Thursday, January 27, 2005
DiPiazza: Firms Unlikely to Meet Deadline
About 10 percent of U.S. companies are likely to report that they either couldn't meet a key corporate-reform deadline in time for their 2004 annual report or discovered weaknesses in internal accounting controls, PricewaterhouseCoopers Chief Executive Samuel DiPiazza said Wednesday.
DiPiazza heads one of the world's largest accounting firms and anticipates such disclosures as most U.S. companies prepare to file annual reports with the U.S. Securities and Exchange Commission in the next six weeks.
The reports are supposed to include results of a review of internal controls required by the Sarbanes-Oxley legislation, passed in 2002 in response to corporate scandals.
"We expect 10 percent, give or take, of public companies in the U.S. to have to report to their shareholders that they either couldn't get this done in 18 months, or they had a material weakness of a scale that could cause a misstatement," DiPiazza said at the World Economic Forum.
The Sarbanes-Oxley law includes a requirement that most publicly traded companies undertake an extensive review of internal accounting controls to test whether they have adequate procedures in place to record sales and accurately calculate asset values, among other items.
But despite pain for some companies, DiPiazza said the internal control requirement has been a largely positive development. Some companies have gained insights into their controls they didn't previously have, he said.
DiPiazza also said it's likely that regulators will look for ways to improve the law's provision by making it "less focused on paperwork and more focused on substance."
Earlier this week, SEC Chairman William Donaldson said the agency was considering postponing the deadline for foreign companies to file their internal control reports.
PwC itself has felt the impact of Sarbanes-Oxley, particularly through the creation of the Public Company Accounting Oversight Board, which oversees the U.S. accounting industry. The board recently proposed a rule to limit an accounting firm's ability to offer certain tax services.
Under the proposal, firms that audit a company's financial statements may not offer certain tax-shelter strategies to the same company and may not offer tax services to senior executives of the company. The rule is designed to preserve the independence of auditors.
posted by Brian Moran @ 8:40 AM