Compliance Blog

As much as SOX has become one of the most hated acronyms in business these days, those who have embraced it, have seen benefits. This is probably due to the fact that twenty years ago, internal controls were seen as positive and effective.

In fact good internal controls are beneficial. This work is something companies should do for their own benefit not just to meet regulations. No one can say that fraud is good. Good internal controls prevent fraud. Just because the regulations have been thus far poorly implemented is not a reason to roll it all back. Fraud has happened in many companies and restatements of financials are rampant. So the regulations are working.

An excerpt from an article on this topic:
"The Heart of Sarbanes-Oxley As A Catalyst For Continuous Financial Improvement
By Sanjay Srivastava
Why what’s good for SOX compliance is good also for revenues and receivables management An increasing number of companies are viewing Sarbanes-Oxley (SOX) compliance not as just a regulatory mandate but as an opportunity for continuous business process improvement. This has a lot to do with SOX compliance itself being a perpetual process and not a one-time event. The fact is, the best practices and technologies that can help ensure sustainable SOX compliance are also ones that have been proven to drive more predictable revenue, minimize Days Sales Outstanding (DSO), reduce operational and administrative costs, and even improve a company’s competitiveness—quarter after quarter, year after year"

To see how your organization can cost effectively comply with Sarbanes-Oxley, see www.issuescentral.com and learn more about the Sarbanes-Oxley Compliance Playbook(tm)

We hear from SEC filers about the hardships of Sarbanes-Oxley - pretty much non-stop. But what about the investors? What do they think? It was put into place for investor protection.

Not surprisingly they have a much different view of the benefits. Costs may be high but the benefits are higher.

An excerpt from an article is here.
"Indeed, Better Investing magazine reports that while most investors believe SOX was created in the best interests of both investors and public companies, 85 percent say their level of confidence in company reports has stayed the same or even declined since SOX went into effect. More significantly, 63 percent of investors say the rules are still too lenient, even as they recognize increased regulation and oversight ultimately hurts investors by driving up the costs of doing business. Audit Analytics reports that SOX has already caused auditing costs to increase an average of 40 percent or $13 million dollars among the nation’s largest publicly-held corporations.
Investors do feel SOX will board members and executives will take their jobs more seriously. They will approach their jobs differently and do more research into the companies they serve. Further, despite rising complaints from chief financial officers who have experienced some of the most dramatic changes in their job descriptions and corporate accountability, 64 percent of shareholders don’t think SOX or scandals will discourage qualified individuals from seeking executive positions or appointments to corporate boards."
For the complete article, click here.

To learn more about how your company can more cost effectively and rapidly comply with Sarbanes-Oxley, see www.issuescentral.com or call (800) 610-6681 ext 112 to see a demonstration of the Sarbanes-Oxley Compliance Playbook(tm)

Even Private companies are getting into the "high standards" act with voluntary compliance with Section 404. All the rumors lately that Section 404 may be lessened as a result of a new SEC Chairman, Cox, are for naught.

Imitation is the sincerest form flattery - so go private companies following public company transparency and controls.

An excerpt from an article is here:
"Although the law does not require compliance by private firms, 30% of the CEOs surveyed say that the legislation, designed to improve corporate governance and disclosure, has had an impact on their companies during the past year or two -- or will in the near future. Technology companies are particularly focused on improving their governance procedures and strengthening codes of conduct and ethics...
...companies applying provisions of Sarbanes-Oxley regard them as a kind of best business practice and a way to head-off future or potential problems -- and not necessarily as a means of solving current problems.
The companies surveyed range from about $5 million to $150 million in revenue or sales." For the complete article, click here.

To learn more about how your organization, public or private, can effectively and economically comply with Sarbanes-Oxley, see www.issuescentral.com to learn more about Sarbanes-Oxley Compliance Playbook(tm).

Sarbanes-Oxley has led to improvement in off balance sheet disclosures but more needs to be done. There is still a tendency to comply with rules instead of the larger spirit of the act. This means the SEC is looking for more improvement around transparency and not just "letter of the law" adherence.

An excerpt from the SEC Staff Report:
"The report identifies several goals for those involved in the financial reporting community, including efforts to:

• discourage transactions and transaction structures motivated primarily and largely by accounting and reporting considerations, rather than economics;
• 
  expand the use of objectives-oriented standards;
• 
  improve the consistency and relevance of disclosures; and
  
• focus financial reporting on communication with investors, rather than just compliance with rules.
  

Donald T. Nicolaisen, SEC Chief Accountant, said "The report identifies improvements that have occurred in financial reporting since passage of the Sarbanes-Oxley Act and, importantly, it offers recommendations for further improvements designed to increase both the transparency and usefulness of the balance sheet. Greater transparency can be achieved in some areas simply by reducing accounting choices and complexity. Since the events leading to passage of the Sarbanes-Oxley Act, we have made progress in improving financial reporting to investors, but more can still be done. I'm hopeful that this report will help focus efforts on further ways to improve transparency." For the complete transcript, click here.

To learn how to effectively manage and simplify your Sarbanes-Oxley Compliance efforts, see www.issuescentral.com to learn more about the Sarbanes-Oxley Compliance Playbook(tm) or call (800) 410-6681 ext 112.

We wonder where if this survey was taken prior to May 16th, 2005. The SEC and PCAOB clearly stated that this type of "chilled relationships" was unintended, unnecessary and not legislated. The PCAOB was actually quite distressed by this and told Auditors that they not should work closely with their clients, but that they, the PCAOB would inspect audit work and where it was too conservative, they would advise the firm on its conduct.

An excerpt from an article surveying companies on this topic:
Sarbanes-Oxley hits auditor relations
By Dan Roberts
"The soaring cost of complying with US regulation is poisoning relationships between companies and their auditors, according to the latest study on the impact of Sarbanes-Oxley legislation.

Research based on public filings and polling confirmed fears that the cost of maintaining a public listing continues to mushroom up 45 per cent on last year for large companies due mainly to rising audit fees.
But the third annual study by Chicago law firm Foley & Lardner also revealed another less-anticipated side-effect: growing resentment towards the accounting profession and falling levels of trust and co-operation." For the complete article, click here.

To learn more about the Sarbanes-Oxley Compliance Playbook(tm) to decrease your cost and time to complete compliance, see www.issuescentral.com or (800) 410-6681 ext 112

While most people would not accuse the Big Four accounting firms of anything close to humility, I think the Justice Department has to be cautious in taking down each large accounting firm - one by one! At a certain point, who is going to be around to audit these incredibly complex publicly held companies.

Punish them for their assistance in "creative tax avoidance" but do not bankrupt them. Do not send such shudders through the entire industry that there are consequences to the greatest financial markets in the world that cannot be undone.


From CBS News(r):
KPMG Addresses Ex-Partners Unlawful Conduct NEW YORK, June 16, 2005
(AP) Big Four accounting firm KPMG LLP, which has been under investigation by the federal government for selling questionable tax shelters, said Thursday that there was unlawful conduct by some former KPMG partners, but that is has taken steps to prevent it from happening again and is cooperating with the Department of Justice's probe. In a statement, KPMG said it has taken action "to ensure that those responsible for wrongdoing have been separated from the firm."

It did not say in the statement how many people were involved, but said the fim take "full responsibility" for the unlawful conduct. It said it no longer provides the tax services in question and that it has taken steps to make sure such unlawful conduct doesn't happen again. That includes "firm-wide structural, cultural and governance reforms" to ensure "the highest ethical standards," KPMG said.

The anouncement came after The Wall Street Journal reported in Thursday's editions that federal prosecutors have built a criminal case against KPMG for obstruction of justice and the sale of abusive tax shelters. The newspaper said top Justice Department officials are debating over whether to seek an indictment at the risk of killing one of the four remaining big accounting firms. " For the complete article, click here.

If your company needs help in complying with Sarbanes-Oxley and does not have the budget for $500/hour services, then find out more about the Sarbanes-Oxley Compliance Playbook(tm) at www.issuescentral.com and see how you can simplify your compliance project with our free 30 day evaluation.

IT controls review and proper management has been a great result from well implememented Section 404 projects. The benefits of this legislation outweigh the total cost to US markets.


An excerpt on an article:
"The SOX mantra is simple, Wright notes: Monitor, Manage, Maintain. Identifying key internal controls and keeping a watchful eye on their activities will greatly reduce the opportunity for fraud. Automating the monitoring process eliminates the incidence for human error. No one can abolish risk entirely, but with the correct controls in place, any threat to the integrity of system data, or breach of SOX protocol will be immediately identified and recorded for full audit compliance. " For the complete article, click here.
To learn more about how you can manage and test your IT and financial controls, see www.issuescentral.com and find out how to get a free 30 day evaluation of the Sarbanes-Oxley Compliance Playbook(tm)

There seems to be this perception that investor confidence is free.
There seems to be this perception that the public trusts corporate executives.
How can it be said that the Sarbanes-Oxley Act is not producing results when weekly there are reports from companies that they have material weaknesses?

Additionally, 12% of the most current Accelerate Filer reports contained material weaknesses. Further, there are more restatements than ever before. I am a part of corporate America and I believe in it. But the arrogance of some executives prior to the SOX act being passed had to be stopped.

A dissenting option on this topic:
"If we consider only direct, tangible costs, it appears unlikely that the act can be justified on a cost-benefit basis. The additional costs that it has imposed on public companies--in the form of additional accounting and auditing expenses and the creation of new internal controls--amount to many billions of dollars, but the benefits--if any--accrue only to those companies where frauds might have occurred but for these new regulations. Unless we believe that the potential for financial fraud is pervasive or endemic in American business, it is clear that all companies have been compelled to incur costs that might--at most--benefit the shareholders of very few.
Moreover, it is even doubtful whether this small group of hypothetical companies--those where fraud would have occurred--has actually received any significant benefit, since it is unlikely that better corporate governance and tighter internal controls will actually result in the prevention of fraud or financial manipulation by a management that is determined to do so. The sharp decline in corporate share values when it became clear that Sarbanes-Oxley would become law reflects the market’s verdict on the act: it will impose substantial costs without significant corresponding benefits.

The only way in which the act may be deemed to have benefited all companies and all shareholders is through restoring investor confidence. This, if it occurred, would enhance all corporate value and amount to a significant intangible benefit. However, as noted above, there is no significant evidence that investors lost confidence in the market or in the honesty of corporate disclosure as a result of Enron, WorldCom, or any of the other corporate scandals. On the contrary, there is strong evidence that investors took these scandals in stride, and did not begin to reduce their exposure to the market--or sell off stocks generally--until it became clear that costly legislation would be adopted. If investors never lost confidence, the idea that the act restored--or was necessary to restore--investor confidence is clearly fallacious.

Accordingly, it is extremely difficult to conclude--even at this relatively early stage in its implementation--that Sarbanes-Oxley conferred more tangible or intangible benefits than its tangible and intangible costs. The conviction of Bernard Ebbers and the guilty pleas of the others involved in the corporate scandals that gave rise to the act seem at this point a far more cost-effective way to deter, and thus prevent, financial fraud."
Peter J. Wallison is a resident fellow at AEI. For the complete article, click here.

To learn more about how your company can effectively comply with Sarbanes-Oxley and use it to your competitive advantage, see www.issuescentral.com and receive a 30 day evaluation at no charge to "test drive" the Sarbanes-Oxley Compliance Playbook(tm).

Many hope for a relaxation of Section 404 but given the facts that the Investor Community likes the current provisions and the fact that prior to the Act, 50% of companies who had actual fraud complaints filed against them, had unqualified audit opinions and the fact that fraudulent revenue was the number one violation, things have improved.

In the current Section 404 filings as of April 28, 2005, only 2% of those material weaknesses are now in the revenue category. Stay the Course - the best is yet to come. US markets are the best in the world. The US has to lead. No one else wants to. Let's continue to set the standards and uphold them.

Excerpt from an article: www.rismedia.com
"It will be a special honor, if confirmed, to follow in the footsteps of Bill Donaldson, who has served the commission and our country with honor and distinction," Cox said at a White House ceremony. "The SEC is one of the best run agencies in the federal government, and has been so for years," Cox added. "During my time as a securities practitioner, I was consistently impressed by the high caliber of professionals who regulate corporate finance and our markets. It will be an honor, if confirmed, to join this exceptional team."

To assure your company can accurately and cost effectively manage your Sarbanes-Oxley Compliance, see www.issuescentral.com and learn more about the Sarbanes-Oxley Compliance Playbook(tm).

Well Thanks Tony! Thank goodness there is no corruption in UK markets. Funny that you quote The Economist when in the most recent issue of The Economist, they actually compliment the efforts of the Sarbanes-Oxley Act.

Maybe you are trying to bash the US because the UK markets are not looking so hot in comparison these days. I used to be a big fan of yours. No more. Stay focused on your own issues. God knows there are enough!

An excerpt from Accountancy Age:
Blair said Britain and Europe are not alone facing the perverse consequences of overzealous red tape.
He said: "The response of the US Congress to the Enron and Worldcom scandals shows what governments can do wrong.
'In 2002, the Sarbanes-Oxley Act was, in the words of The Economist, "designed in a panic and rushed through in a blinding fervor of moral indignation".
'The point about Sarbanes-Oxley was not that the underlying problems it was addressing were not real. It was quite right to put some distance between a company's auditors and its managers, between whom a severe conflict of interest had arisen.

If your company needs help in responding to Sarbanes-Oxley, learn more about the Sarbanes-Oxley Compliance Playbook(tm) at www.issuescentral.com .

It will be a great loss to see Chairman Donaldson leave his post. I have had the pleasure of meeting Chairman Donaldson. He is a dedicated public servant and has led a valiant effort in the corporate compliance "clean-up" that has had to be done.

Thanks for your hard work Mr. Donaldson. We appreciate you!

See excerpt hot off the presses!
12:42pm 06/01/05
SEC Chairman Donaldson will resign -- WSJ By Carolyn PritchardSAN FRANCISCO (MarketWatch) -- Securities and Exchange Commission Chairman William Donaldson will resign, the Wall Street Journal reported on its Web site Wednesday afternoon, citing unnamed people familiar with the matter.

To learn more about how you can comply effectively and cost effectively, see www.issuescentral.com to see more about the Sarbanes-Oxley Compliance Playbook(tm).