and the documentation that must be provided is just this side of what was used to send the Apollo 11 astronauts to the moon.

What is less known, however, is that the provisions of Sarbox also make the purchasing company responsible for the quality of their suppliers' processes and controls. This can be a far more difficult assignment. After all, you know (or should know) how your organization operates. But how about your suppliers?

If you're outsourcing any type of services, from applications delivered by a managed service provider to contingent workers to an offshore contact center, this lesser-known requirement leaves you with two options. One is to conduct your own audit of all your suppliers. This method will provide you with the assurances you need, but it's not very feasible. After all, think of how long it takes to audit your own internal systems, where you already know how they work.

Supplier Compliance: The Responsibility Lies with You

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Numbers prove accountants are on a roll

The accounting firm Grant Thornton International crunches numbers in 11 countries and boasts of annual revenue of more than $2 billion with more than a quarter of it coming from it U.S. division, based in New York City. Scott Levy, a partner in charge of the firm's New Jersey office, in Edison, had a conversation recently with The Record about the growing company and the state of the accounting industry.

Numbers prove accountants are on a roll

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Wednesday, November 09, 2005

Captiva Releases Dispatcher 4.0

For example, Jensen says, though many companies are able to network computers while communicating with each other, banks and insurance firms who deal with the public are always swimming in paper forms, invoices and claims. And since Sarbanes-Oxley, which requires more intensive corporate documentation, was passed in 2002, companies need the scanning solutions that Captiva provides, more than ever.

"You can't just put a disc into your computer, and then suddenly you're [Sarbanes-Oxley] compliant," Jensen says. "We help companies go through the whole process of compliance."

Captiva Releases Dispatcher 4.0

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Double Dipping on Sarb-Ox

Mention the Sarbanes-Oxley Act to a CIO or a corporate executive, and he's likely to roll his eyes or grimace. That's because most executives view the compliance requirements as a grim burden, like cleaning out a pack rat's basement.

Large public companies have had to devote thousands of staff hours and invest millions of dollars to identify, document and audit internal controls within their organizations just to comply with Section 404 of the federal law. Often the result has been that other strategic initiatives and revenue-enhancing IT projects had to be put on the back burner.

Those pressures have continued unabated in 2005. U.S. companies are expected to spend nearly $15.5 billion on compliance-related activities this year, with technology spending on Sarbanes-Oxley alone expected to top $1.7 billion, according to Boston-based AMR Research Inc.

Double Dipping on Sarb-Ox

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Tuesday, November 08, 2005

The Impact of Sarbanes-Oxley on Revenue Recognition Practices (Part 1)

Revenue accounting has become a “hot spot” for auditors and investors. It is simultaneously coming under greater scrutiny and becoming more complex. Guidelines and regulations are under constant review, and many industries are adopting new business models involving wide ranging customer relationships with long-term financial implications.

The introduction by the Securities and Exchange Commission of Staff Accounting Bulletins (SAB) 101 and 104, as well as FASB’s Emerging Issues Task Force (EITF) 00-21 and the Sarbanes-Oxley Act underscore the fact that reliable revenue reporting is a demand all companies must meet, and that it is non-negotiable. Accurate, timely, and comprehensive revenue reporting is a requirement for enterprise infrastructures and an essential component for regulatory compliance.

One of the primary objectives of Sarbanes-Oxley is to ensure that companies are reporting accurate revenue numbers. Therefore, one might expect to see sweeping changes in this area. A survey conducted by RevenueRecognition.com and IDC in August 2005 found that more than half (55%) of all public companies have changed revenue recognition practices as a result of Sarbox, see Figure 1. More than a quarter (26%) of companies that did so reported the changes were “moderate” or “significant.”

The Impact of Sarbanes-Oxley on Revenue Recognition Practices (Part 1)

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Monday, November 07, 2005

Who Leads Sarbanes-Oxley Compliance?

The best answer to the question about who leads a company's compliance with the 2002 Sarbanes-Oxley Act's reporting requirements is that it depends on the company. For example, an internal audit group has the responsibility at 37% of companies recently surveyed by PricewaterhouseCoopers. The company's CFO or controller has the responsibility at 31%, an existing task force or work group has it at 23% and new or existing risk-management functions have the responsibility at 16%. (The total adds to more than 100% because multiple responses were allowed.)

Who Leads Sarbanes-Oxley Compliance?

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Sarbanes' Bill Booby Traps Wire Transfer Industry

His Sarbanes-Oxley “corporate reform” law, which Republicans latched onto in a panic in 2002 after the Enron and WorldCom bankruptcies, is costing American businesses $35 billion a year, according to the American Electronics Association. The average public company is also spending more than 70,000 man-hours devoted to complying with new accounting mandates, according to Financial Executives International, rather than creating productive ventures and new jobs. Even Sarbanes’ former boss, ex-Senate Democratic Leader Tom Daschle (D.-S.D.), recently wrote in the Wall Street Journal that the law goes too far.

Undaunted, Sarbanes defends the law as protecting American shareholders, and is on the hunt for those who more who need “protection”—with massive new mandates. His latest target is the money remitter or wire transfer industry. But this new legislation has the twin sin that in addition to imposing costs that will be passed on to consumers, it also further balkanizes American culture by requiring businesses to service their customers in a variety of languages.

Says Jim Boulet, executive director of English First and an expert on multilingual mandates, “The cost of complying with this is going to make Sarbanes-Oxley seem like chicken feed.”

Sarbanes' Bill Booby Traps Wire Transfer Industry

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Friday, November 04, 2005

Compliance - Sarbanes-Oxley Act Adds to Costs But Pushes Companies To Prepare

Compliance burdens posed by the Sarbanes-Oxley Act are proving to be costly for many I.T. departments, according to Gartner Inc. But companies may be better equipped to meet any new federal regulations thanks to the processes they have developed for complying with the law, I.T. executives said last week.

Gartner estimates that the government's Sarbanes-Oxley mandates have led to an average increase of 3.3 percent in corporate I.T. costs. The financial reporting law has spurred increased spending in areas such as records management and security, as well as purchases of new tools needed to ensure the accuracy of financial data, the firm says.

At Eaton Corp., a Cleveland-based maker of hydraulic systems, factory automation devices and other industrial products, regulatory compliance issues have boosted I.T. spending by about 1 percent, or $3 million, according to CIO Robert Sell.

Compliance - Sarbanes-Oxley Act Adds to Costs But Pushes Companies To Prepare

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Survey: SOX Effective in Identifying Fraud

Oversight Systems Inc. announced the findings of its 2005 Report on Corporate Fraud, a survey of certified fraud examiners. The report explains that most fraud examiners view the provisions of Sarbanes-Oxley to be an effective tool in fraud identification, though few think it will change the culture of business leaders.

The survey results (available at www.oversightsystems.com/survey) indicate that 65 percent of respondents feel SOX has been either "somewhat" or "very" effective in identifying incidences of financial-statement fraud. Only 19 percent of those surveyed found SOX to be ineffective.

"This report is full of positive news, but foreshadows a real need for continued vigilance among executives toward intuitional fraud," said Patrick Taylor, chief executive of Oversight, in a statement. "SOX legislation and the intense focus on corporate scandals have helped battle this type of white-collar crime, but professionals seem to be worried that the C-suite might quickly lose interest in policing corporate fraud."

Although respondents agreed that SOX serves to identify fraudulent activity, they do not feel the cultural change among U.S. business leaders -- focusing on institutional integrity and fraud prevention in the wake of accounting scandals -- will hold over the long term. Only 17 percent feel there will be a shift among business leaders to institutional integrity and fraud prevention for the foreseeable future. The rest of the respondents possess an even bleaker outlook, reporting that interest in such actions will fade in the next five years (39 percent), that vigilance has already begun to fade (32 percent), or that there has been no change among business leaders (12 percent).

Survey: SOX Effective in Identifying Fraud

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Thursday, November 03, 2005

Survey: IT, Other Execs Want Better Sarbox Tools

The initial shock of Sarbanes-Oxley's is over, but many executives see no end in sight for the additional resources they need to comply with the requirements. Accenture released results of a nationwide survey Tuesday that showed IT executives and finance managers are cooperating to meet Sarbanes-Oxley requirements but want better and more efficient tools to create and manage accounting records. The survey queried 304 information technology and finance executives from U.S. businesses with revenues of at least $1 billion.

It found that more than 60 percent of finance executives believe the technology tools for supporting compliance are either somewhat effective or not effective. More than half of respondents (57 percent of IT managers and 51 percent of finance managers) said they have made staffing changes to support compliance. Fifty-three percent of IT managers and 42 percent of finance managers believe they will continue to need additional staff to meet the requirements over the next one to three years.

Survey: IT, Other Execs Want Better Sarbox Tools

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COSO Issues Draft Guidance for Smaller Businesses - Relief from High SOX Costs

The Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) has released an important new exposure draft of "Guidance for Smaller Public Companies Reporting on Internal Control over Financial Reporting." This draft guidance was generated to give smaller businesses an alternative to COSO’s full-blown “Framework” for internal controls. We believe this is an important opportunity for smaller businesses to help craft reasonable standards for internal controls.

COSO’s initially issued “Internal Control – Integrated Framework” (the “COSO Framework”) in 1992, which laid out the famous “COCO Cube.” Section 404 of the Sarbanes-Oxley Act of 2002 required the Securities and Exchange Commission to prescribe rules by which every public company would prepare an “internal control report” stating the effectiveness of the company’s internal controls.

The SEC’s final regulations did not mandate the COSO Framework as the exclusive means of determining the effectiveness of internal controls, but in the absence of any other standard, the COSO Framework has become the procrustean standard for all companies – large and small. As a result, the costs associated with the Sarbanes-Oxley Act have been growing at an alarming rate. A recent survey found that the average cost of compliance with Section 404 was over $2.5 million. These costs are greater on smaller businesses, a recent industry study found that companies with revenues under $100 million spent an average of 2.55% on compliance in 2004, versus only 0.06% spent by companies with revenues in excess of $5 billion.

COSO Issues Draft Guidance for Smaller Businesses - Relief from High SOX Costs

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Wednesday, November 02, 2005

Kintera Offers 18 Steps to Financial Compliance for the Nonprofit Sector

As nonprofit organizations are facing closer examination from donors, the public, the press and others, nonprofit managers have to establish set principles for accountability, transparency and fraud prevention. Kintera Fundware, maker of donor and financial management software specifically for the nonprofit and government sector, has just released a report entitled “Proactive Strategies: Accountability, Transparency & Fraud Prevention in Nonprofit Organizations.”

This paper highlights 18 proactive steps that nonprofit managers can take to streamline financial reporting to ensure that these organizations are indeed stewards of the money with which they have been entrusted.

Kintera Offers 18 Steps to Financial Compliance for the Nonprofit Sector

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A SOX army of one: How to spearhead compliance efforts

While many of you have undergone the rigors of meeting compliance requirements for Sarbanes-Oxley, some of you are new to the role, or are associated with companies that are just going public and have not previously been subject to this legislation. For those of you lucky enough to have drawn the assignment, the task may seem quite daunting. However, there are a few steps you might want to consider that could help slice sizeable task into manageable servings.

For starters, you'll likely be driving this effort on your own. I have yet to encounter an organization that has a staff dedicated solely to the purpose of SOX compliance. I know of a few organizations that may have a person dedicated to it, but most companies either reassign existing personnel or simply add the associated tasks to existing personnel – with the latter being the more common option.

As you're trying to get your arms around this task, here are some suggestions that might help you frame your approach and increase your chances of success.

A SOX army of one: How to spearhead compliance efforts

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Tuesday, November 01, 2005

GOP Rep. Oxley to Retire After 25 Years

Republican Mike Oxley, who wrote legislation to improve investor confidence after corporate scandals, said Tuesday he will retire from Congress at the end of his term after serving 25 years.

Republicans currently outnumber Democrats by 231-202 in the House and there's one independent, but Oxley's retirement doesn't promise to offer much of an opportunity for Democrats. Only 34.4 percent in his district voted for Democrat John Kerry for president last year and just 36.4 percent backed Al Gore in 2000.

Term limits would have forced Oxley to give up his chairmanship of the House Financial Services Committee at the end of 2006, and the 61-year-old said that was a leading factor in his decision.

Oxley became chairman of the Financial Services Committee when it was formed out of the House Banking Committee in 2000. It oversees banking, insurance and securities issues. He led a House probe into failed energy giant Enron Corp., and the 2002 Sarbanes-Oxley Act put in place new accounting requirements.

"I think that will be first and foremost in my obituary," Oxley said.

GOP Rep. Oxley to Retire After 25 Years

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