November 30, 2007
CSA Staff Notice 52-319 Could Be More Transparent
On November 23, 2007 the Canadian Securities Administrators issued Staff Notice 52-319: STATUS OF PROPOSED REPEAL AND REPLACEMENT OF MULTILATERAL INSTRUMENT 52-109 CERTIFICATION OF DISCLOSURE IN ISSUERS' ANNUAL AND INTERIM FILINGS.
The main intent of the notice as evidenced by the majority of the subject matter was to indicate that the regulators had decided that Venture Issuers could file a basic certificate rather than the Form 52-109F1 form that TSX issuers must file. Further, the Venture issuers could file this certificate for this year if in fact their fiscal year ends after November 23, 2007 - basically either November 30 or December 31.
While some may think this is good news, it is a bit disconcerting when this type of notice comes out almost at the end of fiscal years. So many Venture issuers have done extensive work on their 52-109 documentation and some have made such disclosures in their MD&A.
This provides a very late notice with certificates with terms such as:
The main intent of the notice as evidenced by the majority of the subject matter was to indicate that the regulators had decided that Venture Issuers could file a basic certificate rather than the Form 52-109F1 form that TSX issuers must file. Further, the Venture issuers could file this certificate for this year if in fact their fiscal year ends after November 23, 2007 - basically either November 30 or December 31.
While some may think this is good news, it is a bit disconcerting when this type of notice comes out almost at the end of fiscal years. So many Venture issuers have done extensive work on their 52-109 documentation and some have made such disclosures in their MD&A.
This provides a very late notice with certificates with terms such as:
- "reasonable diligence" and
- "The issuer's certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate"
No doubt these certifications require a level of documentation of controls in place in order to be able to make these certifications. But how different are the requirements?
The other point in this late breaking news is that for awhile Venture Issuers were closer to same status as TSX issuers, with the same disclosures. No doubt the benefits were there for lowering the perceived investment risk. This is an important factor when considering how difficult it is to get analyst coverage and their higher cost of capital, thus lowering their overall liquidity.
The area that has really caused a lot of discussion and many different interpretations is some other wording in the notice:
"The comment period expired on June 28, 2007. We received 53 comment letters. After extensive review and consideration of the comments received, we have decided to make significant revisions to certain aspects of the proposal. As a result, we will publish an amended version of the Proposed Materials for comment and we will not implement the Proposed Materials in final form on June 30, 2008. When we publish an amended version of the Proposed Materials for comment, we will include information relating to the expected effective date."
With 13 regulators, there have been so many rumours flying all around Canada on what this means. The concern with this type of wording is that is vague and leads everyone to reach their own conclusions. A concern for regulators who have an interest in making sure that issuers move forward with the requirements.
But issuers, on the other hand, need to be careful not to read into this announcement what they "wish to hear". The public information in the CSA staff notice is just saying the final comments will not be in final form on June 30, 2008 NOT that issuers are off the hook for proper ICFR and disclosure controls and the certifications of design/implement and effectiveness.
November 27, 2007
PCAOB Issues Report on Small Firm Inspections and Deficiencies
The PCAOB issued its report on Small Firm Inspections on October 22, 2007. The Center for Audit Quality plans to hold a webcast on Thursday, Nov. 29, from 1:30 to 3:30 p.m. Eastern time that will allow public company auditing firms to hear from the PCAOB about the most common deficiencies they found, and ask questions.
The report details some areas where smaller audit firms were found to be deficient in their audit practices of public companies for Sarbanes-Oxley Section 404. They were specifically in the areas of:
The report details some areas where smaller audit firms were found to be deficient in their audit practices of public companies for Sarbanes-Oxley Section 404. They were specifically in the areas of:
- Revenue Recognition - more specifically that firms often did not go into enough detail surrounding the contracts and industry specific practices to understand whether the revenue was in fact correct. Further, they relied on substantive testing of Accounts Receivable and Inventory too often to justify the revenue. Thresholds for further investigation were often not set leading to suspect conclusions about revenue recognition.
- Related Party Transactions - Lack of understanding of the existence and implications of related party transactions as well as potential improper levels of disclosures of their existence. Further, such transactions can have implications for other indebtedness or other such arrangements that may not be recorded properly on company accounting records.
- Equity Transactions - Since newer companies have more difficulty raising money, they often do not properly record and account for the equity transactions according to GAAP. Audit firms in many situations failed to determine whether firms had properly complied with SFAS No. 123 - Accounting for Stock based compensation. Numerous deficiencies were found in the firms' testing of fair value of such compensation.
- Business Combinations and Impairment of Assets - Where auditors have failed to identify the the accounting acquirer; these transactions were not always properly researched.
If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, 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.
November 17, 2007
Welcome Back to US Markets
We wrote in this blog November 12, 2007 about Chinese banks listing on US exchanges as a new trend. Now this week, Israeli companies are coming back to US markets.
This is probably due to a few factors:
US Markets are still by far the largest in the world: $18 trillion versus $3.4 trillion for the UK. So size matters.
Additionally, many countries are now putting in SOX-Like or SOX-Lite regulations: Canada, Japan, South Africa to name a few, so the SOX stigma has become the new standard - transparency is good.
The other factor is no doubt the powerful Wall Street marketing machine which apparently is now present in Israel. It is a wonder what sweet siren songs the Wall Streeters are singing into the ears of Israeli public companies.
For the complete article on this topic, click here. An excerpt on this topic can be found here:
"According to James Posnett, MD of European products at Eurolist and Alternext, interviewed by the Jerusalem Post, the trend will change in 2008. While Israeli companies has only eyes for the NASDAQ for more than a decade, their interest stareted dwindling down in 2005 with the the costly Sarbanes-Oxley listing regulations. In 2005, 20 Israeli start-ups went public on the European markets rather than in the U.S., and mainly on London’s Alternative Investment Market (AIM).
In 2006, the number went down to 16 in Europe vs. 8 on Wall Street, and the trend is set to change back in 2008 in the advantage of the US. The presence of several US investment banks in Israel favors a growing interest and experience of the US markets."
If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, 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.
This is probably due to a few factors:
US Markets are still by far the largest in the world: $18 trillion versus $3.4 trillion for the UK. So size matters.
Additionally, many countries are now putting in SOX-Like or SOX-Lite regulations: Canada, Japan, South Africa to name a few, so the SOX stigma has become the new standard - transparency is good.
The other factor is no doubt the powerful Wall Street marketing machine which apparently is now present in Israel. It is a wonder what sweet siren songs the Wall Streeters are singing into the ears of Israeli public companies.
For the complete article on this topic, click here. An excerpt on this topic can be found here:
"According to James Posnett, MD of European products at Eurolist and Alternext, interviewed by the Jerusalem Post, the trend will change in 2008. While Israeli companies has only eyes for the NASDAQ for more than a decade, their interest stareted dwindling down in 2005 with the the costly Sarbanes-Oxley listing regulations. In 2005, 20 Israeli start-ups went public on the European markets rather than in the U.S., and mainly on London’s Alternative Investment Market (AIM).
In 2006, the number went down to 16 in Europe vs. 8 on Wall Street, and the trend is set to change back in 2008 in the advantage of the US. The presence of several US investment banks in Israel favors a growing interest and experience of the US markets."
If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, 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.
November 12, 2007
US Markets Provide Access to Chinese Banks
Interesting report from http://www.chasecooper.com/. They put out an article yesterday on a trend in Chinese banking. An excerpt is here:
"China Merchants Bank (CMB), to open a branch in New York, the first Chinese bank to gain such approval in 15 years. This is expected to be a first step to CMB listing on a US exchange."
They go on to say:
"It is expected that CMB will be joined by Industrial and Commercial Bank of China (ICBC), China’s largest bank and, by many measures, the world’s largest, bank who applied for a US licence to open a NY branch earlier this year. Approval has been given by the NY State Banking Department but ICBC still wait the final approval from the Fed.
No Chinese banks have listed in the US since the onset of the Sarbanes-Oxley Act but this now looks set to change."
This looks good for an SEC who made de-listing easier in January 2007. Interesting turn of events with all of China's power in the financial reserves these days. Good to see US markets accessed by powerful foreign companies.
Openness of US markets is some of the best in the world. This is a testament to this and the market power of the US.
If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, 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.
"China Merchants Bank (CMB), to open a branch in New York, the first Chinese bank to gain such approval in 15 years. This is expected to be a first step to CMB listing on a US exchange."
They go on to say:
"It is expected that CMB will be joined by Industrial and Commercial Bank of China (ICBC), China’s largest bank and, by many measures, the world’s largest, bank who applied for a US licence to open a NY branch earlier this year. Approval has been given by the NY State Banking Department but ICBC still wait the final approval from the Fed.
No Chinese banks have listed in the US since the onset of the Sarbanes-Oxley Act but this now looks set to change."
This looks good for an SEC who made de-listing easier in January 2007. Interesting turn of events with all of China's power in the financial reserves these days. Good to see US markets accessed by powerful foreign companies.
Openness of US markets is some of the best in the world. This is a testament to this and the market power of the US.
If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, 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.
November 01, 2007
IFRS Gaining Momentum in North America
With the SEC's efforts to keep and attract new foreign listings, the interest in not only allowing foreign filers to use International Financial Reporting Standards (IFRS) to file their financial statements.
October 9, 2007 Christopher Cox, Chairman of the SEC, spoke to the 2007 US-EU Corporate Governance Conference at SEC headquarters.
Excerpts from the speech are here:
"Today, when investors look across the Atlantic, it is possible to see bonds between our markets that are stronger than ever before in history. The combined NYSE and Euronext comprise a transatlantic company that operates six different exchanges catering to many different types of issuers. The International Accounting Standards Board and the U.S. Financial Accounting Standards Board have for years been working on a convergence project to eliminate needless regulatory friction between International Financial Reporting Standards and U.S. Generally Accepted Accounting Principles. And that has made possible the SEC's announcement that we are taking the next steps on our Roadmap to eliminate the reconciliation requirement in the United States, and that we are even considering allowing U.S. issuers to use IFRS."
He goes on to say:
"The European Union itself is a vivid demonstration of why differences in markets can sometimes justify differences in regulation. In the United Kingdom and the Netherlands, for example, ownership of most public companies is widely diffused. There are few, if any, shareholders that own a controlling block of a public company's shares. In Germany, many public companies have controlling shareholders. Traditionally, those have been large banks. In Italy, the controlling shareholders are often entrepreneurial families. Even in markets that seem similar, we often see differences that profoundly affect how our markets work.
For example, like the United States, the United Kingdom has many companies owned by large numbers of shareholders, none of whom owns enough to constitute control. But unlike the United States, the UK market historically has not had a very large retail component. Over the past few decades, the investors that predominate are not retail investors but large financial institutions, all located within a few blocks of each other in the City of London."
Regarding IFRS in particular, Cox notes:
" Let's consider a concrete example: the move that's afoot throughout Europe and around the world for a truly global set of high quality accounting standards. The vision behind International Financial Reporting Standards is that a single worldwide set of standards will permit investors around the world to benefit from a high level of comparability and a consistently high level of quality in financial reporting. It would eliminate the need for investors and analysts to try to understand financial statements that are prepared using the different accounting standards of many jurisdictions.
It would eliminate one of the significant barriers to raising capital outside one's borders. And it would provide a globally enforceable check on corporate governance practices, including executive compensation — where lately the SEC has done so much work.
IFRS promises to integrate our markets.
But that promise is jeopardized if IFRS isn't applied faithfully and consistently across jurisdictions. Regulators must beware the impulse to develop nationally-tailored versions of IFRS, and we must cooperate with one another in implementing a set of standards that is faithfully and consistently applied."
It will be interesting to see how much convergence there will be among the current IFRS "flavors" around the world. Public companies want convergence of accounting standards, but what standard is the right one. And if IFRS is the standard to converge with: then what IFRS? UK, Germany, Poland, South Africa, etc.
This will be an interesting journey to say the least. Canada is working toward IFRS conversion by 2011. US registrants will most likely have choices much sooner than that. These are huge changes for public companies, investors and the very educational institutions which must provide graduates for this upcoming challenge. It is a worthy goal but much more formidable than many realize.
According to an article by FEI Canada, today: The following issues are ones where IFRS will cause huge upheaval:
"Key differences exist in:
October 9, 2007 Christopher Cox, Chairman of the SEC, spoke to the 2007 US-EU Corporate Governance Conference at SEC headquarters.
Excerpts from the speech are here:
"Today, when investors look across the Atlantic, it is possible to see bonds between our markets that are stronger than ever before in history. The combined NYSE and Euronext comprise a transatlantic company that operates six different exchanges catering to many different types of issuers. The International Accounting Standards Board and the U.S. Financial Accounting Standards Board have for years been working on a convergence project to eliminate needless regulatory friction between International Financial Reporting Standards and U.S. Generally Accepted Accounting Principles. And that has made possible the SEC's announcement that we are taking the next steps on our Roadmap to eliminate the reconciliation requirement in the United States, and that we are even considering allowing U.S. issuers to use IFRS."
He goes on to say:
"The European Union itself is a vivid demonstration of why differences in markets can sometimes justify differences in regulation. In the United Kingdom and the Netherlands, for example, ownership of most public companies is widely diffused. There are few, if any, shareholders that own a controlling block of a public company's shares. In Germany, many public companies have controlling shareholders. Traditionally, those have been large banks. In Italy, the controlling shareholders are often entrepreneurial families. Even in markets that seem similar, we often see differences that profoundly affect how our markets work.
For example, like the United States, the United Kingdom has many companies owned by large numbers of shareholders, none of whom owns enough to constitute control. But unlike the United States, the UK market historically has not had a very large retail component. Over the past few decades, the investors that predominate are not retail investors but large financial institutions, all located within a few blocks of each other in the City of London."
Regarding IFRS in particular, Cox notes:
" Let's consider a concrete example: the move that's afoot throughout Europe and around the world for a truly global set of high quality accounting standards. The vision behind International Financial Reporting Standards is that a single worldwide set of standards will permit investors around the world to benefit from a high level of comparability and a consistently high level of quality in financial reporting. It would eliminate the need for investors and analysts to try to understand financial statements that are prepared using the different accounting standards of many jurisdictions.
It would eliminate one of the significant barriers to raising capital outside one's borders. And it would provide a globally enforceable check on corporate governance practices, including executive compensation — where lately the SEC has done so much work.
IFRS promises to integrate our markets.
But that promise is jeopardized if IFRS isn't applied faithfully and consistently across jurisdictions. Regulators must beware the impulse to develop nationally-tailored versions of IFRS, and we must cooperate with one another in implementing a set of standards that is faithfully and consistently applied."
It will be interesting to see how much convergence there will be among the current IFRS "flavors" around the world. Public companies want convergence of accounting standards, but what standard is the right one. And if IFRS is the standard to converge with: then what IFRS? UK, Germany, Poland, South Africa, etc.
This will be an interesting journey to say the least. Canada is working toward IFRS conversion by 2011. US registrants will most likely have choices much sooner than that. These are huge changes for public companies, investors and the very educational institutions which must provide graduates for this upcoming challenge. It is a worthy goal but much more formidable than many realize.
According to an article by FEI Canada, today: The following issues are ones where IFRS will cause huge upheaval:
"Key differences exist in:
- insurance contracts,
- financial instruments,
- full cost versus successful efforts,
- de-recognition of financial assets and liabilities,
- consolidation - variable interest entities and special purpose entities,
- stock-based compensation,
- impairment of non-financial assets,
- employee future benefits, and
- income taxes."
This will be an interesting ride. Hold on to your seats.
