February 14, 2007
The Results are in and High Standards and Enforcement Work!
The last few days events have been very interesting on the Compliance front. From the US to Canada to the UK, there is much to report and analyze.
In the US, Audit Analytics has interesting data on restatements to report for 2006, see the excerpt from the article below.
"Large companies filed 196 restatements last year, while companies with a market value of less than $75 million filed 1,108 restatements in 2006, a 42 percent year-over-year increase.
According to AuditAnalytics, a total of 1,876 restatements from both U.S. and foreign companies were filed with the Securities and Exchange Commission last year.
That’s up 17 percent from 2005, and dwarfs the 452 restatements filed in 2001 before the passage of the Sarbanes-Oxley Act and enactment of the internal control requirements outlined in the legislation."
Interesting indeed when you consider who has been getting the delays in SOX 404: the smaller companies. Sounds like we need to get this legislation going. Where there is smoke there is fire. Congratulations to the larger companies who are making big efforts in this area and seeing the improved results.
Which leads me to my next bit of news to share and analyze:
From the Canadian Securities Administrators (CSA), we have CSA 52-317 slipped in with the usual lack of publicity on February 9th. The regulator made the decision to delay the last phase of MI 52-109 ( a SOX 302/404 Lite) from effectively 2007 until 2008. While this may at first blush appear to allow the instrument to more closely align with dates for companies in the US for SOX 404, if you look a little more closely, it is a little different.
There has been little backlash against MI 52-109 in Canada. Why is that might you ask? Several reasons: 1) With very little education and information coming out of the CSA, many smaller companies do not even know the legislation exists and 2) The CSA may worry that if there is little compliance, and this is highlighted, markets could suffer greatly from loss of faith, so why not give more time and hope for the best!
If there is no change in enforcement from the CSA on the first phase of the legislation "Design and Implement" of internal control over financial reporting, then more time will not help the results. It will in fact cause a loss of momentum with high integrity companies and have no impact at all on those who are choosing not to comply.
What is interesting about the first two data points on the US and Canada is this:
1. Canada has predominantly more smaller public companies than the US.
2. If you assume that accounting standards in the US and Canada are similar (a fair assumption), then wouldn't one assume that many of those smaller Canadian public companies might have a statistically similar restatement possibility as US companies? That is a fair assumption.
3. This is especially true when you consider that one of the most prolific "serial restater" is Canadian (not small admittedly) and this is the land of BreX which was one of the larger frauds perpertrated on public markets. Out of that, Canadians got NI 43-101 STANDARDS OF DISCLOSURE FOR MINERAL PROJECTS.
4. So it is interesting that the CSA chooses to delay the validation of the effectiveness of internal control over financial reporting after scolding public companies for non compliance in a previous notice, CSA 52-315.
Let's not wait for another major fraud in Canadian markets. The legislation is in place, it just needs to enforced for companies to take it seriously. Everyone is hurt by markets that have legislation in place but that is not enforced.
Speaking of no enforcement, interesting developments this week in the UK as well. Let's face it, AIM has been crowing about its market dominance. And American exchanges have been knashing their teeth and wringing their hands and trying to "throw SOX 404 under the bus" to be competitive with AIM markets.
Patience is all we needed. Where there are low standards, a certain type of company and investor goes. When this happens, it is only a matter of time until something that does not smell right is aired!
From an FT.com article, an excerpt about AIM listings and 2006 performance:
"Fewer companies listed on Aim last year than in 2005 and the overall market went nowhere. While the FTSE 250 rose 27 per cent and the FTSE 100 advanced 11 per cent, Aim rose by a pitiful 0.8 per cent.
Aim’s detractors point to this lacklustre performance as a sign that institutional and retail investors are becoming increasingly wary of the junior market and especially its newcomers from overseas...This was summed up by Martin Graham, director of markets at the LSE, last month. He said Aim was “a risk capital market”
Aim-listed Torex Retail sounded a profits warning and called for dealings in its shares to be suspended. A string of other Aim businesses also sounded profits warnings last Friday, including individual voluntary arrangement providers Accuma Group and Debt Free Direct."
So AIM markets are not for widows and orphans. Perhaps US and Canadian markets are for everyone: widows, orphans and the rest of us who would like to believe there are standards being developed, monitored and enforced by our regulators so that shares we have invested in do not suffer huge declines due to lack of transparency in reporting, or worse yet, fraud. Let's not give up because of political pressure or lack of enforcement. It is a good fight and the right one.
If your company needs assistance in the effective and sustainable compliance in SOX 404 or MI 52-109, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.
In the US, Audit Analytics has interesting data on restatements to report for 2006, see the excerpt from the article below.
"Large companies filed 196 restatements last year, while companies with a market value of less than $75 million filed 1,108 restatements in 2006, a 42 percent year-over-year increase.
According to AuditAnalytics, a total of 1,876 restatements from both U.S. and foreign companies were filed with the Securities and Exchange Commission last year.
That’s up 17 percent from 2005, and dwarfs the 452 restatements filed in 2001 before the passage of the Sarbanes-Oxley Act and enactment of the internal control requirements outlined in the legislation."
Interesting indeed when you consider who has been getting the delays in SOX 404: the smaller companies. Sounds like we need to get this legislation going. Where there is smoke there is fire. Congratulations to the larger companies who are making big efforts in this area and seeing the improved results.
Which leads me to my next bit of news to share and analyze:
From the Canadian Securities Administrators (CSA), we have CSA 52-317 slipped in with the usual lack of publicity on February 9th. The regulator made the decision to delay the last phase of MI 52-109 ( a SOX 302/404 Lite) from effectively 2007 until 2008. While this may at first blush appear to allow the instrument to more closely align with dates for companies in the US for SOX 404, if you look a little more closely, it is a little different.
There has been little backlash against MI 52-109 in Canada. Why is that might you ask? Several reasons: 1) With very little education and information coming out of the CSA, many smaller companies do not even know the legislation exists and 2) The CSA may worry that if there is little compliance, and this is highlighted, markets could suffer greatly from loss of faith, so why not give more time and hope for the best!
If there is no change in enforcement from the CSA on the first phase of the legislation "Design and Implement" of internal control over financial reporting, then more time will not help the results. It will in fact cause a loss of momentum with high integrity companies and have no impact at all on those who are choosing not to comply.
What is interesting about the first two data points on the US and Canada is this:
1. Canada has predominantly more smaller public companies than the US.
2. If you assume that accounting standards in the US and Canada are similar (a fair assumption), then wouldn't one assume that many of those smaller Canadian public companies might have a statistically similar restatement possibility as US companies? That is a fair assumption.
3. This is especially true when you consider that one of the most prolific "serial restater" is Canadian (not small admittedly) and this is the land of BreX which was one of the larger frauds perpertrated on public markets. Out of that, Canadians got NI 43-101 STANDARDS OF DISCLOSURE FOR MINERAL PROJECTS.
4. So it is interesting that the CSA chooses to delay the validation of the effectiveness of internal control over financial reporting after scolding public companies for non compliance in a previous notice, CSA 52-315.
Let's not wait for another major fraud in Canadian markets. The legislation is in place, it just needs to enforced for companies to take it seriously. Everyone is hurt by markets that have legislation in place but that is not enforced.
Speaking of no enforcement, interesting developments this week in the UK as well. Let's face it, AIM has been crowing about its market dominance. And American exchanges have been knashing their teeth and wringing their hands and trying to "throw SOX 404 under the bus" to be competitive with AIM markets.
Patience is all we needed. Where there are low standards, a certain type of company and investor goes. When this happens, it is only a matter of time until something that does not smell right is aired!
From an FT.com article, an excerpt about AIM listings and 2006 performance:
"Fewer companies listed on Aim last year than in 2005 and the overall market went nowhere. While the FTSE 250 rose 27 per cent and the FTSE 100 advanced 11 per cent, Aim rose by a pitiful 0.8 per cent.
Aim’s detractors point to this lacklustre performance as a sign that institutional and retail investors are becoming increasingly wary of the junior market and especially its newcomers from overseas...This was summed up by Martin Graham, director of markets at the LSE, last month. He said Aim was “a risk capital market”
Aim-listed Torex Retail sounded a profits warning and called for dealings in its shares to be suspended. A string of other Aim businesses also sounded profits warnings last Friday, including individual voluntary arrangement providers Accuma Group and Debt Free Direct."
So AIM markets are not for widows and orphans. Perhaps US and Canadian markets are for everyone: widows, orphans and the rest of us who would like to believe there are standards being developed, monitored and enforced by our regulators so that shares we have invested in do not suffer huge declines due to lack of transparency in reporting, or worse yet, fraud. Let's not give up because of political pressure or lack of enforcement. It is a good fight and the right one.
If your company needs assistance in the effective and sustainable compliance in SOX 404 or MI 52-109, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.
