Friday, March 31, 2006

Implications for Sarbanes-Oxley Section 404

Section 404 continues to pose a problem for many organizations. How can investor protection be maintained in the most time- and cost-saving way? How can you best identify risk areas to focus on when assessing the effectiveness of controls? Join us for an exclusive presentation from Scott Taub, Acting Chief Accountant for the Securities & Exchange Commission. Mr Taub will discuss common areas of concern in Section 404 compliance and offer recommendations to meet compliance goals.

Implications for Sarbanes-Oxley Section 404

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Sarbanes-Oxley has IPOs eyeing Europe

The true cost of the Sarbanes-Oxley Act for the capital markets in the US has emerged, as Europe raised more new funds from initial public offerings than the US for the first time in four years.

In its latest review of the European IPO market, the capital markets team at PricewaterhouseCoopers found that both the volume and value of European IPOs had grown substantially in 2005 and outstripped the US exchanges.

The number of IPOs in Europe last year grew 39% from 433 to 603 and the sums of new money raised almost doubled from 28bn euros (£19.3bn) to 51bn euros as international companies flooded into the European markets to avoid the onerous regulatory requirements imposed on the US exchanges by Sarbanes-Oxley.

Sarbanes-Oxley has IPOs eyeing Europe

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Big4Guy: Role of Process Owners in Sarbanes Oxley Compliance

One of our clients in Ohio, has decided to comply with Sarbanes Oxley voluntarily. I am working with John, who is the SOX Project Manager representing the client. Having identified the critical processes within his organization, John is now identifying process owners. Initially, John was not very clear on the concept of a process owner and what a process owner is supposed to do. He had the misconception that anybody executing the process is the process owner.

Big4Guy: Role of Process Owners in Sarbanes Oxley Compliance

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Thursday, March 30, 2006

HR 5024 Introduced Regarding Reducing Complexity; Summary of Hearing on Accuracy and Transparency of Financial Reporting

At a U.S. Congressional hearing earlier today on accounting, Congressman Geoff Davis noted in his opening statement that he introduced a bill on March 28, 2006, H.R. 5024, the Promoting Transparency in Financial Reporting Act of 2006, that would require annual testimony for the next five years before the House Financial Services Committee by the respective chairmen (or their designee) of the SEC, FASB, and PCAOB relating to their efforts to reduce the complexity in financial reporting.

HR 5024 Introduced Regarding Reducing Complexity; Summary of Hearing on Accuracy and Transparency of Financial Reporting

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AICPA Testifies Before Congress on XBRL

"Enhanced financial reporting is no longer just a dream," said Melancon. "Coupled with enabling technologies like AICPA's initiative XBRL enhanced business reporting will provide users with the breadth of information they require at the speed they need to be successful in today's economy."

Use of XBRL is not the only component required to achieve enhanced financial reporting, Melancon told the Subcommittee. "Companies, public accounting practitioners and policymakers still need to consider many elements as the evolution towards a reporting model that meets the needs of today's markets continues to become a reality," he said.

Melancon identified two of those elements as simplifying overly complex reporting and converging international reporting and auditing standards.

AICPA Testifies Before Congress on XBRL

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Time to Reform Sarbanes-Oxley

To address reform of the Sarbanes-Oxley Act of 2002 (Sarb-Ox), recall that it was passed in the political furor following the Enron and WorldCom scandals to try to prevent future accounting frauds. Let's start with its most obvious, largely unintended, consequences. Sarb-Ox, with its notorious Section 404 requiring internal control certifications in particular, has created a tremendously expensive amount of paperwork and bureaucracy. In the Sarb-Ox economy it seems that everybody audits everybody else.

Not only is this exceptionally costly, but it is far more costly -- about 50 times more -- than the SEC estimated it would be. Virtually every audit committee around the country has helplessly watched its audit fees escalate dramatically. The explicit costs alone are extremely high and disproportionately high for smaller companies.

Time to Reform Sarbanes-Oxley

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Wednesday, March 29, 2006

Start-Ups Slam Into Sarbanes

Bryce Linsenmayer knew Sarbanes-Oxley would affect his work as a corporate attorney. What surprised him was just how it did.

Last year, a client asked Linsenmayer, a partner at Haynes and Boone in Houston, about listing on the London Stock Exchange. Frontera Resources, a Texas-based company exploring for oil in the republic of Georgia, wanted closer access to European investors. But there was another reason driving its desire for a U.K. listing: Frontera was eager to avoid the millions in costs to comply with Sarbanes-Oxley.

Start-Ups Slam Into Sarbanes

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Sarbanes-Oxley Act refreshes 'business-as-usual boardrooms'

Sen. Paul Sarbanes for the first time on March 23 publicly defended the landmark corporate financial legislation he co-authored against criticism that its regulations hurt U.S. markets.

Sarbanes, Maryland's senior Democratic senator who plans to retire at the end of his current term, accepted a lifetime achievement award from the Consumer Federation of America.

He used the opportunity to answer detractors of the Sarbanes-Oxley Act of 2002, which improved corporate financial accountability and disclosure in the wake of scandals at Enron, Tyco, WorldCom and other companies.

"Critics who are attacking the seriousness of the situation should not go unchallenged," said Sarbanes. "The law is working as intended; auditor independence has been restored."

Sarbanes-Oxley Act refreshes 'business-as-usual boardrooms'

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Lafarge? Check the Sarbanes-Oxley compliance on holodeck 5

Lafarge SA said it has completed an audit of the company's internal financial reporting, which brings the company into compliance with the controls required by Section 404 of the US's Sarbanes-Oxley act.

Section 404 says that foreign companies listed on US stock markets must begin proving management oversight of internal reporting, and the findings must be certified by external auditors.

Lafarge has American Depository Shares (ADSs) traded on the New York Stock Exchange, and its reporting review was completed ahead of the July 15, 2006 deadline for beginning to report on internal controls set by the US Securities and Exchange Commission (SEC).

Lafarge? Check the Sarbanes-Oxley compliance on holodeck 5

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Tuesday, March 28, 2006

Chambers tackle Sarbanes-Oxley

The Sarbanes-Oxley Act is catching grassroots flak.

Chambers of commerce in places ranging from up the road in Austin to across the country in Boston are taking on the burdensome legislation.

While the federal law has strengthened financial reporting by publicly traded companies, compliance with Sarbanes-Oxley has resulted in financial headaches for small and midsized public companies.

In fact, the report says, Sarbanes-Oxley "has become yet one more burden in the steep climb" toward an initial public offering.

Chambers tackle Sarbanes-Oxley

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Monday, March 27, 2006

Microsoft Delivers Sarbanes-Oxley tracking and reporting capabilities

Two new pieces of functionality--audit trails and electronic signatures--when used together help ease compliance with FDA 21 CFR Part 11 and the Sarbanes-Oxley Act of 2002. Audit trails allow users to easily track, trace and report on changes made to data within the Microsoft Dynamics GP solution, including changes made to data within third-party software that resides in Microsoft Dynamics GP. Electronic signatures allow companies to assign dual-signature authorization requirements to critical business documents, helping reduce the risk and potential errors associated with significant business processes.

"Compliance is one of the leading issues affecting the business world, so the Sarbanes-Oxley and FDA Part 11 tracking capabilities enabled by these extensions is a huge win for customers," said Bill Burke, president of Merit Solutions Inc. "Microsoft's delivery of solutions to help meet data compliance regulations, in an easy and cost-effective way, is critical for customers in many industries. If your industry isn't regulated today, that doesn't mean it won't be soon."

Microsoft Delivers Sarbanes-Oxley tracking and reporting capabilities

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Sarbanes SOX It To Critics Of His Act

Like a father defending his taunted child, Sen. Paul Sarbanes (D-Md.) has struck back at the critics of the act that bears his name and that of Sen. Michael Oxley (R-Ohio). Speaking to the Consumer Federation of America, Sarbanes said the legislation came "in direct response to a crisis whose dimension in retrospect are all too easy to play down. Critics who now attempt to minimize the seriousness of the situation should not go unchallenged."

Sarbanes SOX It To Critics Of His Act

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Sunday, March 26, 2006

Houston's Clear Thinkers: Lay-Skilling, Week Eight

Week Eight of the corporate criminal case of the decade drew to a close on Thursday with former Enron treasurer and Andy Fastow protégé Ben Glisan on the stand and with the Enron Task Force announcing that presentation of its case-in-chief was drawing to a close. That's entirely appropriate because, in many ways, Glisan's testimony has been a microcosm of the Task Force's case against former key Enron executives Ken Lay and Jeff Skilling.

Houston's Clear Thinkers: Lay-Skilling, Week Eight

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Sen. Sarbanes Gives On-Target Defense of Sarbanes-Oxley Act

When your name is on the legislation behind those lightening-rod regulations, it lends some weight to your views.

So when Sen. Paul Sarbanes, D-Md., spoke Thursday in defense of the much-heralded and much-maligned Sarbanes-Oxley Act that seeks to reform accounting and auditing and make the scandal-plagued 1990s less likely to recur, he reached for some recent history.

"The legislation came in direct response to a crisis whose dimensions it is all too easy, in retrospect, to play down," Sen. Sarbanes, who won't stand for re-election later this year, told the Consumer Federation of America. Those who now complain that Congress "overreacted" or "overreached" by passing the Sarbanes-Oxley law in 2002 should remember that by 2001, "the escalating number of corporate scandals caused a grave crisis in investor confidence."

Sen. Sarbanes Gives On-Target Defense of Sarbanes-Oxley Act

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Saturday, March 25, 2006

Sarbanes chides critics of corporate accounting law

Sen. Paul S. Sarbanes said yesterday that the corporate accounting law he co-authored helped avert a crisis in U.S. securities markets, and that critics pushing to ease some of its regulations have forgotten the recent spate of corporate scandals.

In remarks to a group of consumer advocates, Sarbanes said the bill fixed "systemic and structural defects" in overseeing company conduct. Critics have "short" memories of the accounting troubles that drove Enron Corp., WorldCom Inc. and other companies into bankruptcy.

"That legislation came in direct response to a crisis whose dimensions in retrospect are all too easy to play down," said the Maryland Democrat. "Critics who now attempt to minimize the seriousness of the situation should not go unchallenged."

Sarbanes chides critics of corporate accounting law

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Friday, March 24, 2006

Long arm of Sarbanes-Oxley would embrace Alcatel

If a deal between Alcatel S.A. (ALA) and Lucent Technologies Inc. (LU) is structured as an all-stock acquisition by the French company, investors could end up seeing some erosion of corporate governance and shareholder rights.

French companies disclose less, and French courts are less likely to reward shareholder litigation. But even if Lucent shareholders end up with American Depositary Receipts in a combined company, any gaps in disclosure and other governance requirements largely will be plugged by the cross-border reach of the Sarbanes-Oxley Act, legal experts said.

"There is a good deal of convergence between U.S. companies domiciled here and foreign private issuers with securities listed and traded in the U.S.," said Thomas J. Igoe Jr., a partner in the New York office of Thelen Reid & Priest LLP. "And that's by force of Sarbanes-Oxley, which makes few exceptions to accommodate foreign companies."

Long arm of Sarbanes-Oxley would embrace Alcatel

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Sen. Sarbanes defends Sarbanes-Oxley

The chief author of the controversial Sarbanes-Oxley Act of 2002 today defended his legislation, which increasingly is under attack for the expenses and burdens it imposes.

"Memories are short," said Sen. Paul Sarbanes - D, Md., speaking to the Washington-based Consumer Federation of America's annual Consumer Assembly. "We need to remind those who complain that Congress over-reacted."

Corporate governance practices are changing for the better, he added. "Investors have regained confidence in our capital markets."

Sen. Sarbanes was critical of the recommendations made by the Securities and Exchange Commission's Advisory Committee on Smaller Public Companies, which he said would exempt four-fifths of all public companies from those requirements.

Sen. Sarbanes defends Sarbanes-Oxley

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Thursday, March 23, 2006

Sarbanes Oxley Simplified

We recently received and reviewed the "Sarbanes Oxley Simplified" program from Competence Software.

SOX is a boring topic for some and a frustrating topic for others, given the high costs of compliance. But SOX Simplified explains that a lot of people ought to be more interested in SOX (including "a better informed investor public whose members can make more responsible and less speculative decisions based on accurate data") and uses levity in its approach to a ponderous subject ("we believe the Act can be looked at as a game").

SOX Simplified unfolds flexibly, allowing users to use an on-hand glossary to understand unknown terms, and it doesn't assume a baseline knowledge of the subject. For example, it offers remedial information about the basic actions required to run a business, and explains financial statements from the ground up.

Sarbanes Oxley Simplified

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Sarbanes-Oxley May Be Ready For Revisions

With costs of complying with the Sarbanes-Oxley Act soaring, the chorus of opponents to the act is growing louder, suggesting that the time may be near for changes to the law. One step in that direction, reports CNN, is a lawsuit filed by The Free Enterprise Fund, against the Public Company Accounting Oversight Board. The suit charges that the law that created the PCAOB violates the separation of powers clause of the Constitution.

Sarbanes-Oxley May Be Ready For Revisions

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Wednesday, March 22, 2006

PCAOB: Big Four Inspections Will Stay Private

The Public Company Accounting Oversight Board said this week that its inspections of the Big Four accounting firms will not be released to the public.

The board said it won't make its August 2004 findings public because the firms -- PricewaterhouseCoopers, Deloitte & Touche, Ernst & Young, and KPMG -- had addressed the issues within the 12-month timeframe mandated by a provision of the Sarbanes-Oxley Act.

The act provides that "no portions of the inspection report that deal with criticisms of or potential defects in the quality control systems of the firm under inspection shall be made public if those criticisms or defects are addressed by the firm, to the satisfaction of the Board, not later than 12 months after the date of the inspection report."

PCAOB: Big Four Inspections Will Stay Private

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Sarbanes-Oxley dogged by vocal criticism, lawsuits

Corporate executives, faced with greater regulatory scrutiny and demands in the wake of corporate scandals like Enron, have for some time moaned that new compliance rules are costing them profits and manpower, as well as cumbersome and probably not that effective.

Now a new lawsuit's adding another criticism: They're unconstitutional.

Last month, Washington D.C.-based lobbying group The Free Enterprise Fund joined hands with the small Nevada-based accounting firm Beckstead & Watts to sue the Public Company Accounting Oversight Board (PCAOB) -- the five-member oversight board that was created as part of the Sarbanes-Oxley Act of 2002, which monitors and disciplines accounting firms that audit public companies.

The group contends that the PCAOB has wide government-like powers such as the ability to levy fines, but has little oversight by the government – a violation of the constitution's separation of power clause. In addition, the plaintiffs urge a review of the way in which the board members are appointed.

Sarbanes-Oxley dogged by vocal criticism, lawsuits

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Sarbanes-Oxley has Defender on Panel

Top executives at many small publicly held companies don't like the Sarbanes-Oxley Act. They complain that it costs too much to comply with the new law.

But plenty of investors have a far different take. They say it makes the kinds of corporate scandals that led to the act less likely.

One of their champions is Kurt Schacht, who is managing director of the CFA Centre for Financial Market Integrity, a think tank that promulgates ethical standards in the investment community.

As the chief legal officer at the State of Wisconsin Investment Board in the 1990s, Schacht monitored the governance of corporations whose stocks were held by Wisconsin's public pension funds.

Sarbanes-Oxley has Defender on Panel

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Tuesday, March 21, 2006

PCAOB finds big four addressed audit concerns

U.S. audit overseers said Tuesday that the Big Four accounting firms have addressed criticisms raised in regulatory inspections that were conducted more than two years ago, ensuring that confidential portions of the reports will remain confidential.

In 2004, the Public Company Accounting Oversight Board released its first-ever regulatory report cards, finding "significant accounting and audit issues" during inspections conducted a year earlier.

The reports did not include details about quality-control systems in place at each of the firms. Under the 2002 Sarbanes-Oxley law, that information would remain confidential for at least a year. If firms had failed to address criticism about their quality controls within 12 months, then the PCAOB would have been able to make public its criticisms.

PCAOB finds big four addressed audit concerns

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Restatements should be eyed suspiciously

The takeaway message here is that even if accounting revisions are not prompted by revelations of outright fraud, they often point to systemic problems undermining the reliability of a company's financial statements. Even a "simple" mistake can be the product of loose internal procedures, flawed oversight or lax external audits.

Ultimately, whether the inaccuracies result from honest error, an aggressive corporate mentality or intentional deception, the credibility of a company's financial documents becomes questionable.

This is particularly true now that companies are being forced to comb through their books more closely under new federal rules for monitoring internal procedures and reporting on them to the public.

Those reforms, mandated by the Sarbanes-Oxley Act of 2002, have already fueled a disturbing jump in the pace of accounting revisions, with restatements doubling last year compared with 2004's level. Glass Lewis found that more than 50 percent of last year's revisions were made by companies that disclosed material weakness with the internal controls that are supposed to ensure the accuracy of their financial reports.

Restatements should be eyed suspiciously

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SAIC employee union saves money, launches IPO blog on Google Blogger Blogspot

Those looking for information about the upcoming initial public offering planned by Science Applications International Corp. have a new resource. The Service Employees International Union has created a blog to keep tabs on the employee-owned company’s impending plans.

The SEIU launched the inaugural installment of the blog this week with a two-page report that addresses the costs of taking the company public, as well as the costs to current employee-shareholders.

The focus areas of the first report are the possible costs of executive stock options and the impact of unequal voting share classes on shareholder value. The report also explores the high cost of fully implementing Sarbanes-Oxley reporting requirements, the effect of "poison pill" language designed to dissuade any potential takeover attempts and the influence of losing the company’s employee ownership culture.

SAIC employee union saves money, launches IPO blog on Google Blogger Blogspot

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Monday, March 20, 2006

Sarbanes-Oxley costs stabilizing US CEO lobbying group says

The Business Roundtable said a member survey also found a leveling in the costs of complying with 2002's Sarbanes-Oxley law, a package of accounting and corporate governance reforms adopted during the Enron-era scandals.

"For the first time, companies reported that costs of implementing the Sarbanes-Oxley law and new stock exchange listing standards have stabilized," said Steve Odland, chairman of retailer Office Depot Inc.

Moreover, he said, 94 percent of companies said they expect Sarbanes-Oxley compliance costs either to remain the same (42 percent) or decrease (52 percent).

Sarbanes-Oxley costs stabilizing US CEO lobbying group says

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Sarbanes-Oxley 'Y2k' rush has passed

"The Y2k of SOX is over, and now it's time to manage the process better." That is Mark Portu's advice on complying with the Sarbanes-Oxley Act and other regulations. According to Portu, senior vice president of compliance solutions at Open Text Corp. in Waterloo, Ontario, companies need a broader view of compliance that goes beyond point solutions for specific regulations -- one that encompasses all aspects of records management.

Sarbanes-Oxley 'Y2k' rush has passed

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CIOs bemoan Sarbanes-Oxley's 'big Impact, little benefit'

Describing his changing role as senior vice president and CIO at biomedical company Beckman Coulter and some of the challenges, Bobby Spaid said "Sarbanes-Oxley has been the biggest impact to our bottom line, and brought us little benefit."

Companies will spend a combined $US6 billion to comply with the Sarbanes-Oxley Act in 2006, according to AMR Research. The research firm said compliance across a range of mandates from government to trading partners, such as Wal-Mart Stores's radio frequency identification (RFID) supply chain project, will cost companies $US28 billion in 2007, up from $US27.3 billion this year.

CIOs bemoan Sarbanes-Oxley's 'big Impact, little benefit'

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Sunday, March 19, 2006

Big4Guy: To whom should the Head of Internal Audit Function Report?

Audit Committees have taken centerstage post sarbanes oxley. The gamut of responsibilities of audit committees have increased many fold. From the perspective of Chief Audit Executive CAE of an organization, there arises a question "Whom should the CAE report to in the organization?". The answer to this question can be found in the IIA practice advisory 1110-2 which talks about reporting lines for the CAE.

Big4Guy: To whom should the Head of Internal Audit Function Report?

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Dolan takes on Sarbanes-Oxley

Dolan has taken up a cause that's stoking the passions in the business and investment communities: sharply easing the requirements for smaller companies to comply with the Sarbanes-Oxley Act.Many businesses love this idea. Some investor advocates don't, preferring that the law stand much as is.

"It's a huge hot-button issue," says Dolan, who has become a leading national spokesperson for the view that the act puts too much of a burden on the smaller companies.

Dolan carries a high profile in the Twin Cities business community. Her role in the Sarbanes-Oxley controversy is part of a transition into what she sees as the third stage of her life: "Time for yourself," as she puts it.

Last fall, Dolan wrapped up a two-year stint as chair of the Minnesota Business Partnership.

Dolan takes on Sarbanes-Oxley

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Saturday, March 18, 2006

Firms seek `SOX' relief

Beginning in early April, the Securities and Exchange Commission is scheduled to consider a proposal that would exempt smaller public companies from many provisions of the Sarbanes-Oxley Act, passed in 2002 and designed to boost financial controls at public companies.

The proposal would exempt from most Sarbanes-Oxley rules companies that have market values of $700 million or less. It would lighten the regulatory burden for about 80 percent of all publicly traded companies.

On Friday, debate about the proposal raged at a conference held at the University of California-Berkeley, hosted by the Berkeley Center for Law, Business and the Economy.

Firms seek `SOX' relief

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Sarbanes-Oxley: You Can Be Too Careful

New laws were not necessary to prosecute those executives. Still, Congress responded to the scandals that destroyed or hobbled their companies by passing the Sarbanes-Oxley Act. Signed into law by President George W. Bush on July 30, 2002, Sarbanes-Oxley was supposed to crack down on accounting irregularities, punish those responsible for hiding them from the public, and curtail potential conflicts of interest in corporations' relationships with their auditors. HealthSouth CEO Richard Scrushy was the law's first big collar. He recently walked away from his trial a free, if disgraced, corporate bigwig, after 21 days of jury deliberation. Many credit Scrushy's refusal to testify in his own trial as a plus for him—he left the jury to judge the probity of a bunch of other HealthSouth execs, self-confessed fraudsters who had previously pled guilty and testified against Scrushy.

Critics in academia and business journalism--and many from the corporate world itself, most of whom are reluctant to talk on the record and thereby show "bad faith" regarding the law--have many complaints about SarbOx, from its picayune requirements to its overall cost. While all such guesstimates should be taken with a grain of salt, one financial consulting firm, the Johnsson Group, has put the 2004 costs of SarbOx compliance at $15 billion. The critics also argue that the law's benefits are apt to be small.

Sarbanes-Oxley: You Can Be Too Careful

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Friday, March 17, 2006

Sarbanes-Oxley Debacle: How to fix it and what we've learned (Presentation)(PDF)

Butler's and Ribstein's slides from the recent AEI presentation on Sarbanes-Oxley.

From Ribstein: Henry Butler and I, with expert commentary from Peter Wallison, Alex Pollock and Rich Booth, made our case today at the AEI for repeal or drastic revision of Sarbox. You can view the video, the revised slides, and an early draft of the forthcoming monograph.

Sarbanes-Oxley Debacle: How to fix it and what we've learned (Presentation)(PDF)

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Sarbanes Oxley Requirements Boosts Public Confidence, UCR Research Says

According to a UC Riverside paper in the journal The Accounting Review titled CEO's/CFO's Swearing by the Numbers: Does it Impact Share Price of Firm? the answer appears to be yes. Authors Birendra "Barry" Mishra, Hsihui Chang and Woody Liao, accounting professors at the A. Gary Anderson Graduate School of Management and Jengfang Chen professor at National Dong Hwa University showed in the journal's January 2006 edition that the certification of financial statements as required by the Security and Exchange Commission has restored public confidence as reflected by rising corporate share prices.

The paper's findings offer strong support for keeping certification an integral part Sarbanes-Oxley Act of 2002.

Sarbanes Oxley Requirements Boosts Public Confidence, UCR Research Says

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Sarbanes-Oxley Challenged on Multiple Fronts

Signs indicate support for the Sarbanes-Oxley Act is beginning to fracture, even as state insurance regulators and industry groups move closer to consensus on tougher internal standards for annual insurer audits, according to an exclusive story in the March 20 issue of BestWeek.

Passed in 2002 by overwhelming consensus, SOX has come under increased scrutiny for both its costs and its unintended consequences. New challenges to the law are mounting in Congress, in the courts and within the U.S. Securities and Exchange Commission as both of its authors--Rep. Michael Oxley, R-OH, and Sen. Paul Sarbanes, D-MD--prepare to retire this year.

For many, the most pressing issue is the burden the law places on small public companies. The SEC has voted twice to extend the compliance deadline for those with market capitalizations of less than $75 million to comply with Section 404 of Sarbanes-Oxley. This requires companies to attest to the soundness of their internal controls and have their external auditors do the same.

Sarbanes-Oxley Challenged on Multiple Fronts

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Dan Mitchell's Blog: Sarbanes-Oxley drives capital to foreign markets

One of the Bush Administration's many economic blunders was the panicked adoption of Sarbanes-Oxley after the Enron scandal. Fraud already was against the law, but politicians felt they had to "do something" to demonstrate that they disapproved of corporate malfeasance. Sadly, they decided to impose a very burdensome law on the productive sector rather than give speeches and issue press releases. The consequences of this regulatory nightmare is that economic activity has shifted to foreign jurisdictions.

Dan Mitchell's Blog: Sarbanes-Oxley drives capital to foreign markets

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Gimme a 4! Gimme an 0! Gimme a 4! What's that spell?

For at least two years, CFOs have been complaining about the costs and labors of complying with Section 404 of the Sarbanes-Oxley Act. To date, however, only two have voiced their concerns in the form public comments related to the upcoming Securities and Exchange Commission roundtable on Sarbox's internal-controls provision.

Yet their views about the schism between the costs and benefits of complying with the provision echo the views of a broad swath of their peers. Hailing from smaller companies, both of the finance chiefs who have posted views on the commission's website think that 404 "continues to miss the boat," in the words of Robert Gallagher.

Gimme a 4! Gimme an 0! Gimme a 4! What's that spell?

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Confusion Over Sarbanes-Oxley Procedures Delays Reinstatement Of Terminated Bank Executive

Obviously, employers have grown familiar with the substantive elements of Sarbanes-Oxley compliance. This case, however, exemplifies the "next wave" of Sarbanes-Oxley challenges facing employers, as complaints brought pursuant to Sarbanes-Oxley begin to wind their way through the complicated enforcement process, making even more acute the need for counsel who know not just what the law proscribes but also what procedures companies must follow to protect and enforce their rights.

Confusion Over Sarbanes-Oxley Procedures Delays Reinstatement Of Terminated Bank Executive

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Canada introduces its version of Sarbanes-Oxley

On March 10, the Canadian Securities Administrators - the Montreal-based council of provincial and territorial securities regulators - announced proposals that would require all publicly traded companies to report on the effectiveness of their internal controls over financial reporting, though auditor attestation won't be required.

"We believe the proposed additional disclosure will increase management's focus on, and accountability for, the quality of internal controls over financial reporting," said Jean St-Gelais, chairman of the CSA and president and chief executive of Quebec's Autorit%E9; des march%E9;s financiers, which is based in Montreal.

Canada introduces its version of Sarbanes-Oxley

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Thursday, March 16, 2006

Sarbanes-Oxley Control(s) Freak T-shirt back in stock

It's back! The official Sarbanes-Oxley Control(s) Freak T-shirt. Perfect attire for sweating through your audits. Or running and hiding from the SEC. Get yours while supplies last.

Sarbanes-Oxley Control(s) Freak T-shirt back in stock

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Sarbanes-Oxley and insider threats

Sarbanes-Oxley Act compliance should not be a distraction to security where the focus is on writing mountains of policies and procedures. It should, however, be used as a business differentiator, as an enabler for risk management and as a mechanism to use frameworks and certifications to better align business goals and process with security best practices. Nowhere is this more evident than issues surrounding insider threats.

There is a growing trend for information security budgets to be shared between traditional security projects and compliance-related agendas. This makes sense because the consequences of an insider threat, for example, parallel many of the concerns around Sarbanes-Oxley: loss of confidential or intellectual property, exposed sensitive information, damaged or destroyed assets, and severed communications.

Sarbanes-Oxley and insider threats

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Risk Management and Sarbanes-Oxley Driving Growth in Global Trade Management Solutions Market

Companies that trade globally also face an increased level of financial risk. Duties, taxes, transportation charges, and currency exchange rates are contributing factors; but there are other, less-tangible factors that also influence the bottom line such as the cost of increased inventory and longer cash-to-cash cycles due to customs clearance delays. As a result, Trade Finance is gaining a lot of interest among corporate executives as they look for ways to improve working capital and manage their credit lines more effectively.

Achieving compliance with Sarbanes-Oxley, a law aimed at improving the accuracy and reliability of corporate financial statements, is dependent on having access to timely, accurate, and complete information and establishing process controls — the same success factors required to create more secure and efficient global trade operations.

Risk Management and Sarbanes-Oxley Driving Growth in Global Trade Management Solutions Market

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PCAOB Appoints Deputy Chief Auditors

The Public Company Accounting Oversight Board announced that Laura Phillips and Jennifer Rand have been named deputy chief auditors, reporting to Tom Ray, PCAOB chief auditor and director of Professional Standards.

The Office of the Chief Auditor advises the PCAOB on the establishment of auditing and related professional practice standards and on the application of auditing and accounting standards related to the financial statements and internal control over financial reporting of U.S. public companies. The Chief Auditor and his staff also work with other relevant organizations, including the Securities and Exchange Commission, the Financial Accounting Standards Board, the U.S. Government Accountability Office, the AICPA, and IFAC.

PCAOB Appoints Deputy Chief Auditors

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SEC Central: Recent Class-Action Trends and Issues

In enforcement actions the trend has been for the Securities and Exchange Commission and the Department of Justice to receive larger amounts for fines, penalties and disgorgement. PwC believes that the international financial reporting standards conversion in 2005 for many foreign private issuers, combined with Sarbanes-Oxley section 404 reporting on internal control standards and the proposed new PCAOB " fraud auditing" standards, will increase the risks to outside auditors. The corollary will be an increase in securities class-action suits with accounting fraud allegations.

As practitioners in this area are well aware, the SEC and DOJ cooperate closely, notwithstanding the SEC's protestations that they are not a stalking horse for the DOJ. Many SEC enforcement actions are referred over to the DOJ before they are filed by the SEC or shortly after the SEC has instituted some type of enforcement action.

SEC Central: Recent Class-Action Trends and Issues

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Lessons seen learnt as Enron, Parmalat trials start

As the bankruptcies at Enron and Parmalat enter post-mortem phase, with senior directors speaking in court for the first time last week, a policy backlash has made such scandals much less likely, accounting professionals say.

U.S. Enron's bankruptcy in 2001 saw shareholders lose an estimated $67 billion (38 billion pounds) in one year, while Italian dairy company Parmalat's value dropped 90 percent in three months before its bankruptcy in 2003.

Both collapsed after the exposure of misleading, complex accounts, including the discovery of a fake 4 billion euros (2.77 billion pounds) bank account at Parmalat, and Enron debts stashed away unseen in subsidiaries.

Lessons seen learnt as Enron, Parmalat trials start

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Sarbanes-Oxley 'must not meddle' with LSE-listed companies - Accountancy Age

Angela Knight, chief executive of private client broker Apcims, said the SEC must avoid investigating the affairs of UK businesses listed on the LSE if the exchange is acquired by a US equivalent, reported the Daily Telegraph.

She is concerned with the difference in US and UK accounting standards, plus the onerous affect on US business of Sarbanes-Oxley legislation.

Sarbanes-Oxley 'must not meddle' with LSE-listed companies - Accountancy Age

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Whistleblowers Take a Hit

The First Circuit U.S. Court of Appeals has ruled that the whistleblower protection provisions of Sarbanes-Oxley do not have extraterritorial impact, meaning they do not apply to foreign citizens reporting accounting irregularities at an American company's foreign subsidiary.

A district court ruled that nothing in Sarbanes-Oxley's wording suggests the extension of whistleblower protections afforded to U.S. workers to non-U.S. employees working overseas. The court partly based its decision on the generally held presumption that without clear congressional assent, extraterritorial applications of U.S. laws are not applied so as not to conflict with the laws of other countries.

Sarbanes-Oxley specifically contained Congressional language that required foreign accounting firms to register with the Public Company Accounting Oversight Board and extraterritorial jurisdiction for criminal offenses.

Whistleblowers Take a Hit

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Whistleblowers Take a Hit

The First Circuit U.S. Court of Appeals has ruled that the whistleblower protection provisions of Sarbanes-Oxley do not have extraterritorial impact, meaning they do not apply to foreign citizens reporting accounting irregularities at an American company's foreign subsidiary.

A district court ruled that nothing in Sarbanes-Oxley's wording suggests the extension of whistleblower protections afforded to U.S. workers to non-U.S. employees working overseas. The court partly based its decision on the generally held presumption that without clear congressional assent, extraterritorial applications of U.S. laws are not applied so as not to conflict with the laws of other countries.

Sarbanes-Oxley specifically contained Congressional language that required foreign accounting firms to register with the Public Company Accounting Oversight Board and extraterritorial jurisdiction for criminal offenses.

Whistleblowers Take a Hit

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Wednesday, March 15, 2006

And what is the prime directive err... Modernisation Directive, Worf?

In the U.S., Sarbanes-Oxley rules hold directors accountable for internal reporting checks and balances. In Europe, the Modernisation Directive requires directors to describe key business risks and uncertainties, while next year's Transparency Directive makes them put their names to these in changes some executives fear might invite legal action. Australia, Canada and other countries have also tightened corporate governance rules.

"I think the risk is way out of balance with the reward for board members at this time," DiPiazza said.

And what is the prime directive err... Modernisation Directive, Worf?

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Corporations increasingly asked to waive attorney-client privilege

Keeping conversations between executives and their attorneys confidential is vital to corporate compliance with laws such as the Sarbanes-Oxley accounting reforms, says Stephanie Martz, director of the White Collar Crime Project for the National Association of Criminal Defense Lawyers.

"Otherwise, employees aren't going to tell their bosses, much less attorneys, about potential problems," Martz says.

Corporations increasingly asked to waive attorney-client privilege

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'Overboarded' Directors Less 'Sarbanes-Oxley-ized'

The argument against overly busy directors is an obvious one: They have less attention to devote to each directorship, which is problematic considering the higher governance standards set by the Sarbanes-Oxley Act and recent lawsuits. While companies keep tabs on attendance records, overextended directors can fall into less tangible lapses such as failing to brush up on readings before meetings and do the tire-kicking research the best directors now engage in.

The overboarding issue is complicated by the fact that many see CEOs who steward private companies as exceptions. "We don't look at private companies because of the paucity of disclosure in that regard," said ISS Executive Vice President Pat McGurn. He added that ISS tracks directorships at foreign companies, but that its foreign divisions have different policies, so the U.S. policy only applies to directors on U.S. public company boards.

'Overboarded' Directors Less 'Sarbanes-Oxley-ized'

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Sob stories I don't want to hear for 400, Alex

Since passage of the Sarbanes-Oxley Act (Sarbox) in 2002, which heaps more accountability on CFOs than other executives, and the spate of accounting scandals that sent companies into bankruptcy and furious investors into shareholder lawsuits, the job description of CFOs has changed. But not all incumbents like their new role. "Hair, golf, tennis — all gone," quipped one CFO, when asked whether his new duties are taking a personal toll on his work/life balance.

There's one other silver lining — albeit this one has been widely reported. CFO pay is rising as fast as the workload is ballooning. The average overall compensation package for CFOs — including salary, bonus, and stock and option grants — was $2.2 million in 2004, according to the Mercer 350 salary survey, which bases its calculations on data collected from companies with over $1 billion in revenues. Since 1997, when the average compensation package was $1.34 million, CFO compensation has been growing at a 7.4 percent compound annual rate.

Sob stories I don't want to hear for 400, Alex

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Inside Sarbanes Oxley: 1500 articles blogged

Thanks to all of you who have been using Inside Sarbanes Oxley as your resource for Sarbanes-Oxley related news, jobs, tools, and discussion. We just posted the 1,500th blog entry on SOX-related articles. We realize it's quality and not quantity that keeps you coming back, but we just wanted to share the news.

And just for old time's sake, here's the post that started it all:
Sarbanes-Oxley Compliance Serious Challenge For Some

Inside Sarbanes Oxley: 1500 articles blogged

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Look Sarbanes-Oxley, it's Ethics. Oh, you've never met?

Citing the plethora of recent corporate scandals, the 2004 revisions to the Federal Sentencing Guidelines, and the advent of Sarbanes Oxley legislation, Gary Brown, chair of the Corporate Department at Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., and a member of the Midi Ethics and Law Advisors, discussed what he called the "Trust Deficit."

"There has been an extraordinary loss of trust in corporations and their leaders," he said.

Brown has extensive experience in conducting training for boards of directors about their fiduciary duties. During 2002, Brown served as Special Counsel (Minority) to the United States Senate's Governmental Affairs Committee in its investigation of the collapse of Enron Corp. While serving in the Senate, he also worked with the Committee's Permanent Subcommittee on Investigations ("PSI") and provided advice on aspects of the Sarbanes-Oxley Act while the legislation was being debated in the Senate.

Boards of directors must be more involved in the cultures of the organizations they govern, according to Brown. "Strong, ethical cultures self-regulate," he said. "Maintaining high ethical standards also provides the greatest protection of shareholder value and, consequently, of directors."

Look Sarbanes-Oxley, it's Ethics. Oh, you've never met?

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Sarbanes-Oxley Tools: Why do they fail?

Rohit Tripathy writes: I have been involved in 6 different Sarbanes-Oxley (SOX) implementation projects as a consultant, out of which three clients went for a tool based SOX implementation project. In each case, my client spent more than USD 150,000 to procure a web based SOX tool from a leading Sarbanes-Oxley tool vendor. In all three cases, the SOX project team ended up spending inexcusable amount of time feeding data/documents and maintaining the Internal Controls structures into the tool. Finally the clients gave up, they stopped using the tool, and went back to Excel sheets and Word documents. The tool implementation failed. This has moved me to analyze the leading vendors of Sarbanes-Oxley tool and come up with conditions where the tool implementation can fail. I am myself shocked by the results of the analysis. None of the top tool vendors have a fully workable product. It seems in the rush of Sarbanes-Oxley craze, the vendors offered poorly designed solutions to the market, without carrying out a thorough requirement analysis.

Read the complete story by downloading "Sarbanes-Oxley Tools: Why do they fail?" here, at Inside Sarbanes Oxley.

Sarbanes-Oxley Tools: Why do they fail?

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Who's this Sarbanes-Oxley character you've invited to tea?

"Clearly listings are about brand and clearly the LSE is a very strong brand. NYSE similarly has a very strong brand and Nasdaq is growing in terms of stature--but it isn't as strong a brand as NYSE or LSE," said Herr.

But with the listings clout comes the potential issue of different regulatory requirements in each country. Nasdaq stated that a combination would give issuers the ability to dual-list simultaneously in London and New York.

One dissuader for companies listing on US markets is the Sarbanes-Oxley Act, a major reform introduced in 2002 after the Enron and WorldCom accounting scandals, which was meant to clean up corporate governance and accounting.

"There are a number of regulatory hurdles that will need to be addressed," said George Rodriguez, managing director at trading firm TradeTrek Securities. "As well as approval you have firms that are listed on each exchange and each of those listings has a requirement. What is the impact to those requirements?"

Who's this Sarbanes-Oxley character you've invited to tea?

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Tuesday, March 14, 2006

Ideoblog: Securities regulation: priceless

Larry Ribstein takes over for Billy Crudup on the MasterCard voice over:

"Imposing new federal regulation on the securities markets: $1.4 trillion. Restoring investor confidence: Priceless."

Ideoblog: Securities regulation: priceless

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Big4Guy: Documentation Supporting Management Assessment of Internal Controls

Under Sarbanes Oxley, management of the company needs to assess the design as well as operating effectiveness of internal controls. When management is making an assessment of internal controls, management needs to ensure that the results of such evaluation are documented. Such documentation which supports management's assessment of internal controls over financial reporting normally includes the documents listed below...

Big4Guy: Documentation Supporting Management Assessment of Internal Controls

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What's New with the Accounting Shell Game? More Shells

Following the collapse of Enron, Worldcom and others, regulators were temporarily given the power to dramatically improve US accounting standards. To be sure, and as the passing of the Sarbanes-Oxley Act of 2002 will attest, restoring investor confidence became a top priority of politicians and Wall Street. Regulators could, and did, pass tough regulations with little resistance.

But while Sarbanes-Oxley succeeded in expanding financial practice and corporate governance regulations, its focus was not on overhauling accounting. Rather, the task of cleaning up accounting standards was largely left to the SEC and FASB. Unfortunately, instead of welcomed changes following Enron, investors got new SEC Chairman Harvey Pitt. Mr. Pitt's first, and perhaps only notable item of business, was to force CEOs and financial chiefs to swear "to the best of my knowledge" that their financial statements were accurate. Apparently the groundbreaking Securities Act of 1933 and the Securities Exchange Act of 1934 left out the part about CEOs not lying to investors.

What's New with the Accounting Shell Game? More Shells

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Size does matter: SOX Under Siege

Former Enron chairman Ken Lay may just be starting his long day in court, but the Sarbanes-Oxley Act, which Enron, WorldCom, and other scandals inspired, is still under fire four years after it became law.

One lawsuit filed February 7 by the Washington, D.C.-based Free Enterprise Fund—a group represented by ex-independent counsel Kenneth Starr—challenges the constitutionality of the law mandating how listed companies govern themselves, particularly provisions on the accounting of public companies.

The suit is just one of a number of efforts to either overturn Sarbanes-Oxley or change how it is enforced. Pressure has been mounting for a year on the U.S. Securities and Exchange Commission to alter how it enforces corporate governance rules, particularly on smaller public companies—some complaints coming from within the SEC itself.

Size does matter: SOX Under Siege

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Spitzer: Sarbanes-Oxley rules go too far

New York Attorney General Eliot Spitzer on Tuesday joined the chorus claiming that stricter rules under Sarbanes-Oxley legislation may have gone too far and are hurting smaller companies.

"We've seen some unintended consequences from Sarbanes- Oxley," said Spitzer in a meeting with the Association of American Publishers in New York. "It has created an unbelievable burden for small companies and may be preventing some initial public offerings."

Spitzer joined many Republicans in criticizing Sarbanes-Oxley, the federal law passed in 2002 to halt the spread of corporate fraud. Even U.S. Representative Michael Oxley, an Ohio Republican and co-author of the legislation, has urged the U.S. Securities and Exchange Commission to roll back some of its stiff internal accounting provisions, particularly for smaller companies.

"We've gone too far in some respects," said Spitzer, without specifying which portions of the law he disagreed with.

Spitzer: Sarbanes-Oxley rules go too far

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Foley's 2006 Private Company Study shows organizations adopting Sarbanes-Oxley as 'Best Practices' (PDF)

The third annual study conducted by Foley & Lardner LLP, The Impact of Sarbanes-Oxley on Private & Nonprofit Companies, reveals that private organizations are continuing to adopt aspects of the Sarbanes-Oxley Act as a set of best practices, despite the fact that it runs contrary to the intentions of Congress in developing the Act.

The 2006 study also reveals that private organizations are consistently self-imposing Sarbanes-Oxley standards and that nonprofit organizations have been more aggressive in their adoption of corporate governance reforms than their for-profit counterparts.

Foley's 2006 Private Company Study shows organizations adopting Sarbanes-Oxley as 'Best Practices' (PDF)

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Reasons to avoid the executive level for 200, Alex

The top two IT-related problems are operational incidents and staffing issues, according to a global survey commissioned by the IT Governance Institute (ITGI). Security and compliance were reported to be the least important problems-likely due to the significant efforts that have been put into information security projects and compliance programs, such as those for Sarbanes-Oxley in the US.

The survey consisted of 695 interviews with CEO/CIO-level executives in 22 countries, and the full results can be found in the IT Governance Global Status Report 2006, available as a complimentary download at www.itgi.org. The study assessed the C-suite's IT governance priorities and actions executives have taken related to IT governance. It is a follow-up to ITGI's 2003 report and tracks IT governance trends over the past two years.

Reasons to avoid the executive level for 200, Alex

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Parson Consulting: Project Risk Management: Are You Asking 'What Can Go Wrong?'

Inside Sarbanes Oxley selects Marc Weinberg of Parson Consulting from recent submissions:

"The purpose of the risk response plan is to determine what can be done to reduce the overall risk of the project by decreasing the probability or impact of the short-listed risks. This includes contingency planning, which identifies the actions one will take if the risk actually happens.

"So, what kind of risks can you expect to occur in your projects? You will find People, Process and Technology risks, among others. If you're involved in a Sarbanes-Oxley section 404 documentation project where you need to interview process owners, typical causes, risks and effects, based on this writer's experience, might include the following..."

Parson Consulting: Project Risk Management: Are You Asking 'What Can Go Wrong?'

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Ideoblog: Sarbanes-Oxley debacle

Larry Ribstein provides still more sterling insight into Sarbanes-Oxley, shares links to his presentation at AEI, and continues to vent his spleen on the "mistake" that is the Sarbanes-Oxley Act. As always, well worth the read:

Henry Butler and I, with expert commentary from Peter Wallison, Alex Pollock and Rich Booth, made our case today at the AEI for repeal or drastic revision of Sarbox. You can view the video, the revised slides, and an early draft of the forthcoming monograph.

So my brain has been filled with SOX. I promise that this is my last lengthy tirade on this subject, at least for awhile. But I can't resist one more shot. Tomorrow it's back to the more typical diet of postings on various subjects.

The bottom line is that SOX was a colossal mistake. For those with any doubt, see our summary of SOX costs (slide 15), and some recent evidence (slide 16). Moreover, Congress gave virtually no consideration to potential costs – there was no time for that in the hasty, panic-stricken atmosphere in which SOX was hatched.

Ideoblog: Sarbanes-Oxley debacle

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Monday, March 13, 2006

New Canadian Sarbanes-Oxley rules short change some

A decision by Canadian regulators to modify a tough new proposal for financial reporting may save on corporate costs, but some observers worry investors will be short changed.

The Canadian Securities Administrators, an umbrella group for provincial and territorial market regulators, announced Friday that publicly listed companies on Canadian exchanges would not have to get outside audits of internal controls.

Such audits are required in the United States under the Sarbanes-Oxley Act, sometimes known as SOX.

"Investors who will be protected are those investing in cross-listed companies that will have to comply with SOX 404," agreed Queen's University accounting professor Steve Salterio.

He called Friday's proposal "deeply flawed."New Canadian Sarbanes-Oxley rules short change some

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Lawyer for Lay assails former Enron CFO

A lawyer for Enron Corp. founder Kenneth Lay assailed a key prosecution witness Monday as a skillful liar who exaggerated the financial peril the company faced in 2001.

Lawyer Michael Ramsey also played tapes for jurors in which Lay, just after taking the reins as Enron chief executive in August 2001, flatly told employees that some of the company's overseas assets were "generating a very, very low return on investment."

Ramsey aggressively challenged the credibility of Andrew Fastow, the former chief financial officer at Enron, who testified last week that Lay was well aware of the dire straits faced by the company, even as he talked it up to employees and the public.

Lawyer for Lay assails former Enron CFO

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Records Management, an Evil Sarbanes-Oxley Necessity

Companies that have neglected documenting and recording the right information are waking up to the fact that it's a requirement for Sarbanes-Oxley compliance. Not long ago, most CFOs regarded records management as a minor administrative function, and not one that finance should particularly be concerned about.

Records Management, an Evil Sarbanes-Oxley Necessity

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Sarbanes-Oxley motivates new generation of Snake Plisskens

BeNeLux benefits? The Financial Times reported today that some 7 percent of the firms with American depositary receipts--nearly three dozen--chose to delist them last year, thanks to Sarbanes-Oxley regulations and a lack of interest from individual investors. According to the Bank of New York, of the 106 non-U.S. companies that started depositary receipt programs last year, only 29 listed in the United States, while the London Exchange and the Luxembourg Stock Exchange attracted 50 between them. Most of the Indian firms creating depositary receipts did so in Luxembourg.

Sarbanes-Oxley motivates new generation of Snake Plisskens

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Ventana: How Low Can You Go?

In our view, the decline in Sarbanes-Oxley compliance costs is an important first step in what should be a steady reduction over the next several years. We think a significant share of the incremental cost of Sarbanes-Oxley compliance can be offset through more efficient financial processes and more effective controls. We advise companies to address the root causes of these compliance costs rather than looking for cheap fixes. Manual processes, stand-alone spreadsheets and poor systems integration are the main factors almost all companies should address, and changing these can drive down costs in the finance organization. In addition, corporations that did not take a systematic approach to designing their controls should be looking for ways to streamline them, which will reduce their internal and external audit costs.

Ventana: How Low Can You Go?

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Little upside seen for Sarbanes-Oxley

Larry Ribstein (of the oft-cited Ideoblog) presented to the AEI today. Investment News covered the event:

The costs of complying with the Sarbanes-Oxley Act of 2002 are enormous and there are no clear benefits, according to a panel that today called for amending the controversial act.

A report released at the seminar said that corporate executives now face huge hidden liabilities if something goes wrong. The report was written by Henry Butler, an economics professor at Chapman University and Larry Ribstein, a law professor at the University Of Illinois College of Law regarding effects of the 2002 law enacted after high-flying Enron Corp. of Houston and the former WorldCom Inc. of Clinton, Miss., went bankrupt in the wake of huge accounting scandals.

Little upside seen for Sarbanes-Oxley

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Labor Dept. Nixes Whistleblower Claim Against Merrill Lynch

The Department of Labor has ruled that Merrill Lynch did not violate the whistleblower provisions of the Sarbanes-Oxley Act when it dismissed broker James Altschul, The Wall Street Journal reports.

The Labor Department held that there was "no reasonable cause to believe" ML had violated the law.

Labor Dept. Nixes Whistleblower Claim Against Merrill Lynch

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Sarbanes! Oxley! Leave that small company alone or it's detention for you two

Small public companies have reason to believe they soon will be exempt from the rigorous and expensive auditing requirements imposed by the federal Sarbanes-Oxley Act.

Unless they are excused, the companies would need to devote staff time and money - resources that would otherwise would be used for operations - to comply with the law, which was written primarily to address issues at huge companies.

Sarbanes! Oxley! Leave that small company alone or it's detention for you two

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Sunday, March 12, 2006

Hello, Sarbanes-Oxley. Goodbye, Manhattan.

For starters, growth is coming from emerging markets—and many emerging- market companies are heading to London to raise money. The trend is largely due to Sarbanes-Oxley, the complex corporate regulatory regime put in place by the U.S. government in 2002 after the Enron debacle. "Sox" reporting standards are so arduous they are scaring away many foreign companies that might have chosen to list in New York. Individual companies are reluctant to state their Sox aversion on the record, for fear of being seen to play regulatory arbitrage. But in a London Stock Exchange survey of international firms that went public last year, 90 percent said the demands of Sarbanes-Oxley made listing in London more attractive. The result was a record year for international listings in London, including whoppers like the $1.6 billion IPO of the online gambling site PartyGaming.

At the same time, the LSE is aggressively marketing the City as the world's "true" global financial capital, pointing out it does the most international equity trading, has the largest pool of international funds and is the world's leading cross-border lender. "There's $700 billion worth of institutional capital here invested in foreign equities," says Tracey Pierce of the LSE.

Hello, Sarbanes-Oxley. Goodbye, Manhattan.

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Sarbanes-Oxley bolstered by study

Jonathan Weil, a managing director at Glass Lewis, says Sarbanes-Oxley or "SOX" is driving the boom in restatements, by forcing auditors to look harder at financial statements. The Glass Lewis study says mistakes in recognizing expenses accounted for 25 percent of the errors that led to restatements last year. Classifying data in the wrong categories was second, at 18 percent. Errors in accounting for equity were third, and revenue recognition mistakes fourth.

The report notes, "some executives have complained loudly" about the Section 404 compliance reports they must file under SOX. This part of the act requires companies to hire independent auditors to test the effectiveness of their internal controls, and then tell investors what they found.

"There's no doubt it costs money to comply with SOX 404," the Glass Lewis report says. Still, the report argues that the provision is working and "the cost of ignoring weak internal controls would be far greater."

Sarbanes-Oxley bolstered by study

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Saturday, March 11, 2006

Sarbanes-Oxley 'Whistleblower' Inspires Feds; Paul Revere and the Raiders Await Renewed Interest

Representative Edward J. Markey (D-MA), a senior member of the Energy and Commerce and Homeland Security Committees and Representative Carolyn B. Maloney (D-NY), a member of the Government Reform Committee, today introduced the "Paul Revere Freedom to Warn Act," a comprehensive bill to provide protections to government and private sector employees who are retaliated against for reporting flaws in national or homeland security, public health and safety, or waste, fraud and mismanagement of public funds. The protections offered in the legislation are modeled upon those provided by Congress in the Sarbanes-Oxley Act to employees of companies who report accounting fraud.

"Congress has given employees of Enron or WorldCom who reported accounting fraud better whistleblower protections than we give FBI employees, TSA baggage screeners, or port employees who report serious risks to homeland and national security," said Rep. Markey. "Whistleblowers are modern-day Paul Reveres. When they voice concerns over our nation's national security, we should listen to them, not silence them."

"We all know the saying 'The truth shall set you free.' This administration has taken that old adage to a new level -- the truth will truly set you free, because you will be fired," said Rep. Maloney. "The men and women who work in national security are among our most trusted citizens. They have been trusted to handle the most classified material, yet this administration dismisses them if they uncover corruption. Whistleblowers are true patriots, not enemies of the state."

Sarbanes-Oxley 'Whistleblower' Inspires Feds; Paul Revere and the Raiders Await Renewed Interest

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Sox First: Trust costs SOX

Proponents of Sarbanes-Oxley argue that the compliance costs are justified because it results in greater trust from investors, and that underpins the health of the market.

But with moves to unwind SOX gathering momentum , a new study has come out suggesting that Sarbanes-Oxley is stunting development in smaller firms.

Of course, the timing isn't coincidental.

Sox First: Trust costs SOX

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Fixing the Enron fix

One problem with the new accounting regulations created under the 2002 Sarbanes-Oxley law is that they treat all companies the same, from General Motors to Just Getting Off the Ground Inc. Under the law, all publicly traded companies must have an independent auditor review their internal controls over financial reports. That's supposed to ensure that companies can't hide massive losses or pay crooked executives millions of dollars off the books.

But studies estimate that the extra costs for smaller firms to comply with the rules can run as high as $1 million a year. That can mean not hiring a new employee or scrapping the launch of a new product. For the last two years, companies worth $75 million or less have been given a temporary exemption from the requirements, but that is set to expire next year.

Fixing the Enron fix

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Steve Pohlit: Section 404 of Sarbanes-Oxley Should Not Be Exempt For Smaller Companies

Sarbanes-Oxley legislation is fundamental internal controls practice. It is unfortunate that our government had to implement this legislation. From a practical point of view it has no choice considering the corporate scandals and huge financial losses from those scandals. However I have maintained for years that SOX should be a contributor to increased profits and not increased costs. Few agree but that is OK. Now I go further and advocate the expansion of SOX to privately held companies with material third party debt. I advocate SOX be amended to remove the outside auditor's and outside lawyer's responsibility for attestation for companies below a certain size if they are public.

Steve Pohlit: Section 404 of Sarbanes-Oxley Should Not Be Exempt For Smaller Companies

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Ideoblog: Is SOX a Republican problem?

Mr. Ribstein finds another interesting vantage on the wonderful world of Sarbanes-Oxley (and manages to plug his AEI paper, as well):

"Don't look at the Republicans. As Henry Butler and I discuss, drawing on details from Roberta Romano's exhaustive study, the Republicans deserve much of the blame for SOX. In particular, they caved in the Senate, with the result that the most radical version of SOX was passed under cloture, approved with only three dissenting votes in both houses, and signed into law with breathtaking speed."

Whereas, Ribstein postulates "The Democrats' position on SOX doesn't go far enough, but at least it goes somewhere."

Always insightful. Well worth the read. Ideoblog.

Ideoblog: Is SOX a Republican problem?

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Sarbanes-Oxley, HIPAA Has Citrix Password Manager Seeing Double

Citrix Systems, Inc. (Nasdaq: CTXS), the global leader in access infrastructure solutions, today announced that Citrix Password Manager has generated a more than 100 percent increase in customer deployments in 2005 compared to deployments in 2004.

This growth has been spurred in large part by increasing data security concerns and compliance issues that arise from both HIPAA and Sarbanes-Oxley legislation. Password Manager streamlines management and deployment, improves enterprise security and regulatory compliance and powers superior user productivity. Password Manager remains the only enterprise single sign-on (ESSO) solution that has undergone a rigorous security evaluation, which was conducted by McAfee Foundstone. Password Manager also has over 1,900 customers, more than double the customer count of the next leading ESSO provider.

Sarbanes-Oxley, HIPAA Has Citrix Password Manager Seeing Double

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Enron trial: Fastow begins to resemble Enron stockholders

Before former Enron Chief Financial Officer Andrew Fastow took the witness stand this week in the fraud and conspiracy trial of his bosses, Jeffrey Skilling and Kenneth Lay, he had a certain swagger. Now the 44-year-old just looks beaten.

"I think I said on more than one occasion yesterday that I was greedy," he said on the second day of a cross-examination by lead Skilling lawyer Daniel Petrocelli. The attorney relentlessly shamed the ex-CFO as a liar, cheat and thief who involved his wife in his crimes and watched her serve a year in prison.

Enron trial: Fastow begins to resemble Enron stockholders

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Ideoblog: Norris on SOX

The New York Times Floyd Norris has drawn the ire of Larry Ribstein. To wit: "The NYT's Floyd Norris says that the SEC ought to consign the report of its Advisory Committee on Smaller Public Companies 'to a basement file cabinet.' Why? With penetrating analysis, Norris says 'fraud occurs most often at such companies.' Yep, that's the only supporting reasoning.

"Well, Norris is entitled to his opinion. My main question is why anybody should pay good money to read it.

"Those looking for some actual thinking might glance at the Report itself, which deserves much more than Norris's lame dismissal, and the 40k words Henry Butler and I have put together for presentation at the AEI on Monday."

As always, Ribstein is well worth the read.

Ideoblog: Norris on SOX

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FoxTalks: Sarbanes Oxley 'Lite' for Smaller Companies

The increasing costs for Sarbanes-Oxley compliance makes headlines every other day. With this in mind, the need to find a reasonable level for smaller companies becomes apparent. The burdens of compliance could easily become overwhelming for this quite essential part of the US economy.

Until a framework for the assessment of internal controls has been adapted to the conditions of these these companies, the commission recommends that smallcap companies with less than $10 million and microcap companies with less than $125 million dollars in annual product revenue be excluded from some of the Sarbanes Oxley Section 404 requirements, that requirements with regard to external auditing, CEO and CFO certifications, adoption of a code of ethics etc. be adapted to these companies situation.

FoxTalks: Sarbanes Oxley 'Lite' for Smaller Companies

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Canadian Sarbanes-Oxley-esque plan will open books, not pocketbooks

All Canadian publicly traded companies would be forced to report on the effectiveness of their internal accounting controls after the end of next year under proposals announced yesterday by securities regulators.

The plan developed by the Canadian Securities Administrators, representing the provincial securities commissions, is partly in line with the U.S. Sarbanes-Oxley Act of 2002, which radically tightened American reporting requirements.

However, unlike Sarbanes-Oxley, the planned Canadian approach would not force companies to obtain external audit opinions on the effectiveness of their internal financial-reporting controls.

Canadian Sarbanes-Oxley-esque plan will open books, not pocketbooks

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Friday, March 10, 2006

Sarbanes-Oxley, again, eh? Canada strengthens financial reporting requirements

D&O insurers and risk managers take note: Canada's version of the U.S. Sarbanes-Oxley Act has arrived. The Canadian Securities Administrators (CSA) recently announced proposals that would require all publicly-traded companies in all Canadian jurisdictions to report on the effectiveness of their internal controls over financial reporting, starting as early as Dec. 31, 2007.

"All members of the CSA have agreed on an effective way to improve the quality, reliability and transparency of financial reporting for investors by requiring disclosure of the effectiveness of the internal controls that support the integrity of financial statements," according to Jean St-Gelais, chair of the CSA and president and CEO of Quebec's Autorite des marches financiers. "We believe the proposed additional disclosure will increase management's focus on, and accountability for, the quality of internal controls over financial reporting. This will strengthen investor protection while appropriately balancing the costs and benefits associated with internal control reporting requirements for companies of all sizes."

Sarbanes-Oxley, again, eh? Canada strengthens financial reporting requirements

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You say "ex-burl." We say "zebra-l." Let's call the whole thing off.

Are you a candidate? The American Institute of CPAs (AICPA) has announced that Louis Matherne is leaving his role as the organization's XBRL director to accept a position with the IT Governance Institute at ISACA, an IT governance and security organization. The AICPA has begun the search for his successor.

Must like long walks, quiet evenings at home, and loving each and every line of extensible business reporting language as if it were his/her own.

You say "ex-burl." We say "zebra-l." Let's call the whole thing off.

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Could Sarbanes and Oxley spoil the NASDAQ and LSE courtship?

The combination of the London Stock Exchange (LSE) and NASDAQ would create an electronic share trading powerhouse with a market value of more than $8 billion and become the first institution to span the Atlantic with share-trading technology in both London and New York.

The advantage to LSE customers in London of a merger would be easier access to stocks traded on Nasdaq. However, there are many regulatory hurdles to overcome--not least the question of whether the LSE would have to meet the Sarbanes-Oxley legislation.

Could Sarbanes and Oxley spoil the NASDAQ and LSE courtship?

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CFO, Mom. Mom, CFO.

Apparently, CFOs and moms have something in common: they don't feel that they're being heard. But Federal Times is trying to help, by reporting:

"Today, as the Sarbanes-Oxley Act tightens corporate accountability, financial insiders continue to provide essential information leading to convictions. A quick online search shows the convictions over the past two years of more than a dozen corporate CFOs. However, the real story isn't about CFOs doing time. It's about all the CFOs who got into trouble, but did not go to jail because they became witnesses and testified against their management colleagues. Ignoring your CFOs advice about proper management controls can have the same dire consequences as Capone's ignorance of the balance sheets lost by his accountants.

"If internal control problems arise, federal managers--like their private-sector counterparts--need to be able to answer at least three questions: What did you know? When did you know it? And, should you have known?"

... and how many times do I have to ask you to look at me when I'm talking to you?

CFO, Mom. Mom, CFO.

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Corporate Governance: FEI Checklist (PDF)

As adapted and revised from the NYSE Corporate Governance Proposals, Section 303A. FEI hopes that this checklist helps private and some public companies better govern and manage their corporations by enhancing corporate accountability and the creation of profits.

What follows is a checklist which we hope you will use as a guide to improving your company’s corporate governance policies. The list is a self-evaluation tool.

Corporate Governance: FEI Checklist (PDF)

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Why not let companies ignore, say, Sarbanes-Oxley?

Hey, how come the little guy gets to get up from the Sarbanes-Oxley table? If he gets up, we'll all get up. It'll be anarchy!

In his article in today's NYT, "Why Not Let Companies Ignore a Law?" columnist Floyd Norris argues the SEC should not accept the SEC Advisory Committee on Smaller Public Companies' recommendation to exempt smaller companies from any portion of Sarbanes-Oxley Section 404 ("404").

Why not let companies ignore, say, Sarbanes-Oxley?

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Enron Trial: Fastow Under Fire

Watching former Enron Chief Financial Officer Andrew Fastow in the Enron trial this week was, at times, like attending a business school seminar. On the witness stand, testifying for the prosecution against his former colleagues Ken Lay and Jeffrey Skilling, he spoke slowly and clearly, using easy-to-understand metaphors. When asked a question he often back-tracked to give fuller, more detailed answers. His testimony was like a crash course in the financial shenanigans that led to Enron's collapse. One lawyer in the audience said listening to Fastow testify for one hour was like reading about the company for 12.

Enron Trial: Fastow Under Fire

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Sarbanes-Oxley, eh? Canada regulators roll out internal-controls rules

Canada's public companies will have to tell investors how effective their internal controls over financial reporting are under stringent new rules proposed on Friday by securities regulators.

The rules, rolled out by the Canadian Securities Administrators -- an umbrella group representing the country's regulators -- are similar to the controversial requirements of the U.S. Sarbanes-Oxley Act.

They will apply to all companies that trade on the Toronto Stock Exchange and the junior Venture market. A total of 3,765 companies are listed on the two exchanges.

The main difference between the Canadian and U.S. rules is that Canadian companies will not have to get an opinion from external auditors on their internal-controls reporting.

"It will likely save smaller Canadian corporations a substantial amount of money because auditors are costly," said Philip Anisman, a veteran securities lawyer in Toronto. "It won't affect the big, interlisted corporations that will have to comply with U.S. law."

Large companies, including Canadian insurance giant Manulife Financial Corp., have complained about the regulatory burden imposed by Sarbanes-Oxley's section 404, which concerns internal-controls reporting. Manulife Chief Executive Dominic D'Alessandro has called the provision "extraordinarily onerous" and said compliance could cost the company, which is listed in both the United States and Canada, as much as C$30 million ($26 million) a year.

The CSA said on Friday that the new requirements will have to be adopted for financial years ending on, or after, December 31, 2007.

Sarbanes-Oxley, eh? Canada regulators roll out internal-controls rules

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Sarbanes Oxley: IDS Scheer Sarbanes-Oxley compliance solutions

Many of you have seen the Inside Sarbanes Oxley call for Sarbanes-Oxley white papers and resources. Well, we're happy to report that this effort is already beginning to bear fruit.

IDS Scheer has taken advantage of the Inside Sarbanes Oxley call, by creating an informational page on our site. Meaning you now have an area to review their Sarbanes-Oxley compliance solutions and gain more information on the company, here, at Inside Sarbanes-Oxley. (They have also been listed on our Sarbanes-Oxley software page under appropriate headings.)

Please take some time to review their page and provide feedback. Is this a resource that would be valuable to you? Do you have experience with IDS Scheer you would like to share?

And of course, if you're a company or individial involved with Sarbanes-Oxley--vendor, end-user, consultant, executive, whatever--we would be happy to work with you, as well. There is no charge for this service. To participate in the free program, send your inquiries or submissions to submissions(at)insidesarbanesoxley.com.

Sarbanes Oxley: IDS Scheer Sarbanes-Oxley compliance solutions

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Snowe: Small Businesses Could Face Expensive, Paralyzing Regulatory Limbo under Sarbanes-Oxley Law

In a letter to Securities and Exchange Commission Chairman Christopher Cox, U.S. Senator Olympia J. Snowe (R-Maine), Chair of the Senate Committee on Small Business and Entrepreneurship, continued her aggressive effort to ensure that the Sarbanes-Oxley Act of 2002 does not create unintended burdens on small businesses that will hurt job creation, competitiveness, access to capital, and their ability to continue as publicly traded companies.

Last year Senator Snowe and Senator Michael Enzi asked the Government Accountability Office to study the Act's effects on small businesses, and to determine if the Act places a disproportionate compliance burden on small businesses. This important study will be completed shortly.

They write: "Before Section 404 was postponed, one small Maine public company stated that it spent roughly $630,000 on internal controls compliance costs. The SEC's original cost estimate for Section 404, compliance, however, predicted that companies would only spend 398 hours and approximately $35,286 each to comply with the Act, stating 'We believe, however, that the annual average burden for small issuers is much lower.' A significant difference between the SEC's estimate and the costs actually incurred by small companies would call into question the SEC's ability to accurately evaluate and estimate the cost of new regulations on small businesses. Grossly under-estimating the regulatory impact of new rules will smother and suffocate small ground-breaking businesses, drive them out of the market, and greatly impede U.S. competitiveness and innovation . . . "

Snowe: Small Businesses Could Face Expensive, Paralyzing Regulatory Limbo under Sarbanes-Oxley Law

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Thursday, March 09, 2006

Ideoblog: Much more problems of Sarbanes-Oxley

Larry Ribstein provides a hearty warning: "You may have thought you heard everything about the problems caused by SOX. But actually, as Al Jolson would say, you ain't heard nothing yet. Henry Butler and I have a draft of our lengthy indictment of SOX, The Sarbanes-Oxley Debacle: How To Fix It and What We've Learned."

We'd like to cite a portion of Mr. Ribstein's draft, but we've been asked not to do that. And if anyone is about compliance, it's the faithful staff here at Inside Sarbanes Oxley.

To download the PDF, go here.

Ideoblog: Much more problems of Sarbanes-Oxley

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Paul Kedrosky: Go East, Young Venture-Backed Company

While it is currently easier for companies to go public in Europe (AIM has quickly become a default option for venture-backed firms), and Sarbanes-Oxley makes it irritatingly expensive to be public in the U.S., a London-based venture investor makes a strange argument to Reuters in favor of Euro IPOs...

Paul Kedrosky: Go East, Young Venture-Backed Company

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Sarbanes-Oxley Act another example of Washington's good intentions gone bad

Much less obvious than the verdicts on Skilling and Lay is the future of the legislation passed on the heels of Enron and its sister scandals of 2001 and 2002. Signed by President George W. Bush to the cheers of investors and as a triumph of bipartisanship, the 2002 Sarbanes-Oxley Act was Uncle Sam's righteous response to the seemingly endless flood of corporate negligence and mismanagement revelations. Only three lonely House members voted against the sprawling act, which, as it turns out, only shows no one knew what they were voting for.

Alas, the biggest losers are those smaller companies that had the least to do with the pre-SOX scandals. At least 20 percent of public companies--many of them with revenues of less than $100 million--have considered going private thanks to the new legislation. As a rule, the less business a company does, the more it is paying for compliance-related costs as a percent of total revenue. The strain is simply too much for many small firms, which might explain why the number of public companies going private jumped by 63 percent from 2001 to 2002, the year the law was passed.

Sarbanes-Oxley Act another example of Washington's good intentions gone bad

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Fastow: No Proof of Deals With Skilling

The prosecution's star witness could offer no hard evidence Thursday of any improper deals with former Enron CEO Jeffrey Skilling that were used to help the company look stronger to Wall Street than it was.

Former Chief Financial Officer Andrew Fastow was grilled about whether there were any documents proving Skilling's involvement. He said he couldn't remember, leaving jurors to decide whether to take an admitted liar's word that he had discussed those deals with Skilling.

Fastow: No Proof of Deals With Skilling

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HealthSouth compliance exec tapped as CFO for Matria Healthcare

Jeffrey Hinton, HealthSouth Corp.'s vice president of internal controls, has been named chief financial officer for Matria Healthcare Inc. effective March 20.

It was highlighted that Hinton has experience with Sarbanes-Oxley, "Mr. Hinton brings 20 years of in-depth financial expertise and a wealth of knowledge to our company. He has led Sarbanes-Oxley compliance programs and completed acquisitions and divestitures of corporations and business units with aggregate revenues of nearly $1 billion."

No doubt. Given that Richard Scrushy, HealthSouth's founder and ousted CEO, was acquitted in June 2005 of no less than 36 criminal charges related to a six-year, $2.7 billion scheme to appear bigger and better to the Street.

HealthSouth compliance exec tapped as CFO for Matria Healthcare

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Sarbanes-Oxley has Fairchild Considering Going Private

The McLean-based maker of airplane parts and motorcycle helmets disclosed the possible move in a Securities and Exchange Commission filing.

"The costs of being a small to mid-sized public company have increased substantially with the introduction and implementation of controls and procedures mandated by the Sarbanes Oxley Act of 2002," the company said in the filing. "We are considering all options for reducing costs, including opportunities to take our company private in the coming year."

Sarbanes-Oxley has Fairchild Considering Going Private

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Sarbanes-Oxley Training George Lekatis Inc. Acquired by Compliance LLC

Compliance LLC ( www.compliance-llc.com ) today announced that it has completed the acquisition of George Lekatis Inc., a leading provider of Sarbanes Oxley and Basel ii training services in the world.

George Lekatis Inc. has offered Sarbanes Oxley and Basel ii training and consulting from the USA to London, to Dubai, to Singapore. The Sarbanes Oxley Act affects not only US public companies, but also an amazing number of foreign firms, and training is always the first priority. There are already scheduled more than 30 classes for 2006 in the USA, UK, Singapore, Dubai, Hong Kong, Sydney, Germany, Canada, the Netherlands etc. (www.sarbanes-oxley-training.com )

... and the company has also been a participant on the Inside Sarbanes Oxley board, we might add.

Sarbanes-Oxley Training George Lekatis Inc. Acquired by Compliance LLC

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Canadian business verdict on Sarbanes-Oxley: do it, or be left behind by the competition

The consensus of executives interviewed for the March 2006 issue of CMA Management is straightforward: implementation of Sarbanes-Oxley (SOX) mandated controls isn't an easy task, but the pay-off is a much more efficient organization - and a potential major competitive advantage over rivals that don't make a similar effort. The executives interviewed work at major companies that completed SOX implementations in 2005.

These are the principal findings of the in-depth article for CMA Management, the magazine published by the Certified Management Accountants of Canada (CMA Canada) for its 47,000 members.

Canadian business verdict on Sarbanes-Oxley: do it, or be left behind by the competition

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McCreevy condemns drift towards protectionism in Europe

In a recent address to the London School of Economics, European Commissioner for Internal Market and Services Charlie McCreevy touched on the impact of Sarbanes-Oxley worldwide, stating, "And the same has to apply to new rules. We talk a lot about better regulation, about impact assessments. A standard part of these assessments should be to look at the international repercussions of our rules. It is guess work, but surely if the US Sarbanes-Oxley Act had not been drawn up in a couple of months in closed and smoke filled rooms on Capitol Hill, but instead the views of stakeholders outside the US had also been taken into account in an open and inclusive consultation process, both the US and its trading partners would have benefited from it."

McCreevy condemns drift towards protectionism in Europe

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Wednesday, March 08, 2006

Sarbanes-Oxley, SEC Enforcement Fuel Clash with Lobbyists

The largest U.S. business lobbying group criticized federal securities regulators on Thursday for bringing what it described as a "wave" of losing cases against businesses, drawing a sharply worded reply from the nation's top market regulator.

Last year, the chamber sued the SEC to try to block implementation of a mutual fund governance rule that requires that fund board chairmen, and 75 percent of fund directors, be "independent," or free of direct ties to fund managers.

The lawsuit heightened tensions between the SEC and business lobbyists, who are now pushing on several fronts to try to roll back some of the Sarbanes-Oxley reforms and rein in the SEC's aggressive investigative efforts.

Sarbanes-Oxley, SEC Enforcement Fuel Clash with Lobbyists

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Big4Guy: (Sarbanes Oxley Internal Control Series) Remediation of Significant Deficiencies and Material Weaknesses

Sometime back, I had discussed the internal audit department's role in an antifraud program and how, it can act as a proactively towards fraud detection and prevention. Going forward, once an antifraud program has been implemented, normally significant deficiencies and material weaknesses are identified during the course of the internal controls review. The best way to understand the "tone at the top" is to see the way such significant deficiencies and material weaknesses are handled by the board.

Big4Guy: (Sarbanes Oxley Internal Control Series) Remediation of Significant Deficiencies and Material Weaknesses

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SoftwareManagers.org: Sarbanes-Oxley Challenged

Currently, Kenneth Star and others are leading a constitutional challenge of Sarbanes-Oxley. SOX "could be invalidated if any of its sections is found unconstitutional," says Marcy Gordon in Sarbanes-Oxley getting first Constitutional challenge from Starr, others. The group is "challenging the board it established to oversee the accounting industry and arguing that it violates the Constitution’s separation of powers among the three branches of government."

SoftwareManagers.org: Sarbanes-Oxley Challenged

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Fastow Testifies Lay Knew of Enron's Problems

Andrew S. Fastow, the onetime chief financial officer of Enron, provided some of the strongest evidence yet linking Kenneth L. Lay, the company's founder and former chief executive, to a conspiracy to defraud investors. But Mr. Fastow's statements, coming in the sixth week of the trial of Mr. Lay and Jeffrey K. Skilling, another former chief executive, were almost lost under a searing cross-examination by Daniel Petrocelli, Mr. Skilling's lead lawyer.

Fastow Testifies Lay Knew of Enron's Problems

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Fastow: Enron's bosses knew of fraud

In dramatic testimony, Fastow is proving to be the key figure - not only in the trial here of Enron's two corporate chiefs but also in the chain of events that led to the Sarbanes-Oxley Act of 2002, the most sweeping accounting reform in decades. As a chief financial officer whose fraudulent deals were at the heart of one of corporate America's biggest collapses, Fastow has unwittingly helped strengthen the role of America's CFOs as guardians against corruption.

Fastow: Enron's bosses knew of fraud

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False Consciousness: Everybody Loved Enron

As the Enron Ponzi scheme plays itself out again, it becomes ever clearer that this hyperspun "tragedy" doesn't really qualify as such. That is, if anyone bothered to look past the gloss, the Enron protagonists never had any real promise to betray or good graces from which to fall. It all begs the question as to what all the ado was about in the first place. Did it all happen in a sealed bag of pure credulity?

False Consciousness: Everybody Loved Enron

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Enron: Lawyer for Skilling Spars With Ex-Enron CFO

The Enron trial turned into a slugfest today as former Enron Chief Financial Officer Andrew S. Fastow traded verbal shots with the chief defense lawyer for Fastow's former boss, Jeffrey K. Skilling.

Los Angeles-based lawyer Daniel M. Petrocelli opened his cross-examination this morning, tossing question after rapid-fire question at Fastow. The star government witness on Tuesday had told federal jurors that Skilling, Enron's former chief executive officer, had blessed financial maneuverings that Fastow had created to "juice" the company's earnings and keep its stock price high.

Enron: Lawyer for Skilling Spars With Ex-Enron CFO

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Open source legal firm counters GPL SOX concerns

Eben Moglen's open source legal services firm, Software Freedom Law Center, has hit out at suggestions that users of the GNU General Public License are at any additional risk of criminal liability under the Sarbanes-Oxley Act.

SFLC maintained that either way, the issue was not specific to the GPL and should be considered as part of ongoing compliance liability review. "The dangers of accidental criminal liability under SOX are no greater for GPL'd software than for non-GPL'd software," its paper stated.

Open source legal firm counters GPL SOX concerns

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Sarbanes-Oxley Just a Fraction of Compliance Spending According to AMR

Less than a quarter of corporate spending on compliance in 2006 will be devoted to meeting the requirements of the Sarbanes-Oxley Act, with companies focusing on broader compliance issues as they continue to contend with government regulations and tighter governance and risk policies, according to a new report from Boston-based technology consultancy AMR Research.

Corporate spending on compliance in 2006 will reach $27.3 billion, with $6 billion (or 22 percent) allocated to the Sarbanes-Oxley Act.

Sarbanes-Oxley Just a Fraction of Compliance Spending According to AMR

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Tuesday, March 07, 2006

White Paper: Sarbanes-Oxley Act and its Impact on IT Security

This white paper looks at the Sarbanes-Oxley Act and its impact on IT security. The 2002 Sarbanes-Oxley Act is legislative reform relating to accuracy and reliability of public company financial statements. Ultimately it is about ensuring that internal controls are in place to govern the creation and documentation of information in financial statements.

Since IT systems are used to generate, change, house, and transport that data, corporations have to build the controls that ensure the information stands up to audit scrutiny. To do this IT departments have to establish security infrastructures that ensure the security of financial data and applications while providing detailed reporting for auditors.

White Paper: Sarbanes-Oxley Act and its Impact on IT Security

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Big4Guy: IT Governance for Sarbanes Oxley

A strong governance atmosphere ensures that the control environment which is a COSO component sets the right tone at the top. Similarly, with strong IT governance management can have some assurance that company level controls are working as intended.

So how does IT governance relates to Section 402 and Section 302 of the Sarbanes Oxley Act?

Big4Guy: IT Governance for Sarbanes Oxley

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Dark Matter Marketing: Effective Data Governance - Failure is Not an Option

Finally, they document a general increase in the adoption of governance practices following the implementation of a governance practice in which the adoption of governance is entirely voluntarily, but the disclosure of a firm's activities is mandatory. Their results suggest that Canadian firms voluntarily implemented Canadian best practice standards between the years 1999-2003 and that after 2002, non cross-listed firms adopted Sarbanes-Oxley like reforms, voluntarily.

These results suggest that mandatory governance legislation may not be necessary at least where certain incentives exist.

Dark Matter Marketing: Effective Data Governance - Failure is Not an Option: "Sarbanes"

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Open source legal advocate rebuts GPL-SOX FUD

GPL-licensed software poses no special threat to companies covered by the Sarbanes-Oxley Act of 2002 (SOX), according to a whitepaper released by the Software Freedom Law Center (SFLC). The paper rebuts recent statements to the contrary from Wasabi Systems, an embedded software publisher that advocates a competing open source license.

Open source legal advocate rebuts GPL-SOX FUD

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Sarbanes-Oxley: What Have We Learned?

At this AEI event, Professor Larry Ribstein, a scholar of corporate and securities law, and Professor Henry N. Butler, an expert on the economic analysis of law, will discuss their forthcoming monograph, The Sarbanes-Oxley Debacle: How to Fix It and What We've Learned (AEI Press, 2006). Richard Booth of the University of Maryland School of Law and AEI's Alex J. Pollock and Peter J. Wallison will respond. Ted Frank, director of AEI's Liability Project, will act as moderator.

Wohlstetter Conference Center, Twelfth Floor, AEI
1150 Seventeenth Street, N.W., Washington, D.C. 20036
Monday, March 13, 2006 9:00 AM

Sarbanes-Oxley: What Have We Learned?

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The Right Coast: The (Un)Constitutionality of the Public Company Accounting Oversight Board

More on the constituitionality discussion surrounding the Public Company Accounting Oversight Board (PCAOB) for "The Right Coast" blog, where Mike Rappaport opines: "Recently, the Public Company Accounting Oversight Board, the entity created by Sarbanes-Oxley, to oversee the auditing of public companies, was challenged in court as violating the Appointments Clause and the separation of powers. I recently read the complaint in Free Enterprise Fund v. Public Company Accounting Oversight Board (Board). In my view, there are two significant issues, both relating to the status of the members of the Board."

The Right Coast: The (Un)Constitutionality of the Public Company Accounting Oversight Board

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ZDNet: The latest in spring FUD from Wasabi

ZDNet blogger Dana Blankenhorn chimes in on the Wasabi and Software Freedom Law Center skirmish.

To wit: "Remember this before you accept anything at face value. Check out the speaker.

"With this firmly in mind, let's look at the latest from Wasabi Systems. It's a study claiming the GPL is dangerous, that using it might put you in violation of the dreaded Sarbanes-Oxley Act (known as SOX), which could mean huge company-ruining fines, humiliation and bankruptcy.

"We should also apply the same test to this from the Software Freedom Law Center. It calls the Wasabi study bunk."

For more information on this war of words, please see the entries below.

ZDNet: The latest in spring FUD from Wasabi

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eWeek: Does the GPL Violate Sarbanes-Oxley?

The Software Freedom Law Center on March 8 will publish a white paper that dismisses recent publications that have alleged GNU General Public License violations in relation to the Sarbanes-Oxley Act of 2002.

Wasabi Systems has also posted a white paper to its Web site titled "When GPL Violations Are Sarbanes-Oxley Violations," which says that the SOX (Sarbanes-Oxley) Act requires public companies to provide truthful disclosures of information, including ownership of intellectual property.

However, the latest Software Freedom Law Center white paper maintains that while some have argued that corporate executives face increased risk of criminal liability under SOX if their companies develop and distribute code licensed under the GPL, these issues were reviewed and it was found that there is in fact no special risk for developing GPL'd code under SOX.

eWeek: Does the GPL Violate Sarbanes-Oxley?

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When GPL Violations are Sarbanes-Oxley Violations (PDF)

Dueling legal perspectives on Sarbanes-Oxley and GPL. Wasabi Systems has a different take: "Because the Sarbanes-Oxley Act requires truthful disclosure of intellectual property ownership, violations of Linux's GPL license are, for public companies, violations of U.S. Securities Law. Executives are personally liable for such criminal violations, even if they are unaware of them. Moreover, because the Sarbanes-Oxley Act mandates adequate monitoring, even companies who comply with the GPL are violating federal law if they do not require legal department review of all GPL compliance. Given that industry surveys show that 38% of embedded software companies leave such matters to engineering teams, we believe Sarbanes violation to be widespread."

When GPL Violations are Sarbanes-Oxley Violations (PDF)

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Sarbanes-Oxley and the GPL: No Special Risk (PDF)

The Software Freedom Law Center has released a white paper on Sarbanes-Oxley and GPL. This piece strives to quell erroneous information currently being purported by some media sources as fact.

To wit: "Some have recently argued that corporate executives face increased risk of criminal liability under the Sarbanes-Oxley Act of 2002 (SOX) if their companies develop and distribute code licensed under the GNU General Public License (GPL). The argument, as it has been made, raises significant concerns about SOX compliance, but it fails to clarify the scope and context of these points. We have reviewed these issues and, as discussed more fully below, there is in fact no special risk for developing GPL'd code under SOX. Under most circumstances, the risk posed to a company by SOX is not affected by whether they use GPL'd or any other type of software. Arguments to the contrary are pure anti-GPL FUD.

"Companies subject to SOX should take their reporting and certification requirements very seriously. It is important that such companies understand their obligations and ensure that they are not in violation of any licenses or any other restrictions related to intellectual property. While GPL compliance can be an important part of this analysis and compliance with SOX, risks associated with the use of GPL software should be considered in the full context of securities law compliance. In the end, contrary to what others may argue, there is in fact no additional SOX liability or risk for using GPL software."

Sarbanes-Oxley and the GPL: No Special Risk (PDF)

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Business Analytics: Reducing the Costs of SOX Compliance by Siebel

Enacted in July 2002, the Sarbanes-Oxley Act (SOX) has brought about the most extensive reform that the U.S. financial markets have seen since the 1930s. Mandating new, stricter rules for financial reporting and financial controls, the Sarbanes-Oxley Act has already had a tremendous impact--and the impact will continue in every industry sector for many years to come.

Smart companies quickly realized that adequate IT systems were a necessity for addressing Sarbanes-Oxley effectively in both the near term and the future. To meet the auditing, reporting, and timeliness requirements, these companies began to invest in the addition of controls to transaction processing systems and workflow automation systems. But these solutions are only part of the answer. Sarbanes-Oxley deals with the accuracy, timeliness, transparency, and quality of financial reporting; because finance impacts all of a company's business processes, the scope of an IT solution likewise needs to address end-to-end business processes such as Order to Cash and Procure to Pay.

Business Analytics: Reducing the Costs of SOX Compliance by Siebel

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Monday, March 06, 2006

Oxley: SEC Can Change SOX

Retiring U.S. Rep. Michael Oxley, an author of the Sarbanes-Oxley Act, said the Securities and Exchange Commission has the legal authority to roll back the 404 provisions for smaller public companies, Reuters reports.

In a March 3 letter to SEC Chairman Christopher Cox, Oxley and Richard Baker, chairman of a financial services subcommittee, support "the view that the Commission currently possesses the authority to provide relief from the provisions of the Sarbanes-Oxley Act" under both the Securities and Exchange Act of 1934 and the 2002 Sarbanes-Oxley law.

Oxley: SEC Can Change SOX

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Ideoblog: The trouble with SOX: it's not just small firms

Larry Ribstein writes: "There seems to be a myth going around that the problems with SOX can be solved by a simple amputation of small firms.

"The latest adherent is Bob Greifeld, head of Nasdaq and self-styled 'consistent supporter of the principles of Sarbanes-Oxley,' writing in today's WSJ. He's worried about all those foreign firms leaving US capital markets, including NASDAQ. His solution is to support the recommendations of the SEC's Advisory Committee on Smaller Public Companies to exempt small public firms from 404."

However, according to Ribstein, "this attempt to solve the SOX problem by amputation won't work."

Ideoblog: The trouble with SOX: it's not just small firms

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Mutual respect may replace convergence

Tim Plews, a London-based partner at Clifford Chance, the law firm, says: "The SEC's recent comments on accounting show it can start to think in a different way about other people's rules. That reflects the grief that has been created by a more rigid approach in the past."

The same goes for the Public Company Accounting Oversight Board, the US audit regulator, which is less than three years old but follows a similar philosophy to the SEC. The PCAOB is obliged by the Sarbanes-Oxley Act to inspect the audit work done by accountancy firms serving companies registered with the SEC, including those based outside the US.

In some - but not all - of the foreign countries it is required to scrutinise, local regulators already carry out independent inspections of their own. So aside from perceived infringements of sovereignty, the PCAOB visits raised the prospect of audit firms hosting two sets of inspectors at different times, who would ask the same questions and look at the same files.

The PCAOB realised that would not make it any friends and started to "recognise" some of the inspection work by local regulators.

Mutual respect may replace convergence

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Audit-engagement provisions raise queries

More companies are disclosing agreements that prevent them from taking their auditors to court or from seeking punitive damages when problems arise with auditing work.

Neither the SEC nor the Public Company Accounting Oversight Board -- the regulator for accounting firms -- officially weighed in on the use of such restrictions. The SEC's staff is considering the issue, said a person familiar with the matter, and a spokesman for the PCAOB said "the board has not taken a position on this topic." The liability caps were discussed at a meeting of a PCAOB advisory group last month in which attendees were split on whether arbitration agreements and punitive-damages waivers were harmful.

Audit-engagement provisions raise queries

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Small Companies, Large Fraud?

The SEC is moving closer and closer to giving the smallest companies a break on complying with certain provisions of the Sarbanes-Oxley Act.

On Friday, the commission's advisory committee on smaller public companies published for public comment an exposure draft of its final report and proposed recommendations to the commission. The committee will consider the comments, which are due April 3, before it issues its final report, scheduled for completion by April 23. The final rules will almost certainly resemble the SEC's earlier proposals.

Small Companies, Large Fraud?

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Getting It Wrong the First Time (PDF)

Companies with U.S.-listed securities filed 1,295 financial restatements in 2005, nearly double the previous year's mark. That's about one restatement for every 12 public companies—up from one for every 23 in 2004. Of these, 100 were by foreign companies. About the only thing rising faster is executive compensation. The burden of these errors, of course, falls on investors, who rely on companies' management to get the numbers right the first time.

But to hear a relative handful of senior executives and policy makers tell it, the big problem isn't that investors got bad information the first time; rather, it's that Congress overreacted when it passed its landmark Sarbanes-Oxley Act in 2002 and that, for the good of global capitalism, Congress now should relax the scrutiny it imposed on corporate boards and executives after the collapses of Enron and WorldCom. As we write this report, the Securities and Exchange Commission's Advisory Committee on Smaller Public Companies is recommending just that.

Getting It Wrong the First Time (PDF)

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Researchers: Restatements Signal SOX Is Working

The doubling of restatements by U.S. companies last year could signal that the changes made under the Sarbanes-Oxley Act are having their intended impact.

In response to the call by some executives and Securities and Exchange Commission policy makers to relax SOX provisions, Glass Lewis writes, "We couldn't disagree more. It's precisely because of the heightened auditing standards ... that investors today are getting a true sense, finally, of just how much work remains to be done before they can feel confident about the accuracy of the financial statements prepared by corporate managers."

Researchers: Restatements Signal SOX Is Working

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Sunday, March 05, 2006

Compliance Spending To Reach $28 Billion By 2007

While North American companies will spend $27.3 billion this year, up to $28 billion in 2007, complying with the Sarbanes-Oxley Act will take the biggest chunk of the pie, estimates AMR Research Inc.

Complying with Sarbanes-Oxley will cost companies $6 billion in 2006, with spending climbing higher in 2007, estimates AMR Research. In June, Sarbanes-Oxley requirements kick in for foreign registrants, which are defined as companies based outside the United States, but that trade stock or have debt within the U.S.

Sarbanes-Oxley isn't the only compliance issue survey respondents said they will face this year. A plethora of compliance issues have surfaced from customer compliance to the Food and Drug Administration (FDA). Many focus on radio frequency identification (RFID) technology and other sensor networks.

Compliance Spending To Reach $28 Billion By 2007

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Best Practices: Automating Internal Controls for the Oracle E-Business Suite by Applimation

The Sarbanes-Oxley Act of 2002 has brought sweeping changes into the audit community compelling auditors and IT managers to examine the control practices within their accounting departments and to evaluate and implement strict control methodologies within their enterprise applications. Companies have spent millions of dollars to ensure their first year of compliance with Sarbanes-Oxley Sections 302 and 404 often deploying large teams of internal and external consultants.

The presence of ERP solutions, such as Oracle, complicates the successful implementation of an internal control framework due to the pervasive and increasingly integrated nature of ERP systems and the underlying relational database in a business. Application and general IT controls are embedded within the ERP software making identification and testing complex and
time consuming.

Applimation's Integra solutions automate the documentation, prevention, monitoring and testing of an organization's key control. Automating a control framework and testing methodology is the only sound and reliable method to ensure that the thousands of hours of manual work spent ensuring compliance with Sarbanes-Oxley will not need to be repeated
every quarter.

Best Practices: Automating Internal Controls for the Oracle E-Business Suite by Applimation

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Billions spent to comply

North American companies expect to shell out $27.3 billion on compliance this year, with less than a quarter of that total attributable to the U.S. Sarbanes-Oxley corporate-governance law, according to a new survey.

While public companies in the United States and Canada believe the cost of Sarbanes-Oxley compliance will drop slightly, overall compliance spending is expected to grow to $28 billion in 2007, the survey, released last week in Washington, indicated.

"Spending on Sarbanes-Oxley is only the visible tip of the compliance iceberg," said John Hagerty, vice president of research at AMR Research, a Boston-based advisory firm that released the survey. "Any expectation that compliance spending might moderate is just wishful thinking."

Billions spent to comply

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Saturday, March 04, 2006

Ideoblog: SEC Advisory Committee on Smaller Public Firms

Larry Ribstein writes: "I just caught up with this draft report by the SEC's Advisory Committee on Smaller Public Companies. It's got a lot of interesting stuff in it, including a proposal to exempt the smallest firms from mandatory compliance with SOX's internal controls provision, defined as the smallest 1% by total capitalization with less than $125 million in annual revenue, and the next smallest 5% by total capitalization with less than $10 million in revenue..."

Ideoblog: SEC Advisory Committee on Smaller Public Firms

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Pelosi: Sarbanes-Oxley should not be 'overly burdensome' on small companies

House Democratic Leader Nancy Pelosi, usually identified as a San Francisco liberal, has moved to the right of President Bush and the Republicans in proposing to relieve the Sarbanes-Oxley regulatory legislation's financial drag on corporations.

Bush and Pelosi are each pushing a "competitiveness agenda," but only the Democrat's plan addresses Sarbanes-Oxley, the hurriedly drafted 2002 act intended to weed out corporate corruption. Pelosi is proposing "specifically tailored guidelines" to make sure that Sarbanes-Oxley requirements are "not overly burdensome" on small companies.

Bush's "competitiveness agenda" does not mention Sarbanes-Oxley.

Pelosi: Sarbanes-Oxley should not be 'overly burdensome' on small companies

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SOX Life: Huhh, Guffah, Hurmph, So Much Mumbling and Complaining

There has been much ballyhoo of late in the news about Sarbanes Oxley, with phrases going round like rolling-back and unconstitutional. Damn this over-reaching and intrusive government. Phooey on the monitoring and moderation of capital markets. I have to think this is similar to the whining that accompanied the Security Exchange Act of 1934, or the Foreign Corrupt Practices Act of 1977, and every other piece of legislation that has sought to enhance transparency in the financial markets.

I would certainly feel different if Enron, HealthSouth, WorldCom, Waste Management, and Adelphia were simply isolated cases. Maybe these were just a few simple cases of a few bad apples spoiling it for the rest of us. But this doesn't seem clear, even as the Enron trials persist so many years later. The idea that we did nothing wrong at the senior executive level rings of at least criminal negligence, even if the charges were dropped. How is the average, casual investor ever to understand all this dancing and doubletalk?

SOX Life: Huhh, Guffah, Hurmph, So Much Mumbling and Complaining

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Section 404 for Small Caps

Let's hope performing Sarbanes-Oxley section 404 audits of internal controls turns out to be easier for nonaccelerated filers. Those of us who already have performed section 404 internal control audits will attest the process is long, complex, tedious and stressful. Indeed, section 404 — which requires a company’s annual report to certify exactly how effective its control and reporting procedures are — is proving to be the most challenging part of the Sarbanes-Oxley Act. This article describes how our firm, Marcum & Kliegman LLP of Melville, N.Y., approached section 404 audits, and shares some best practices we learned on the job.

Section 404 for Small Caps

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PCAOB: More than the Sum of Unconstitutional Parts

More than three years after its passage, and months after the largest players in the auditing field have had to face the new meaning of internal controls, the centerpiece of the Sarbanes-Oxley Act -- the creation of the Public Company Accounting Oversight Board -- looks to be facing a court battle that carries some weight.

The Competitiveness Enterprise Institute, a Washington, D.C.-based libertarian think tank and the anti-tax group the Free Enterprise Fund are expected to file papers as soon as today, arguing that the method of filling the five-member PCAOB's seats violates the Constitution.

A CEI white paper, written by Hans Bader, counsel for special projects at the institute, and John Berlau, a fellow in economic policy at the institute, is expected to form the basis for much of the case. In the October 2005 report entitled, "The Public Company Accounting Oversight Board: An Unconstitutional Assault on Government Accountability," the men wrote that the appointments clause requires senior federal officials to be named by the President and confirmed by the U.S. Senate, while the president, the courts or a department head may pick lesser officers.

PCAOB: More than the Sum of Unconstitutional Parts

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Sarbanes-Oxley.com: Kodak named our first two-time winner for 404

As 12/31/2005 annual reports for accelerated filers begin to be submitted, we have the first filer that has managed to achieve a non-effective internal controls assessment/opinion for not just the current year, but the prior year as well. While listing five (5) weaknesses in 2004, including every company's favorite, insufficient/knowledgeable personnel, Kodak managed to reduce it to one for 2005: deferred taxes.

Sarbanes-Oxley.com: Kodak named our first two-time winner for 404

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Compliance Weighing on the Investor

All of the plusses that were supposed to come from the Sarbanes-Oxley driven extension of compliance have been mostly a big yawn. Surveys show that investors hardly feel much better about the condition of the business today than a few years ago (although that may be nothing that a good, prolonged bull market couldn't cure).

As for the specifics of extending regulation, the first start could be actually have less to do with compliance than English. By eliminating overlap and requiring that compliance reports be written in a comprehensive, conversational tone, investors might feel they are truly benefiting, rather than merely hoping that more regulation means a better, cleaner securities business.

Compliance Weighing on the Investor

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Big4Guy: Importance of Spreadsheets in Sarbanes Oxley Project

Post Sarbanes Oxley, spreadsheets have become a major cause of concern for enterprises. In any enterprise, most of the workings, calculations, project plans etc are made using spreadsheets. My personal experience with most companies shows that a sarbanes oxley implementation project generates a lot of excel sheets. A typical spreadsheet for sarbanes oxley would include control objectives, control procedures, testing procedures, testing results and the external auditor's assessment of the controls.

Big4Guy: Importance of Spreadsheets in Sarbanes Oxley Project

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Report: Financial restatements soared in 2005

Restatements of financial results by public companies nearly doubled in 2005 from the year earlier partly because of the Sarbanes-Oxley corporate-governance act, The Wall Street Journal reported.

The number of restatements by U.S. companies soared to 1,195 last year from 613 in 2004, the newspaper said, citing research firm Glass Lewis & Co., which could mean that financial-reporting changes made in the wake of the Enron and WorldCom scandals are working.

Report: Financial restatements soared in 2005

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At Enron, a Lie Is a Lie Is a Lie

Wednesday was cross-examination day at the trial of Kenneth Lay and Jeffrey Skilling.

In the morning session, Lay attorney Mike Ramsey spent his efforts on the plea deal of Timothy Belden, the former chief trader for Enron Corp. division Enron North America. "You've made a settlement where you hope, if you perform correctly and render 'substantial assistance'...your hope and belief is a judge will accept that settlement," Ramsey said, according to the Houston Chronicle. The former executive offered up mostly bland, pat answers; the paper described Ramsey and Belden's exchanges as generally "dry.

At Enron, a Lie Is a Lie Is a Lie

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GAO Cites Material Weaknesses

Officials at the U.S. Government Accountability Office (GAO) said that for the ninth straight year it is unable to provide an opinion as to whether the consolidated financial statements of the U.S. government are fairly stated and conforms with generally accepted accounting principles (GAAP). GAO cites material weaknesses in internal control and selected accounting and financial reporting practices as the reason for the qualified opinion.

In a March 1 report on fiscal year 2005 government financial statements, the agency cited three major impediments to rendering an opinion on the financial statements—serious financial management problems at the Department of Defense, the federal government's inability to adequately account for, and reconcile, intra-governmental activity and balances between federal agencies, and the federal government's ineffective process for preparing the consolidated financial statements.

GAO Cites Material Weaknesses

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Regulation: US companies jumping snap-to because of SarbOx

American companies busily issued restatements of financial results in 2005, owing to the Sarbanes-Oxley corporate governance act. This according to the Wall Street Journal, citing a report by research firm Glass Lewis & Co.

Manufacturers most frequently failed to properly report the costs of their leases on plants. US companies will spend about $6 billion in 2006 to comply with Sarbanes-Oxley, according to data by AMR Research.

Regulation: US companies jumping snap-to because of SarbOx

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Restatements Surged in 2005 Says Study

Restatements are busting out all over. The number of revisions of financial reports by publicly traded companies surged to a record 1,295 in 2005, nearly double the previous year's mark of 613, according to a new study by Glass, Lewis and Co., a corporate governance research firm. The tally is also more than triple the total in 2002, the year the Sarbanes-Oxley Act was passed.

The study said that 1,185 companies, or 8.5 percent of all U.S. corporations, filed a restatement. This compares with 4.5 percent the prior year. From 1997 through 2005, U.S. public companies filed 3,642 restatements to correct accounting errors. That's about 30 percent of all U.S. public companies over the past nine years.

In fact, the report said that last year's volume of restatements likely would have been even higher had U.S. regulators not agreed to make an exception for companies with stock-market values of less than $75 million and extend their 404-compliance deadlines into 2007. According to the study, the smallest companies, measured by market capitalization, were nearly twice as likely to restate as the largest companies. "Smaller companies are where most of the problems historically have existed." Section 404 of Sarbox deals specifically with a company's internal controls over financial reporting.

Restatements Surged in 2005 Says Study

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Friday, March 03, 2006

Sarbanes-Oxley after Three Years

The pre-SOX market bubble exacerbated two inherent flaws in corporate governance--agency costs and gatekeeper failure. These observations are supported by the regulatory aftermath of the market crash in the United States--the Sarbanes-Oxley Act of 2002 ("SOX"). This paper provides a brief overview of some issues relating to SOX. First, it gives a short history and background of the Act, before evaluating SOX's regulatory solutions. It then looks at some evidence on the effects of SOX. Finally, the paper offers some overall observations and recommendations for the future, particularly including the advisability of what I call "humble" regulation.

Sarbanes-Oxley after Three Years

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Oxley: SEC can partly roll back Sarbox

U.S. Rep. Michael Oxley, an author of the Sarbanes-Oxley corporate reform law passed after Enron and other corporate scandals, said federal regulators have the legal authority to roll back key provisions for smaller U.S. public companies, according to a letter released on Friday.

Oxley's letter to SEC Chairman Christopher Cox was prompted by at least one panel member, who questioned if the SEC had legal authority to adopt the recommendation.

"We write to support the view that the Commission currently possesses the authority to provide relief from the provisions of the Sarbanes-Oxley Act" under the Securities and Exchange Act of 1934 as well as the Sarbanes-Oxley law, the letter said.

Oxley: SEC can partly roll back Sarbox

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Compliance spending to reach $US28 billion by 2007

Companies will spend $8.8 billion this year on hardware, software, and integration to comply with regulations and laws or requests from business partners, according to a recent study.

Governance, risk management, and compliance have been on the minds of business and IT executives during the past few years, resulting largely from the Sarbanes-Oxley Act.

The survey of 325 North American companies reveals technology plays a significant role in the integration of compliance requirements into existing business processes. Seventy five percent said they will comply with requests to improve business performance.

Compliance spending to reach $US28 billion by 2007

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Policy Committee Demands Full Ratings Disclosure

In a move that has big implications for the way in which the media report their audience ratings to the ad industry, the American Association of Advertising Agencies' Media Policy Committee Wednesday called for "full disclosure in traditional media, especially TV ratings." "In the end, we want commercial ratings, not program averages," Jean Pool, executive vice president-COO of Universal McCann, and chair of the AAAA committee, said here during her opening remarks Wednesday morning.

Jon Mandel, chairman and co-CEO of MediaCom USA, and a member of the committee, told MediaDailyNews that the accountability move--rumored for several weeks--is now an imperative because of the Sarbanes-Oxley Act, which requires companies to fully disclose financial-related information publicly. Because ratings data function as de facto currencies in the media buying world, Mandel implied they fall under that law.

Policy Committee Demands Full Ratings Disclosure

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Growing disclosure of SEC probes seen haphazard

In the jittery post-Enron world, more and more companies are disclosing every twist and turn of U.S. Securities and Exchange Commission investigations, without really knowing if they should, securities lawyers say.

Uncertainty over investigation disclosure has companies playing a guessing game on how, when and whether to tell the world about SEC inquiries and the steps that typically follow.

Growing Growing disclosure of SEC probes seen haphazard

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More large companies admit tax mistakes

More of the nation's biggest companies are admitting they've made tax mistakes, thanks to the Sarbanes-Oxley corporate disclosure law, a newspaper reported Friday.

Twenty-nine companies have admitted tax accounting mistakes so far this year, USA Today said, citing an analysis by AuditAnalytics.com. That is on pace to match the 183 companies that admitted tax mistakes last year, versus 87 in 2004, 80 in 2003 and 27 in 2002.

New penalties from the Sarbanes-Oxley law are forcing companies to admit they've done taxes wrong for years, Mark Cheffers, CEO of AuditAnalytics.com, told the newspaper.

More large companies admit tax mistakes

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Thursday, March 02, 2006

Final Report of the Advisory Committee on Smaller Public Companies to the U.S. Securities and Exchange Commission (PDF)

The U.S. Securities and Exchange Commission (the "Commission" or "SEC") chartered the Advisory Committee on Smaller Public Companies on March 23, 2005. The Charter provided that our objective was to assess the current regulatory system for smaller companies under the securities laws of the United States, and make recommendations for changes. The Charter also directed that we specifically consider the following areas of inquiry, including the impact in each area of the Sarbanes-Oxley Act of 2002:

• frameworks for internal control over financial reporting applicable to smaller public companies, methods for management's assessment of such internal control, and standards for auditing such internal control;


• corporate disclosure and reporting requirements and federally imposed corporate governance requirements for smaller public companies, including differing regulatory requirements based on market capitalization, other measurements of size or market characteristics;


• accounting standards and financial reporting requirements applicable to smaller public companies; and


• the process, requirements and exemptions relating to offerings of securities by smaller companies, particularly public offerings.

Final Report of the Advisory Committee on Smaller Public Companies to the U.S. Securities and Exchange Commission (PDF)

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Sarbanes-Oxley Section 404 Costs and Implementation Issues: Survey Update (PDF)

Implementation of Section 404 of the Sarbanes-Oxley Act ("SOX"), which requires management and their independent auditors to issue separate assessments of a public company's internal control over financial reporting, has sparked significant public debate over the relative costs and benefits of the reporting process. To assist in the evaluation of the various views Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP, and PricewaterhouseCoopers LLP (the "Accounting Firms") asked CRA International ("CRA") in early 2005 to review data for a sample of the firms' Fortune 1000 clients with market capitalization over $700 million ("Larger Companies"). That study (the "Original Study"), which was issued in April 2005, provided data on average year-one Section 404 implementation costs. It also included data on the number of control deficiencies identified and remediated as a result of Section 404, and included an estimate of expected cost changes in the second year of implementation.

As a follow up to that study, the Accounting Firms engaged CRA to examine second-year costs for both the Fortune 1000 clients that were included in the April study and a separate group of smaller public companies with market capitalization between $75 million and $700 million ("Smaller Companies").

Sarbanes-Oxley Section 404 Costs and Implementation Issues: Survey Update (PDF)

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US compliance costs seen $27.3 bln in '06-survey

North American companies may spend as much as $27.3 billion this year on compliance work, with $6 billion devoted to Sarbanes-Oxley compliance spending, a survey from AMR Research showed on Thursday.

Compliance spending has jumped in recent years as the U.S. Congress passed the Sarbanes-Oxley Act in 2002 in response to corporate scandals like Enron and Worldcom. The act requires tight internal controls and information monitoring, and has come under attack for its costs. But it only adds to the variety of other compliance demands that companies are facing, the survey showed..

Though Sarbanes-Oxley related compliance, was about 22 percent of the total, companies were also likely to spend heavily in customer compliance, document and record retention, meeting Securities and Exchange Commission regulations, working with manufacturing and supply chain traceability, as well as complying with the U.S. Food and Drug Administration.

US compliance costs seen $27.3 bln in '06-survey

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Corporate governance: Culture change

The whole corporate world has changed totally in the post-Cadbury years. There have been upheavals, advances, failures and successes. Companies, with good reason, can complain that they are beset with more regulation and regulators than ever before. And Charkham suggests that "a pause for reflection while existing reforms work through" would be important. But the real change is not the myriad measures, from Sarbanes-Oxley to Combined Codes, but the overall transformation in the nature of corporate thought.

By that I do not mean the cliche of directors taking their eyes off the ball of enterprise and instead focusing on box-ticking. The transformation is in the idea that, in the long-term, the behaviour of a company is the most important part of both its reputation and its ability to maintain and grow its business.

Corporate governance: Culture change

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Sarbanes-Oxley Webinar: Compliance as a Catalyst for Competitive Advantage

By 2007, companies will spend nearly $28B to support the various compliance programs affecting organizations today. Some executives consider it an insidious business tax. For leading companies, however, compliance initiatives provide the rigor, discipline, and structure needed to improve or even rethink many parts of their business.

AMR Research Live: Compliance as a Catalyst for Competitive Advantage
March 6, 2006
11AM - 12PM EST
Webcast, Live

Sarbanes-Oxley Webinar: Compliance as a Catalyst for Competitive Advantage

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Former Enron 'Boy Wonder' Recounts Lies

For a "boy wonder" at Enron Corp. known for advising his colleagues to "just do the right thing" as he rose swiftly into the highest ranks of the company while in his 30s, David Delainey is spending much time talking about all the wrong things he said he did.

"We lied to shareholders, employees, the public," he said Wednesday. "It was just plain wrong."

Delainey, now 40, was to return Thursday for a third day of testimony in the fraud and conspiracy trial of company founder Kenneth Lay and former Chief Executive Jeffrey Skilling.

Former Enron 'Boy Wonder' Recounts Lies

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Big4Guy: Identifying Significant Processes Sarbanes Oxley - Management's Assessment of Internal Controls

Identifying significant processes which have a direct correlation with internal controls is an important task for the management. Once the management has identified significant accounts and the relevant financial statement assertions, management needs to identify the various significant processes. What are these significant processes, how do you identify significant processes in your organization. Significant processes are those processes over major classes of transactions that directly affect accounting, disclosures and/or assertions. What then does the management need to know about significant processes.

Big4Guy: Identifying Significant Processes Sarbanes Oxley - Management's Assessment of Internal Controls

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Wednesday, March 01, 2006

A Fairer Climb: Improving Sarbanes-Oxley (PDF)

Because its compliance framework is designed for large, well-established organizations, its costs have hit smaller companies much harder than others, hampering competitiveness and job growth in a vital segment of the economy. SOX has become yet one more burden in the steep climb towards an initial public offering (IPO) that is especially difficult for small companies. Many firms are now choosing to remain or become private, others are considering being acquired, and yet others are turning to international stock exchanges for their IPOs.

To create a fairer climb to the top, SOX’s disproportionate compliance costs for smaller public companies need to be addressed. In large part, this can be handled by streamlining the implementation framework and testing requirements for Section 404. Further clarification of SOX’s rules and intentions is needed to ensure that management and auditors alike feel comfortable using good judgment and common sense without fear of liability.

A Fairer Climb: Improving Sarbanes-Oxley (PDF)

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Boston Chamber of Commerce Releases Report Recommending Changes to SOX

The Greater Boston Chamber of Commerce today released a report entitled, "A Fairer Climb: Improving Sarbanes-Oxley." According to an accompanying press release issued today, the report, "outlines the overly burdensome impact of the Sarbanes-Oxley Act (SOX) on small and mid-cap companies, and recommends specific changes the Securities and Exchange Commission (SEC) should implement that would keep the legislation’s intent intact."

The report was commissioned by the Greater Boston Chamber for presentation to the SEC Advisory Committee on Smaller Public Companies (SEC ACSPC) during the public comment period on SEC ACSPC's Exposure Draft, which is expected to be released any day now. (At SEC ACSPC Feb. 21 meeting, co-chair Herb Wander indicated it would be released by Feb. 27.) The research for the Greater Boston Chamber's report was conducted by Abt Associates, Inc.

Boston Chamber of Commerce Releases Report Recommending Changes to SOX

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Can Sarbanes-Oxley influence investors' trust?

What is a 'fair' price for fairness? New research from Washington University's Olin School of Business reveals that a just system of governance may not enhance trust when returns do not meet investors' expectations. This is sobering news for businesses that have spent countless hours and large amounts of money complying with the Sarbanes-Oxley Act (SOX) in the hopes of building stronger corporate governance.

Can Sarbanes-Oxley influence investors' trust?

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SIA: Inefficiency Helped Double Compliance Costs In 3 Years

If compliance costs seemed to skyrocket since the adoption of the Sarbanes-Oxley Act in 2002, they did, according to the Securities Industry Association. The SIA found that in the past three years, the cost of compliance almost doubled from $13 billion in 2002 to over $25 billion last year, and some of the excess costs could be blamed on "inefficient regulation."

SIA: Inefficiency Helped Double Compliance Costs In 3 Years

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