PCAOB to host small issuer events

Jim Kim — Fri, 22 Aug 2008 11:52:49 -0400

As you may know, the PCAOB is reaching out to small companies with two events in October. One forum is set for Oct. 1, at the Sofitel Hotel in Chicago. The second is set for The Rittenhouse Hotel in Philadelphia on Oct. 30. West coasters and southerners may feel left out. Hopefully, there will be more. These events may or may not generate real news. Hopefully, transcripts and summaries will be made available to all. The board has just released an agenda, which includes staff from the SEC's Division of Corporate Finance speaking about common small issuers concerns, including implementation of the SEC's guidance for compliance with Section 404 of Sarbanes-Oxley. Also, the board will provide updates on various accounting and auditing issues, auditing standards-setting activities, and inspections activities. In addition, a panel will discuss what audit committees ought to know about the PCAOB.

For more:
- here's an item from accountingweb.com

Be careful about orphaned accounts

Jim Kim — Wed, 20 Aug 2008 17:56:56 -0400

In the wake of the Jerome Kerviel "rogue trader" scandal at Societe Generale, a lot of banks have stepped up efforts to prevent such a scandal. But companies across the board need to think about whether their systems could accommodate internal rogues. One theme that has bubbled up: orphaned accounts--accounts that belong to former employees, or those that no longer need access. Some think Kerviel used such accounts to game the system. This is a bigger issue in the wake of downsizing efforts, especially on Wall Street. So there's renewed focus on access management and technology. It can get very complex at big firms, and vendors certainly see opportunity--for everything from real-time monitoring to biometric solutions. A lot of problems occur because of practices--over-credentialing people, for example--in the name of speed. Article (FinanceTech)

Companies move to end consultant conflicts

Jim Kim — Wed, 20 Aug 2008 17:56:14 -0400

Compensation issues aren't strictly in-scope from a Sarbanes-Oxley perspective, except perhaps when it comes to backdating of options. Of course, if the auditor were retained to give compensation advice, that would invoke the law! But conflicted compensation advice is hardly a non-issue. In the Sarbox era, boards have been more leery of even the appearance of conflicts. When it comes to compensation advice, Financial Week notes that more big companies are opting to hire independent compensation advisers instead of larger firms that consult on a broad range of issues. Safeway and Verizon are among those who have switched to independents. In cases where consultants that provide services in several areas are retained, companies seem to be disclosing more about their relationships. The article notes Time Warner, which in its proxy filing earlier this year offered a seven-paragraph description of the role of Towers Perrin.

For more:
- here's the article

D&O insurance costs rising

Jim Kim — Wed, 20 Aug 2008 17:55:31 -0400

We've noted that boards of top financial firms haven't really been held accountable for the turbulence over the past year. But the subprime crisis is hitting home in another way: rising D&O insurance costs. Financial Week notes that so far, only banks and financial services firms have been hit with rising costs--for good reason. But the number of subprime suits has exploded, and soon other industries may feel the inflationary ripples. In the wake of the Enron scandal in the early 2000s, the cost of D&O insurance rose 260 percent over two years, driven mainly by lawsuits and the fear of lawsuits. This at a time when most directors feel the need for more Side A coverage, which reimburses directors and executive officers when lawsuits are not covered by other insurance policies.

For more:
- here's the Financial Week article

Ex-CEO weighs in on Sarbox and financial statements

Jim Kim — Wed, 20 Aug 2008 17:54:43 -0400

T.J. Rodgers, the former CEO of Cypress Semiconductor, has authored a paper for the Cato Institute that argues that since Sarbanes-Oxley became law, financial statements have devolved to the point that even CEOs can no longer understand them. That colorful rhetoric binds his many criticisms, but it's really less a criticism of Sarbanes-Oxley and more a criticism of FASB. The paper runs through the GAAP treatment of intangibles, various revenue recognition rules, and rules for stock option expensing. And it is impassioned: "It deeply angers me that government lawyers and naive theoretical accountants have been allowed to impair the economic miracle that democratized the silicon chip, the personal computer, and the Internet." What is missing is an actual criticism of Sarbox. So it's a bit of a bait-and-switch, but a well-argued one.

For more:
- here's the paper

Would more contingent liabilities disclosure make Sarbox compliance hard?

Jim Kim — Mon, 18 Aug 2008 08:07:58 -0400

The FASB is responding to what it says is investor concern that current rules "do not provide adequate information to assist users of financial statements in assessing the likelihood, timing, and amount of future cash flows associated with loss contingencies" (mainly potential losses from lawsuits). Its proposal for more disclosure of information (going beyond Regulation S-K Item 103) is being met with a vehement response from the corporate community. They say that more disclosure would give plaintiff lawyers insight into trial strategies and litigation assessment, providing a road map to sue, reports CFO.com. An audit would be complicated as guidelines for how to audit and treat expanded disclosures would have to be drawn. Unsurprisingly, Sarbanes-Oxley has been pulled into the fray. Opponents say executives at companies with lots of suits pending (a lot of Wall Street firms these days) could not reasonably be asked to sign 302 and 906 certifications. Of course, you could say that about a lot of things.

For more:
- here's the CFO.com article

Jury still out on Sarbanes-Oxley and IPOs

Jim Kim — Wed, 13 Aug 2008 17:55:54 -0400

A San Jose Mercury News columnist notes that Sarbanes-Oxley has turned 6 and laments that he hasn't received a single invitation. Well, there were few parties in Silicon Valley, where Sarbox is still blamed for all manner of evil. But the columnist suggests--rightly in my opinion--that small companies that find a way to deal with the law will be better off down the road. Rackspace Hosting managed to go public. The San Antonio company attributed about $4.7 million of its $331 million in 2007 expenses to compliance with Sarbox. The hope is that the liquidity and gains in investor confidence will exceeds the costs. I have a sense that when the market and economy pick up again, we'll be seeing a lot more offerings. There's no reason why small companies can't find the same ROI that compliant big companies have.

For more:
- here's the column

Can you control for rumors in your firm?

Jim Kim — Wed, 13 Aug 2008 17:55:14 -0400

The time-honored practice of market chatter and gossip may pose as something of a regulatory issue for a lot of Wall Street firms, on the sell-side and the buy-side. The fear is that the SEC intends to hold more companies accountable for rumors designed to tank a stock. Subpoenas have been flying. And we've already seen one enforcement action against an alleged rumor-monger. The SEC is taking a look at policies that firms have in place regarding rumors. One consequence, as TheStreet.com notes, is that more firms are telling their analysts not to be so chatty with journalists. This of course is bad news for any reporter digging for information about companies. The buy-side was often a great source. We'll see if this blows over, but I think we may see more companies issue formal guidelines about information sharing with outsiders.

For more:
- here's the article from TheStreet.com