February 23, 2006
Canadians Weigh In on Auditor Oversight
Canadian Think Tank Calls for Auditor Oversight Reform
Maybe there is hope for Public Companies and their Auditor Chill issues. The Canadian Thinktank might have a point about the harsh approach of the PCAOB. But an important consideration is that the litigation environment in the US causes Auditors to act in a more cautious manner than in Canada. So there is bound to be a difference in oversight between the countries.
An excerpt from an article here:
AccountingWEB.com - February 23, 2006 - A Vancouver-based economic think tank has called for reform of the watchdogs overseeing the North American auditing industry.
The Fraser Institute released a report on Monday that says the Canadian Public Accountability Board (CPAB) is too easy on accounting firms, and the Public Company Accounting Oversight Board (PCAOB) in the U.S. is too strict. While Canada relies on self-regulation, the U.S. depends upon government regulation.
In the report, called "The Regulation of Public Auditing in Canada and the United States: Self-Regulation or Government Regulation," the Fraser Institute seeks a middle ground, CBC News reported. Regulations in Canada can be improved without enacting overly tough, U.S.-style rules, the think tank contends.
"Striking the appropriate balance among market-based, legal, and self-regulatory mechanisms is a delicate task," said professor Adam Pritchard of the University of Michigan Law School and a co-author of the study."
The CPAB swiftly responded to the study by calling it “misinformed and misleading". For the complete article, click here
To learn more about how your company can better comply with Sarbanes-Oxley or Canadian MI-52-109 or MI-52-111, see www.issuescentral.com to learn more about Compliance Playbook(tm)
February 22, 2006
PCAOB Roundtable Announced for May 10, 2006
We had a chance to attend the last roundtable and the posturing by the various interest groups was significant. The May 10th meeting will generally pit the auditors against the world. It would be advantageous for all to get more input from investors to determine if their confidence in the North American markets has improved as a result of SOX and the Section 404 efforts.
In particular, will the cost of capital for SEC filers decrease over time relative to filers in foreign markets. That is the bottom line when assessing the cost/benefit for all stakeholders.
Posted by Charley Best February 22, 2006 10:04am
An excerpt from the release is here:
Commission and PCAOB Announce Roundtable on Internal Control Reporting Requirements
FOR IMMEDIATE RELEASE2006-22
Washington, D.C., Feb. 16, 2006 — The Securities and Exchange Commission and the Public Company Accounting Oversight Board announced today that they will sponsor a roundtable May 10, 2006, at the Commission’s headquarters in Washington, D.C., to discuss second-year experiences with the reporting and auditing requirements of the Sarbanes-Oxley Act of 2002 related to companies’ internal control over financial reporting. The roundtable discussion will include issuers, auditors, investors and other interested parties.
“Last spring’s informative roundtable resulted in valuable guidance,” said SEC Chairman Christopher Cox. “We look forward to an update on compliance efforts after year two. I’m pleased that the PCAOB is coordinating this year’s roundtable with the SEC. We will carefully consider the facts presented to help develop policies to effectively and efficiently improve the reliability of financial statements for the benefit of investors.” For the complete news release, click here.
If your company needs assistance cutting cost and improving your Section 404 or MI-52-111 project, see www.issuescentral.com to learn more about the Compliance Playbook. If you are based in Canada, see www.compliancepartner.ca to learn more about Compliance Partner.
In particular, will the cost of capital for SEC filers decrease over time relative to filers in foreign markets. That is the bottom line when assessing the cost/benefit for all stakeholders.
Posted by Charley Best February 22, 2006 10:04am
An excerpt from the release is here:
Commission and PCAOB Announce Roundtable on Internal Control Reporting Requirements
FOR IMMEDIATE RELEASE2006-22
Washington, D.C., Feb. 16, 2006 — The Securities and Exchange Commission and the Public Company Accounting Oversight Board announced today that they will sponsor a roundtable May 10, 2006, at the Commission’s headquarters in Washington, D.C., to discuss second-year experiences with the reporting and auditing requirements of the Sarbanes-Oxley Act of 2002 related to companies’ internal control over financial reporting. The roundtable discussion will include issuers, auditors, investors and other interested parties.
“Last spring’s informative roundtable resulted in valuable guidance,” said SEC Chairman Christopher Cox. “We look forward to an update on compliance efforts after year two. I’m pleased that the PCAOB is coordinating this year’s roundtable with the SEC. We will carefully consider the facts presented to help develop policies to effectively and efficiently improve the reliability of financial statements for the benefit of investors.” For the complete news release, click here.
If your company needs assistance cutting cost and improving your Section 404 or MI-52-111 project, see www.issuescentral.com to learn more about the Compliance Playbook. If you are based in Canada, see www.compliancepartner.ca to learn more about Compliance Partner.
Paul Volcker and Arthur Levitt Criticize the ACSPC Recommendations
Interesting that so many people complain bitterly about Section 404 and its "unintended consequences' but financial restatements have been at an all time high since the Sarbanes-Oxley legislation was passed. No one can argue that lack of internal controls is a good thing.
Since 1977/1978 with the Foreign Corrupt Practices Act, companies were supposed to document their internal controls. It did not work. Sarbanes-Oxley put teeth into this existing legislation and provided audit standards and oversight.
An excerpt from the Seattle Times:
SEC bid to exempt firms from audits draws fire
By Laurence Arnold
Bloomberg News
A U.S. Securities and Exchange Commission panel's proposal to exempt 80 percent of public companies from having auditors certify their internal controls "simply goes too far," former Federal Reserve Chairman Paul Volcker and former SEC Chairman Arthur Levitt told the agency.
In a Feb. 13 letter to the SEC, a group including Volcker and Levitt said such a change would undercut the 2002 Sarbanes-Oxley Act by failing to safeguard against future accounting and company fraud. The letter was sent to SEC Chairman Christopher Cox and William Gradison, acting chairman of the Public Company Accounting Oversight Board (PCAOB).
"In passing the Sarbanes-Oxley legislation, the Congress adopted a reasonable approach to achieve real reform, not just the appearance of reform," the letter said. "It would be unfortunate now if the SEC and PCAOB undercut the effectiveness of congressional legislation through misguided regulatory action."
The law currently requires all U.S. public companies to have their internal controls validated by an auditor. Internal controls refer to the system of checks that companies put in place to safeguard assets, provide reliable financial reports and comply with regulations.
The SEC's Advisory Committee on Smaller Public Companies intends to recommend in April that only the largest 20 percent of U.S. public companies obtain annual approval of their internal controls by auditors, as required by Sarbanes-Oxley. For the complete article, click here.
Since 1977/1978 with the Foreign Corrupt Practices Act, companies were supposed to document their internal controls. It did not work. Sarbanes-Oxley put teeth into this existing legislation and provided audit standards and oversight.
An excerpt from the Seattle Times:
SEC bid to exempt firms from audits draws fire
By Laurence Arnold
Bloomberg News
A U.S. Securities and Exchange Commission panel's proposal to exempt 80 percent of public companies from having auditors certify their internal controls "simply goes too far," former Federal Reserve Chairman Paul Volcker and former SEC Chairman Arthur Levitt told the agency.
In a Feb. 13 letter to the SEC, a group including Volcker and Levitt said such a change would undercut the 2002 Sarbanes-Oxley Act by failing to safeguard against future accounting and company fraud. The letter was sent to SEC Chairman Christopher Cox and William Gradison, acting chairman of the Public Company Accounting Oversight Board (PCAOB).
"In passing the Sarbanes-Oxley legislation, the Congress adopted a reasonable approach to achieve real reform, not just the appearance of reform," the letter said. "It would be unfortunate now if the SEC and PCAOB undercut the effectiveness of congressional legislation through misguided regulatory action."
The law currently requires all U.S. public companies to have their internal controls validated by an auditor. Internal controls refer to the system of checks that companies put in place to safeguard assets, provide reliable financial reports and comply with regulations.
The SEC's Advisory Committee on Smaller Public Companies intends to recommend in April that only the largest 20 percent of U.S. public companies obtain annual approval of their internal controls by auditors, as required by Sarbanes-Oxley. For the complete article, click here.
Lively Meeting at the SEC Advisory Committee on Smaller Public Companies
All ACSPC (Advisory Committee on Smaller Public Companies) meetings are lively, open and full of debate. But yesterday's meeting reached a crescendo between members of the Accounting profession and others on the committee.
Summary of Items that Affect Section 404 Filers:
The Committee is charged with several tasks around smaller public companies. Two of the most interest to the public are around the very definition of a smaller public company and what to do, if anything, for smaller public companies around the issue of Section 404.
There seems to be a fair bit of consensus around the proposed definitions:
1) Microcap companies would be defined as those companies representing the bottom 1% of market cap or at this time around $128 million or less
2) Smallcap companies would be defined as those companies with market capitalization between $128 to $787 million or the next 5% of the publicly traded companies
3) Smaller public companies would represent the bottom 6% of public companies with market cap of less than $787.
Note: These market cap numbers are approximate because they are % of market cap and will float.
An interesting note that was brought up was that at the end the fiscal year, the market cap of a company would be calculated to determine if they are Microcap etc for the next filing year for Section 404. In other words, if your market rose on December 31 (assuming this to be your year end) to say $130 million and this put you in the next category for Section 404 requirements, this would affect the next year not the current year. This was unclear from the proposed language.
Proposed Changes to Section 404 for Smaller Public Companies:
Recommendation 1: on Definitions: (From ACSPC Draft Dated February 14, 2006 - Pages 20-21)
Recommendation II.P.1:
Establish a new system of scaled or proportional securities regulation for smaller public companies using the following six determinants to define a “smaller public company”:
the total market capitalization of the company;
a measurement metric that facilitates scaling of regulation;
a measurement metric that is self-calibrating;
a standardized measurement and methodology for computing market capitalization;
a date for determining total market capitalization; and
clear and firm transition rules, i.e. small to large and large to small.
This new system would replace the SEC’s current scaling system for “small business issuers”
eligible to use Regulation S-B28 as well as the current scaling system based on “non-accelerated filer” but would provide eligibility for scaled regulation for companies based on their size relative to larger companies.
Recommendation III.P.1: Commentary:
The committee is recommending that Microcap companies be exempted from 404 certification requirements. The interesting twist to this is that in the language of Section 302 and Foreign Corrupt Practices Act of 1977/1978, companies must maintain internal controls over financial reporting. Further, microcap companies would still have to report material weaknesses so they will still have to document the controls and so some level of testing but they would not have to sign 404 certification and would have not auditor attestation.
Unless and until a framework for assessing internal control over financial reporting for smallcap companies is developed that recognizes the characteristics and needs of those companies, provide exemptive relief from external auditor involvement in the Section 404 process to smallcap companies with less than $250 million but greater than $10 million in annual revenues, subject to their compliance with the same corporate governance standards as detailed in the recommendation above.
For the complete draft, click here.
Summary of Items that Affect Section 404 Filers:
- New definitions for smaller public companies with elements of market cap and revenue filters
- Recommendation for the smallest public companies (microcap) (less than $128 million and less than $10 million in revenue will not have to sign the 404 certification but will still have to document internal controls and will have no auditor attestation
- Recommendation for next level of smaller public companies (small cap) (market cap between $128 million and $787 million with less than $250 million in revenue) will have to sign the 404 certification but would not have to have an auditor attestation.
The Committee is charged with several tasks around smaller public companies. Two of the most interest to the public are around the very definition of a smaller public company and what to do, if anything, for smaller public companies around the issue of Section 404.
There seems to be a fair bit of consensus around the proposed definitions:
1) Microcap companies would be defined as those companies representing the bottom 1% of market cap or at this time around $128 million or less
2) Smallcap companies would be defined as those companies with market capitalization between $128 to $787 million or the next 5% of the publicly traded companies
3) Smaller public companies would represent the bottom 6% of public companies with market cap of less than $787.
Note: These market cap numbers are approximate because they are % of market cap and will float.
An interesting note that was brought up was that at the end the fiscal year, the market cap of a company would be calculated to determine if they are Microcap etc for the next filing year for Section 404. In other words, if your market rose on December 31 (assuming this to be your year end) to say $130 million and this put you in the next category for Section 404 requirements, this would affect the next year not the current year. This was unclear from the proposed language.
Proposed Changes to Section 404 for Smaller Public Companies:
Recommendation 1: on Definitions: (From ACSPC Draft Dated February 14, 2006 - Pages 20-21)
Recommendation II.P.1:
Establish a new system of scaled or proportional securities regulation for smaller public companies using the following six determinants to define a “smaller public company”:
the total market capitalization of the company;
a measurement metric that facilitates scaling of regulation;
a measurement metric that is self-calibrating;
a standardized measurement and methodology for computing market capitalization;
a date for determining total market capitalization; and
clear and firm transition rules, i.e. small to large and large to small.
This new system would replace the SEC’s current scaling system for “small business issuers”
eligible to use Regulation S-B28 as well as the current scaling system based on “non-accelerated filer” but would provide eligibility for scaled regulation for companies based on their size relative to larger companies.
Recommendation III.P.1: Commentary:
The committee is recommending that Microcap companies be exempted from 404 certification requirements. The interesting twist to this is that in the language of Section 302 and Foreign Corrupt Practices Act of 1977/1978, companies must maintain internal controls over financial reporting. Further, microcap companies would still have to report material weaknesses so they will still have to document the controls and so some level of testing but they would not have to sign 404 certification and would have not auditor attestation.
Recommendation III.P.1: (From ACSPC Draft Dated February 14, 2006 - Pages 46-47)
Unless and until a framework for assessing internal control over financial reporting for microcap companies is developed that recognizes the characteristics and needs
of those companies, provide exemptive relief from Section 404 requirements to microcap companies with less than $125 million in annual revenue and to smallcap companies with less than $10 million in annual revenue that have or expand their corporate governance controls that include:
adherence to standards relating to audit committees in conformity with Rule
10A-3 under the Exchange Act; and
adoption of a code of ethics within the meaning of Item 406 of Regulation S-
K applicable to all directors, officers and employees and compliance with the
further obligations under Item 406(c) relating to the disclosure of the code of ethics.
In addition, as part of this recommendation, we recommend that the Commission confirm, and if necessary clarify, the application to all microcap companies, and indeed to all smallcap companies also, of the existing general legal requirements regarding internal controls, including the requirement that companies maintain a system of effective internal control over financial reporting, disclose modifications to internal control over financial reporting and their material consequences and apply CEO and CFO certifications to such disclosures.
Moreover, management should be required to report on any known material weaknesses. In this regard, the Proposed Statement on Auditing Standards of the AICPA, “Communications of Internal Control Related Matters Noted in an Audit,” if adopted by the AICPA and the PCAOB, would strengthen this disclosure requirement and provide some external auditor involvement in the internal control over financial reporting process.
Recommendation III.P.2: Commentary
In the recommendation for the Small Cap companies, they are really just trying to eliminate the auditor attestation requirement unless a different audit framework is developed. This recommendation is probably sensible for this level of company.
Recommendation III.P.2: (From ACSPC Draft Dated February 14, 2006 - Pages 50)Unless and until a framework for assessing internal control over financial reporting for smallcap companies is developed that recognizes the characteristics and needs of those companies, provide exemptive relief from external auditor involvement in the Section 404 process to smallcap companies with less than $250 million but greater than $10 million in annual revenues, subject to their compliance with the same corporate governance standards as detailed in the recommendation above.
For the complete draft, click here.
February 20, 2006
Standards for Governance and Compliance have been Elevated
It is interesting that there is so much discussion in the US about how bad all the new internal control documentation and governance standards are. But it seems that unlikely entrants to this market are China and even parts of Africa.
It is evident that full disclosure and transparency are what financial markets require. Public companies may find it burdensome but these standards are becoming pervasive. There are still many markets in the world including the London Alternative and Japanese markets that have lower governance standards. It will remain to be seen if scandal will rock them and force higher standards there as well.
At some point, there may be nowhere to go if you do not want to comply with improved transparency but PRIVATE.
An excerpt from WWW.CFO.COM is here:
China to Adopt IFRS
State enterprises will be exempt from the "related-party" disclosure provisions.
Stephen Taub, CFO.com
February 17, 2006
Chinese government officials have announced that companies will adopt International Financial Reporting Standards (IFRS) used by nearly 100 countries, including those in the European Union, according to The Financial Times. Lou Jiwei, Beijing's vice finance minister, said China would adopt "one basic accounting standard," according to the report.
The new rules will apply to listed companies beginning January 1, 2007.
Follow these links to learn more about how Compliance Playbook(tm) and Compliance Partner(tm) can assist in your internal controls project for SOX 404 or MI-52-109/52-111 from Issues Central Inc and Thomson-Carswell.
It is evident that full disclosure and transparency are what financial markets require. Public companies may find it burdensome but these standards are becoming pervasive. There are still many markets in the world including the London Alternative and Japanese markets that have lower governance standards. It will remain to be seen if scandal will rock them and force higher standards there as well.
At some point, there may be nowhere to go if you do not want to comply with improved transparency but PRIVATE.
An excerpt from WWW.CFO.COM is here:
China to Adopt IFRS
State enterprises will be exempt from the "related-party" disclosure provisions.
Stephen Taub, CFO.com
February 17, 2006
Chinese government officials have announced that companies will adopt International Financial Reporting Standards (IFRS) used by nearly 100 countries, including those in the European Union, according to The Financial Times. Lou Jiwei, Beijing's vice finance minister, said China would adopt "one basic accounting standard," according to the report.
The new rules will apply to listed companies beginning January 1, 2007.
Follow these links to learn more about how Compliance Playbook(tm) and Compliance Partner(tm) can assist in your internal controls project for SOX 404 or MI-52-109/52-111 from Issues Central Inc and Thomson-Carswell.
February 16, 2006
Catherine Connally, CEO of Issues Central Presents Views at Deloitte CEO/CFO Certification Seminar
February 15, 2006 - Toronto Congress Centre, Toronto, ON
As a panelist on the Internal Controls Documentation for CEO/CFO Certification, Connally was asked her views on areas such as:
Q. In your experience, should companies wait to implement technology until they are part of the way through the documentation process?
A. To take advantage of various technology solutions such as Compliance Playbook(tm) and Compliance Partner(tm), we recommend that companies begin right away. While data originally created "manually" in spreadsheets, word documents and Visio flowcharts can be converted, the benefits of using technology are to accessing a best practice database of controls and risks and store this information. Further, the double advantage of management reporting and automatic generation of flowcharts, narratives and risk control matrices.
Q. Do many companies assign key control status to far too many controls, when they first start this process?
A. In general, that is the tendency. Companies want to make sure that they capture all controls so they may designate too many as KEY controls. While some controls may be great operational controls, they may not be key controls for financial reporting. A rule of thumb might be 5-10 key controls in a process. If you have 15-20, you may want to review the functions of these controls and see if they trully have impact as key controls.
Q. What are CFO's biggest concerns around technology selection when they begin these types of projects?
A. That the technology and process are sustainable. We look at this in two ways: 1.) Are you buying from a company who is going to be around for the long haul and has the vision to continue to take the product forward 2) Are you following a structured sensible methodology for risk review, controls documentation, testing and remediation? We find that use of Compliance Playbook(tm) and Compliance Partner(tm) allow companies to follow a structured methodology that provides external auditors the comfort that a rational process is being followed. This makes documentation more reliable.
Q. How do companies lower their risk when they go to choose a technology solution?
A. First of all, they should have criteria for their selection before they begin the process. Secondly, good companies should be able to provide credible references for prior success stories and Third, we have found that providing a 30 day money back guarantee allows customers that one more comfort even after they have purchased to assure that this is the right solution for them.
Q. What final words of wisdom do you have for companies who are going to embark on this journey of SOX 404/302 and Bill 198/MI-52-111?
A. We have a great presentation for customers and prospects called "Top Ten Lessons Learned". This gives new entrants to this process some tips on what we learned in the past two years with Accelerated Filers in the US. This really helps identify the key pot holes and how to avoid them. Just email us at seminars@issuescentral.com and put "top ten lessons learned" in the subject line and we will email this receive this information.
For more of Catherine Connally, CIA, see our next overview after the March 2nd 2006 Deloitte CEO/CFO Certification Seminar in Calgary, Alberta.
To learn more about Compliance Playbook(tm) click here. To learn more for Canadian companies, find out more about Compliance Partner(tm), click here.
As a panelist on the Internal Controls Documentation for CEO/CFO Certification, Connally was asked her views on areas such as:
Q. In your experience, should companies wait to implement technology until they are part of the way through the documentation process?
A. To take advantage of various technology solutions such as Compliance Playbook(tm) and Compliance Partner(tm), we recommend that companies begin right away. While data originally created "manually" in spreadsheets, word documents and Visio flowcharts can be converted, the benefits of using technology are to accessing a best practice database of controls and risks and store this information. Further, the double advantage of management reporting and automatic generation of flowcharts, narratives and risk control matrices.
Q. Do many companies assign key control status to far too many controls, when they first start this process?
A. In general, that is the tendency. Companies want to make sure that they capture all controls so they may designate too many as KEY controls. While some controls may be great operational controls, they may not be key controls for financial reporting. A rule of thumb might be 5-10 key controls in a process. If you have 15-20, you may want to review the functions of these controls and see if they trully have impact as key controls.
Q. What are CFO's biggest concerns around technology selection when they begin these types of projects?
A. That the technology and process are sustainable. We look at this in two ways: 1.) Are you buying from a company who is going to be around for the long haul and has the vision to continue to take the product forward 2) Are you following a structured sensible methodology for risk review, controls documentation, testing and remediation? We find that use of Compliance Playbook(tm) and Compliance Partner(tm) allow companies to follow a structured methodology that provides external auditors the comfort that a rational process is being followed. This makes documentation more reliable.
Q. How do companies lower their risk when they go to choose a technology solution?
A. First of all, they should have criteria for their selection before they begin the process. Secondly, good companies should be able to provide credible references for prior success stories and Third, we have found that providing a 30 day money back guarantee allows customers that one more comfort even after they have purchased to assure that this is the right solution for them.
Q. What final words of wisdom do you have for companies who are going to embark on this journey of SOX 404/302 and Bill 198/MI-52-111?
A. We have a great presentation for customers and prospects called "Top Ten Lessons Learned". This gives new entrants to this process some tips on what we learned in the past two years with Accelerated Filers in the US. This really helps identify the key pot holes and how to avoid them. Just email us at seminars@issuescentral.com and put "top ten lessons learned" in the subject line and we will email this receive this information.
For more of Catherine Connally, CIA, see our next overview after the March 2nd 2006 Deloitte CEO/CFO Certification Seminar in Calgary, Alberta.
To learn more about Compliance Playbook(tm) click here. To learn more for Canadian companies, find out more about Compliance Partner(tm), click here.
February 13, 2006
Out of the Audit Fog comes Clarification: Audit Standard #4
In an effort to clarify the importance of material weaknesses, the SEC has blessed PCAOB Audit Standard #4. This is the standard that allows a voluntary audit to determine if a prior material weakness still exists. This allows the time between reports to be decreased hopefully allowing the market to understand that a company is agressively correcting any problems.
This is a good move. It will be interesting to see if there are many takers.
An excerpt from an article is here:
SEC OKs Internal-Control Audit Standard
The rule sets up a voluntary audit engagement in which an auditor would opine between quarters on whether a client's material weakness still exists.
Helen Shaw, CFO.com
February 13, 2006
The Securities and Exchange Commission approved a Public Company Accounting Oversight Board standard last week telling auditors how to report on whether a client's previously reported material weakness in internal controls over financial reporting still exists. Since companies already have to report — and auditors opine — on the status of controls gaps in their 10Qs and 10Ks, such reports would be made within a quarter.
Auditing Standard No. 4, which the PCAOB adopted on July 26, 2005, establishes a stand-alone, voluntary engagement in which an auditor would express an opinion on whether the reported material weakness in internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act still exists. For the complete article, click here.
If your company needs assistance in rapid effective documentation, deficiency reporting and tracking, see www.issuescentral.com for public companies headquartered in the US and abroad to see how the Compliance Playbook(tm) will assist your company. If your company reports under Sarbanes-Oxley or CSA MI-52-109/52-111 see www.compliancepartner.ca to learn more about Compliance Partner(tm).
This is a good move. It will be interesting to see if there are many takers.
An excerpt from an article is here:
SEC OKs Internal-Control Audit Standard
The rule sets up a voluntary audit engagement in which an auditor would opine between quarters on whether a client's material weakness still exists.
Helen Shaw, CFO.com
February 13, 2006
The Securities and Exchange Commission approved a Public Company Accounting Oversight Board standard last week telling auditors how to report on whether a client's previously reported material weakness in internal controls over financial reporting still exists. Since companies already have to report — and auditors opine — on the status of controls gaps in their 10Qs and 10Ks, such reports would be made within a quarter.
Auditing Standard No. 4, which the PCAOB adopted on July 26, 2005, establishes a stand-alone, voluntary engagement in which an auditor would express an opinion on whether the reported material weakness in internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act still exists. For the complete article, click here.
If your company needs assistance in rapid effective documentation, deficiency reporting and tracking, see www.issuescentral.com for public companies headquartered in the US and abroad to see how the Compliance Playbook(tm) will assist your company. If your company reports under Sarbanes-Oxley or CSA MI-52-109/52-111 see www.compliancepartner.ca to learn more about Compliance Partner(tm).
February 08, 2006
SEC Working with EU to Harmonize Accounting Standards
In a move that definitely looks like the SEC is trying to think global. This is a great move and will yield benefits for the future. Having to reconcile accounting standards is not a great use of time and resources.
This type of move definitely shows that the SEC understands global realities in the markets - There are other choices of markets for public companies. We applaud this move.
An excerpt from an article is here:
SEC moves closer to ending reconciliation impasse
Nicholas Neveling, Accountancy Age 08 Feb 2006
SEC chair Christopher Cox and EU internal markets commissioner Charlie McCreevy vow to resolve reconciliation impasse
The SEC and EU today moved one step closer to eliminating the need for European listed companies with US listings to reconcile their accounts to US GAAP.
Charlie McCreevy, the EU internal markets commissioner who is touring the US, and SEC chairman Christopher Cox affirmed their commitment to abolishing reconciliation from IFRS to the US standards.
Cox said that IFRS could produce significant benefits for US investors and enhance the comparability of financial information around the world, and said that the SEC wanted to eliminate the need for reconciliation by 2009 at the latest.
'The SEC is working diligently toward the goal of eliminating the existing IFRS to US GAAP reconciliation requirement,' said Cox.
Cox will meet with McCreevy again over the coming year to discuss progress on matters related to the use of high-quality global accounting standards. There will also be regular meetings over the next year between SEC and European Commission officials to monitor progress." For the complete article, click here.
If you company is listed on US exchanges and must comply with Sarbanes-Oxley see www.issuescentral.com for more information on the Compliance Playbook(tm). If your company has to comply with US or Canadian regulations, see www.compliancepartner.ca to learn more about Compliance Partner(tm) from Thomson-Carswell.
This type of move definitely shows that the SEC understands global realities in the markets - There are other choices of markets for public companies. We applaud this move.
An excerpt from an article is here:
SEC moves closer to ending reconciliation impasse
Nicholas Neveling, Accountancy Age 08 Feb 2006
SEC chair Christopher Cox and EU internal markets commissioner Charlie McCreevy vow to resolve reconciliation impasse
The SEC and EU today moved one step closer to eliminating the need for European listed companies with US listings to reconcile their accounts to US GAAP.
Charlie McCreevy, the EU internal markets commissioner who is touring the US, and SEC chairman Christopher Cox affirmed their commitment to abolishing reconciliation from IFRS to the US standards.
Cox said that IFRS could produce significant benefits for US investors and enhance the comparability of financial information around the world, and said that the SEC wanted to eliminate the need for reconciliation by 2009 at the latest.
'The SEC is working diligently toward the goal of eliminating the existing IFRS to US GAAP reconciliation requirement,' said Cox.
Cox will meet with McCreevy again over the coming year to discuss progress on matters related to the use of high-quality global accounting standards. There will also be regular meetings over the next year between SEC and European Commission officials to monitor progress." For the complete article, click here.
If you company is listed on US exchanges and must comply with Sarbanes-Oxley see www.issuescentral.com for more information on the Compliance Playbook(tm). If your company has to comply with US or Canadian regulations, see www.compliancepartner.ca to learn more about Compliance Partner(tm) from Thomson-Carswell.
February 05, 2006
There is no Free Lunch with Governance
With the advent of Sarbanes-Oxley, some firms have chosen to list in the UK and Japan where transparency and governance standards are limited. It is true that this may be good for the company taking the public's money, but is it good for investors? If a company has nothing to hide, they why not voluntarily comply with good governance and transparency standards?
There is a reason why Sarbanes-Oxley happened. Too many CEO's of public companies and boards had become arrogant about their ability to do whatever they wanted without any questions.
Are we to believe that companies who chose to list on exchanges with lower standards have higher governance standards or are they just running from the bright light of openness? For an excerpt on this topic, see below:
Foreign listings in London 'carry risk'
A GROWING number of firms are listing in Britain to avoid tough reporting rules under the US Sarbanes-Oxley Act, although investors may be unaware of the risks, a corporate governance specialist revealed.
Karina Litvack, head of governance and socially responsible investment at F&C Asset Management, said a record 129 non-British companies listed on the London Stock Exchange last year, an 82 per cent increase on 2004. But they don't have to comply with UK corporate governance laws, or explain why, if they choose not to do so.
Litvack added there was a danger investors may find UK-listed foreign businesses do not meet the same rigorous standards that exist in the US. For the complete article, click here.
If your company has good governance standards and needs help in effectively complying with Sarbanes-Oxley, then click here to learn more about the Compliance Playbook(tm) or if you are based in Canada and must comply with Canadian or US regulations, click here to learn more about Compliance Partner(tm).
There is a reason why Sarbanes-Oxley happened. Too many CEO's of public companies and boards had become arrogant about their ability to do whatever they wanted without any questions.
Are we to believe that companies who chose to list on exchanges with lower standards have higher governance standards or are they just running from the bright light of openness? For an excerpt on this topic, see below:
Foreign listings in London 'carry risk'
A GROWING number of firms are listing in Britain to avoid tough reporting rules under the US Sarbanes-Oxley Act, although investors may be unaware of the risks, a corporate governance specialist revealed.
Karina Litvack, head of governance and socially responsible investment at F&C Asset Management, said a record 129 non-British companies listed on the London Stock Exchange last year, an 82 per cent increase on 2004. But they don't have to comply with UK corporate governance laws, or explain why, if they choose not to do so.
Litvack added there was a danger investors may find UK-listed foreign businesses do not meet the same rigorous standards that exist in the US. For the complete article, click here.
If your company has good governance standards and needs help in effectively complying with Sarbanes-Oxley, then click here to learn more about the Compliance Playbook(tm) or if you are based in Canada and must comply with Canadian or US regulations, click here to learn more about Compliance Partner(tm).
February 02, 2006
Maybe Non-Profits Need a Taste of Sarbanes-Oxley
It has been discussed for years that Non-Profits should adhere to Sarbanes-Oxley, but examples like the Salvation Army in Toronto show us that internal controls are critically important. The simplest types of controls, when not embraced, can be the deadly. See this article:
Article from the Globe and Mail:
"Accountant at centre of Salvation Army fraud $2.3-million scheme was unnoticed, charity says
TORONTO — The Salvation Army says it has been defrauded of more than $2.3-million and that it has traced the missing money to a 25-year-old accountant who used to work at its Canadian headquarters in Toronto.
In court files obtained by The Globe and Mail, the charity states it was the victim of a phony-invoice scheme, paying millions to two non-existent companies. After launching an internal investigation late last month, the charity says it has linked the scheme to Ming Wa, an accountant who abruptly resigned a week before the fraud was uncovered.
The charity, those Canadian branch receives about $130-million a year from donors and is known worldwide for feeding, clothing and housing the needy, is now suing Mr. Wa.
In the past two weeks, Mr. Wa has consented to judicial orders that require him to hand over to the charity all of his possessions, which include two plasma-screen televisions, hundreds of thousands of dollars remaining in his bank accounts and his $450,000 house in Markham, north of Toronto.
According to a sworn affidavit filed by Donald Mitchell, the charity's audit director, Mr. Wa "owns or possesses" two late model BMWs -- one a sport utility vehicle and the other a car -- and was paid an annual salary of about $41,000.
Mr. Wa has not been charged with any crime, but the Toronto police fraud unit is investigating the Salvation Army's claims.
Mr. Wa was approached by a Globe reporter and photographer last week as people carried belongings from his home and placed them in a moving van. He politely declined to answer questions.
According to sworn affidavits filed in court, it appears someone, and the Salvation Army believes it is the young accountant, may have had a crisis of conscience and tipped off the charity. It wasn't until the Salvation Army was contacted by a lawyer representing an unnamed client that it realized it had been looted of a small fortune.
It was Dec. 20, and the Salvation Army's Christmas kettle campaign was only halfway to its goal
of raising $1.65-million. But until that morning, when Salvation Army lawyer Bryan Campbell sat down with another lawyer, Christopher Reed, the organization had no idea just how short it truly was.
According to Mr. Campbell's affidavit, Mr. Reed said he had a client who had misappropriated more than $1-million from the charity. This mystery client wanted to return some of the money as long as the charity agreed to some conditions. Mr. Reed's client wanted an agreement that the Salvation Army would take no criminal or civil action against him; in return he would give back 40 per cent of what he had taken. The charity had to agree to keep the deal confidential, according to a copy of the proposed agreement filed with the court.
Mr. Reed said his client "felt genuinely sorry for what he did." The anonymous thief also wanted to show the organization how he stole the money so it could protect itself.
Mr. Campbell said he couldn't make any promises. He also pressed Mr. Reed: Who was this mystery client and was he connected to the charity?
Two days later, Mr. Reed called and left a message on Mr. Campbell's voicemail -- a message that pointed to an inside job. "I have been authorized to reveal that my client is, in the broad sense that we were talking about, associated with the Army, so there is some connection to the Army," he said.
There would be no deal. The charity launched an internal audit, but it didn't know on which of its thousands of Canadian employees to zero in. Then, three days after Christmas, the charity's chief financial officer mentioned an accountant who had suddenly quit two weeks earlier.
The resignation of Ming Wa, who was responsible for reviewing invoices and ensuring they were paid, seemed to come from nowhere.
"I apologize again for the short notice with regards to resignation, however I feel that for personal reasons I have to," Mr. Wa wrote in an internal note sent at 7:05 a.m. on Dec. 14.
An auditor began poring over Mr. Wa's files and computer. Before long, he found spreadsheets that documented 35 deposits totalling $2,312,903.56. Thirty-four of the deposits matched payments the Salvation Army had made to two companies: M & M Associates and an architectural firm called Downing & Henry Architects.
It wasn't unusual for Mr. Wa to make payments to companies. What was unusual was that the companies couldn't be found. Neither was a registered corporation in any province. They weren't listed in phone books. But the Salvation Army had a stack of invoices from the mysterious Downing & Henry. Someone from Downing & Henry named Steven Downing had completed 10 hours of "design and development" work, at $175 an hour, on the Salvation Army women's residence in Edmonton. An Allan Gilbert had done 35 hours of "electrical engineering and analysis," at $100 an hour, in Vancouver.
On Jan. 3, Salvation Army corporate controller Maisie Wong called a TD Canada Trust branch where Downing & Henry had two accounts, her affidavit states.
The person with signing authority on one of the accounts was the man who had sent her a resignation note weeks earlier: Ming Wa.
The Salvation Army has been left with a four-bedroom, two-bathroom brick house in Markham and many unanswered questions.
It has declined to comment on how this happened, citing a continuing criminal investigation.
"We're not trying to hide this in anyway," said Graham Moore, a spokesman for the charity.
Asked if the Salvation Army was worried about losing potential donors because of the fraud, he replied: "We have strong programs. We have strong controls. It was our internal audit program that initially helped uncover the fraud. It's their work that's been done since then that the police are now using in their own investigation."
When a reporter pointed out that it was the meeting with lawyer Christopher Reed that exposed the fraud, not the internal audit, Mr. Moore said he couldn't comment because it might impinge on the police investigation.
"We do see this as an unusual circumstance, not one that we can see repeating," he said.
As for Mr. Wa, he has been ordered to vacate the Markham home by today.
The Toronto police fraud unit couldn't comment, but Mr. Moore said the charity has been told the investigation will be wrapped up "not too long" from now."
If your company needs help in preventing fraud, see www.issuescentral.com or www.compliancepartner.ca for more information about Compliance Partner(tm) or Compliance Playbook(tm).
Article from the Globe and Mail:
"Accountant at centre of Salvation Army fraud $2.3-million scheme was unnoticed, charity says
TORONTO — The Salvation Army says it has been defrauded of more than $2.3-million and that it has traced the missing money to a 25-year-old accountant who used to work at its Canadian headquarters in Toronto.
In court files obtained by The Globe and Mail, the charity states it was the victim of a phony-invoice scheme, paying millions to two non-existent companies. After launching an internal investigation late last month, the charity says it has linked the scheme to Ming Wa, an accountant who abruptly resigned a week before the fraud was uncovered.
The charity, those Canadian branch receives about $130-million a year from donors and is known worldwide for feeding, clothing and housing the needy, is now suing Mr. Wa.
In the past two weeks, Mr. Wa has consented to judicial orders that require him to hand over to the charity all of his possessions, which include two plasma-screen televisions, hundreds of thousands of dollars remaining in his bank accounts and his $450,000 house in Markham, north of Toronto.
According to a sworn affidavit filed by Donald Mitchell, the charity's audit director, Mr. Wa "owns or possesses" two late model BMWs -- one a sport utility vehicle and the other a car -- and was paid an annual salary of about $41,000.
Mr. Wa has not been charged with any crime, but the Toronto police fraud unit is investigating the Salvation Army's claims.
Mr. Wa was approached by a Globe reporter and photographer last week as people carried belongings from his home and placed them in a moving van. He politely declined to answer questions.
According to sworn affidavits filed in court, it appears someone, and the Salvation Army believes it is the young accountant, may have had a crisis of conscience and tipped off the charity. It wasn't until the Salvation Army was contacted by a lawyer representing an unnamed client that it realized it had been looted of a small fortune.
It was Dec. 20, and the Salvation Army's Christmas kettle campaign was only halfway to its goal
of raising $1.65-million. But until that morning, when Salvation Army lawyer Bryan Campbell sat down with another lawyer, Christopher Reed, the organization had no idea just how short it truly was.
According to Mr. Campbell's affidavit, Mr. Reed said he had a client who had misappropriated more than $1-million from the charity. This mystery client wanted to return some of the money as long as the charity agreed to some conditions. Mr. Reed's client wanted an agreement that the Salvation Army would take no criminal or civil action against him; in return he would give back 40 per cent of what he had taken. The charity had to agree to keep the deal confidential, according to a copy of the proposed agreement filed with the court.
Mr. Reed said his client "felt genuinely sorry for what he did." The anonymous thief also wanted to show the organization how he stole the money so it could protect itself.
Mr. Campbell said he couldn't make any promises. He also pressed Mr. Reed: Who was this mystery client and was he connected to the charity?
Two days later, Mr. Reed called and left a message on Mr. Campbell's voicemail -- a message that pointed to an inside job. "I have been authorized to reveal that my client is, in the broad sense that we were talking about, associated with the Army, so there is some connection to the Army," he said.
There would be no deal. The charity launched an internal audit, but it didn't know on which of its thousands of Canadian employees to zero in. Then, three days after Christmas, the charity's chief financial officer mentioned an accountant who had suddenly quit two weeks earlier.
The resignation of Ming Wa, who was responsible for reviewing invoices and ensuring they were paid, seemed to come from nowhere.
"I apologize again for the short notice with regards to resignation, however I feel that for personal reasons I have to," Mr. Wa wrote in an internal note sent at 7:05 a.m. on Dec. 14.
An auditor began poring over Mr. Wa's files and computer. Before long, he found spreadsheets that documented 35 deposits totalling $2,312,903.56. Thirty-four of the deposits matched payments the Salvation Army had made to two companies: M & M Associates and an architectural firm called Downing & Henry Architects.
It wasn't unusual for Mr. Wa to make payments to companies. What was unusual was that the companies couldn't be found. Neither was a registered corporation in any province. They weren't listed in phone books. But the Salvation Army had a stack of invoices from the mysterious Downing & Henry. Someone from Downing & Henry named Steven Downing had completed 10 hours of "design and development" work, at $175 an hour, on the Salvation Army women's residence in Edmonton. An Allan Gilbert had done 35 hours of "electrical engineering and analysis," at $100 an hour, in Vancouver.
On Jan. 3, Salvation Army corporate controller Maisie Wong called a TD Canada Trust branch where Downing & Henry had two accounts, her affidavit states.
The person with signing authority on one of the accounts was the man who had sent her a resignation note weeks earlier: Ming Wa.
The Salvation Army has been left with a four-bedroom, two-bathroom brick house in Markham and many unanswered questions.
It has declined to comment on how this happened, citing a continuing criminal investigation.
"We're not trying to hide this in anyway," said Graham Moore, a spokesman for the charity.
Asked if the Salvation Army was worried about losing potential donors because of the fraud, he replied: "We have strong programs. We have strong controls. It was our internal audit program that initially helped uncover the fraud. It's their work that's been done since then that the police are now using in their own investigation."
When a reporter pointed out that it was the meeting with lawyer Christopher Reed that exposed the fraud, not the internal audit, Mr. Moore said he couldn't comment because it might impinge on the police investigation.
"We do see this as an unusual circumstance, not one that we can see repeating," he said.
As for Mr. Wa, he has been ordered to vacate the Markham home by today.
The Toronto police fraud unit couldn't comment, but Mr. Moore said the charity has been told the investigation will be wrapped up "not too long" from now."
If your company needs help in preventing fraud, see www.issuescentral.com or www.compliancepartner.ca for more information about Compliance Partner(tm) or Compliance Playbook(tm).
