Friday, September 30, 2005
Accounting firm criticized over audits
WASHINGTON - Accounting regulators criticized KPMG LLP on Thursday for failing to identify significant errors uncovered in an intense, months-long inspection of the accounting firm's work.
A report by the Public Company Accounting Oversight Board, created by Congress to provide independent oversight of the accounting industry, cited numerous faults in 18 audits performed by KPMG for publicly held companies. In one case, mistakes exposed by the board led an unnamed client company to restate previously reported earnings. Board inspectors selected for review a small slice -- 76 audits -- of KPMG's nearly 1,900 publicly traded clients between June and October 2004.
The report comes a month after KPMG, the nation's fourth-largest accounting firm, agreed to pay $456 million and overhaul its business practices to settle Justice Department charges that it engaged in a conspiracy to help wealthy clients evade taxes. The firm has opened its operations to monitoring by former Securities and Exchange Commission Chairman Richard Breeden and fired or pressured to retire nearly three dozen partners. If KPMG stays out of trouble until Dec. 31, 2006, the U.S. attorney in the Southern District of New York will dismiss the conspiracy charge.
posted by Brian Moran @ 10:07 AM
Thursday, September 29, 2005
Oversight Systems to Host Webcast on Controls Optimization & Business Process Improvement with Forrester Analyst Paul Hamerman 2 p.m. (EDT) Oct. 12
Atlanta, GA (PRWEB) September 29, 2005 -- Oversight Systems Inc., the leading provider of independent, continuous monitoring solutions for real-time transaction inspection, will host a webcast entitled “Optimize Controls for Business Process Improvement.” The webcast will be held 2 p.m. (EDT) Oct. 12 and will feature Forrester Research analyst Paul Hamerman and Oversight CEO Patrick Taylor. Anne M. Marchetti, Parson Consulting’s practice leader for corporate governance and risk management, will moderate the discussion.
In this one-hour webcast, Hamerman will discuss best practices and insights from his industry research in Sarbanes-Oxley compliance as companies seek to optimize their controls to improve business process, such as accounts receivable, accounts payable, capital projects, and financial accounting and reporting. Attendees will learn about:
* The maturity stages for internal controls management, from documentation to optimization
* The categories of software tools for managing internal controls activities
* Continuous controls monitoring tools
* Driving quality in financial operations
Taylor will build upon Hamerman’s research to present real case studies that demonstrate how Fortune 500 companies have improved their financial processes with real-time transaction inspection. This webcast will then explain how technology can be used as a virtual auditor to:
* Monitor 100 percent of the transactions through your financial system
* Identify and correct errors in real time
* Recognize where errors most frequently occur in the process
* Identify emerging risks in financial reporting
* Achieve a measurable return from compliance expenses
To register for the webcast, please call 404.920.2030 or visit: www.oversightsystems.com/sox.
posted by Brian Moran @ 8:35 AM
Has the Purpose of Sarbanes Oxley Been Forgotten?
Companies need to resign themselves to the fact that Sarbanes-Oxley, as a concept, is here to stay! I believe that compliance with Sarbanes-Oxley should be done for all companies that accept invested capital, not just public companies and certainly not just large market capitalization companies. Risks are not discriminatory and can impact companies regardless of size or industry.
There has been a great deal of focus on cost, but much of the cost associated with compliance with Sarbanes-Oxley is due to companies not having an updated documented system of internal control in place, a compliance requirement that certainly preceded Sarbanes-Oxley.
In my opinion, companies became lax in keeping the documentation updated when the auditors moved to a risk-based audit approach that did not rely on controls. Now companies are scrambling to get their controls documented. Even though the risk of smaller public companies is minimal in terms of the capital markets (per the SEC), it certainly is not minimal to the individual investor who fuels the growth of these companies through invested capital. They should have the same comfort level as large company investors.
posted by Brian Moran @ 8:32 AM
Wednesday, September 28, 2005
The SEC Fine-Tunes Operation of the Sarbanes-Oxley Act
Newly appointed SEC Chairman Christopher Cox, commenting on the proposal to ease quarterly filing deadlines and the extended deadline for small companies, said "[These changes] in no way reflect any desire to back away from the requirements of the Sarbanes-Oxley Act." One commissioner echoed those sentiments, pointing out that the benefits of the financial reporting and disclosure laws far outweigh the burdens. Another commissioner said the changes were designed to ensure that meeting the deadlines did not result in poorer-quality filings. In extending the deadline for small businesses, the SEC highlighted the work of an advisory committee that had recommended the extension.
These changes send two clear messages to the market:
The Sarbanes-Oxley Act is here to stay. The new definitions and deadlines are signs that the operation of the law is being fine-tuned for implementation and enforcement.
The SEC has taken into account concerns about the complexity and burdens the act creates for businesses.
posted by Brian Moran @ 9:44 AM
Friday, September 23, 2005
Former HealthSouth CFO gets 27 months
The main whistle-blower in the accounting fraud at HealthSouth Corp. got the longest sentence so far in the case, while another former executive received probation Thursday.
U.S. District Judge Robert Propst sentenced former finance chief Weston Smith to 27 months in prison, ordered him to pay $1.5 million in forfeited assets and spend one year on probation after his release.
The judge acknowledged the wide range of sentences that have been imposed in the HealthSouth case and almost invited an appeal to the 11th U.S. Circuit Court of Appeals in Atlanta.
"If they determine my sentence
posted by Brian Moran @ 10:17 AM
Tuesday, September 20, 2005
Regulatory work costs companies 1.26% of revenue
Companies are faced with spending 1.26% of revenues on the finance function, as compliance issues such as Sarbanes-Oxley continue to become a major regulatory hurdle, according to the latest survey by Hackett Group.
The researcher found that 'typical' companies spent $940,000 (£520,500) per billion dollars of revenue on compliance management, while 'world-class' companies spent 36% less. These typical companies have seen an 18% increase in total finance costs since 2003.
'For most CFOs, the resources and focus required to comply have turned the tide of more than a decade of efficiency improvements and caused an increase in the total cost of finance,' said Hackett chief research officer Richard T Roth.
posted by Brian Moran @ 10:48 AM
Thursday, September 15, 2005
Oversight Systems CEO Patrick Taylor to Discuss Linking SOX Compliance to Business Improvement
Oversight Systems to Address Sarbanes-Oxley Conference & Expo in Baltimore Sept. 26
CEO Patrick Taylor to Discuss Linking SOX Compliance to Business Improvement
ATLANTA (Sept. 15, 2005) Oversight Systems Inc., the leading provider of independent, continuous monitoring solutions for real-time transaction inspection, today announced that Patrick Taylor, CEO, will present at the upcoming Sarbanes-Oxley Conference & Exposition (http://www.sarboxconf.com) sponsored by the Institute for Financial Excellence. The conference will take place Sept. 25-27 at the Marriott Waterfront in Baltimore and is expected to draw more than 1,000 business leaders, including CEOs, CFOs, CTOs, chief accounting officers, chief compliance officers, controllers, VPs of finance, and compliance officers.
Taylor is scheduled to speak on Monday, Sept. 26 1:30 -2:30 p.m. on the topic "Linking SOX Compliance to Business Improvement." Oversight Systems will also exhibit at the conference and can be found in booth 222.
posted by Brian Moran @ 11:48 AM
Tuesday, September 13, 2005
SEC delays Sarbanes-Oxley for small firms: WSJ
The Securities and Exchange Commission is expected to give small companies another year to comply with a Sarbanes-Oxley rule intended to improve financial reporting controls, the Wall Street Journal said on Tuesday.
Citing people familiar with the matter, the newspaper said the SEC, which in March agreed to a one-year delay for small businesses, plans to grant another year-long reprieve later this month.
The relief would give companies with a market capitalization of up to $75 million until July 2007 to comply with the rule, the report said. An SEC spokesman declined to comment.
posted by Brian Moran @ 8:34 AM
Monday, September 12, 2005
What Does Sarbanes-Oxley Mean for Companies That Want to Go Public?
Conventional wisdom has it that Sarbanes-Oxley is preventing companies from going public. While that hasn't been proved--Nasdaq will have more IPOs this year than last year if the trend holds--the regulations have clearly made it more expensive to go public and stay public.
Because public companies need to comply with Sarbanes-Oxley, including the costly rules on internal controls, a company planning an IPO needs to have a cash hoard set aside in advance. It will face higher audit costs, higher insurance costs, and more regulatory-related duties for its staffers.
The added costs of Sarbanes-Oxley are one reason, among many, that IPO-ready companies are now larger and more established than they used to be. Jim McGeaver, chief financial officer of business software company NetSuite, which is based in San Mateo, Calif., notes that 10 years ago when he worked at Photon Dynamics, that company had no trouble going public with $20 million in revenue. "Now that has to be in the $50 million to $75 million range for the investment bankers to even look at you," McGeaver says. "It is just going to mean that companies will go public later in the cycles."
posted by Brian Moran @ 1:24 PM
Friday, September 09, 2005
The 411 on 404: Reporting a material weakness in controls can cost shareholders millions and some CFOs their jobs.
What is the cost of uncovering gaps in your company's controls? To judge from 899 cases in which companies reported material weaknesses in 2004 and during the first four months of 2005, the cost is significant. A new report from proxy adviser Glass, Lewis & Co. shows that investors sold stock in companies that made such announcements, driving their average share price 4 percent lower relative to the market. Share price also dropped when 404-compliance efforts led companies to delay their 10-K filings.
The most costly control issues were in the area of tax accounting, which contributed to a stock-price loss of almost 6 percent. Documentation controls and personnel issues in the finance department proved nearly as expensive. The most commonly reported errors were in financial systems and procedures, which accounted for 36 percent of all control weaknesses.
posted by Brian Moran @ 4:15 PM
Power struggle set to delay EU Sarbox
Europe’s version of Sarbanes-Oxley could effectively be adopted later this month by law-makers, but concerns are growing that a long-running power struggle between the two main EU bodies could result in delays.
The European parliament is expected to approve the EU’s eighth directive on company law, which beefs up corporate governance and auditor responsibilities, at a plenary session in the last week of September.
But an unresolved political issue over who controls how these rules are put into practice could yet throw a spanner in the works.
posted by Brian Moran @ 9:19 AM
Thursday, September 08, 2005
Investors are mad for risk-appetite indices. What do they actually tell us?
America’s stockmarket edged past news on Monday August 29th that Hurricane Katrina was set to become the world’s costliest storm ever for insurers, helping to push oil above $70 a barrel: share prices moved up within half an hour of the market’s opening, though they fell again the next day. It was certainly not the first time that investors had bought stocks when the news was bad, like a pitcher shaking off his catcher’s signals. Were investors cleverly re-assessing economic fundamentals (basically solid growth and still-good prospects for corporate earnings) and upping their rational valuation of shares? Or were they just irrepressible exuberants on a tear?
This question, it turns out, is at the centre of one of the big divides in financial theory. Those who believe in efficient markets think that prices reflect all known information about future returns. If an investor happens to feel irrationally feisty when he rolls out of bed in the morning, no matter: smart money will move in and arbitrage away the difference between the price he paid for the share and the price that correctly reflects the discounted value of expected cash flows.
posted by Brian Moran @ 2:10 PM
Wednesday, September 07, 2005
Integrating IT Controls and Sarbanes-Oxley
IT is often new territory for both internal and external auditors. IT entity-level, general, and application controls have not been a traditional education focus in business schools or training through companies and public accounting firms. Although this is now changing, the learning curve is not necessarily easy, as voiced by companies and auditors alike in response to Section 404 challenges and escalating costs.
A company's tone at the top, starting with its chief executive officer (CEO), drives its control environment and is considered the foundation of all controls. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) helped set the stage through its Internal Control – Integrated Framework, by defining control environment as "an atmosphere in which people conduct their activities and carry out their control responsibilities." Documenting, testing, and reporting on an atmosphere is new territory for many. Fortunately, the COSO framework provides solid guidance to accomplish this feat.
posted by Brian Moran @ 10:33 AM
SOX Gets the Dummy Treatment
I read a little blurb a few weeks back about publishing house John Wiley & Sons' plans to print a "Sarbanes-Oxley for Dummies," the latest edition to its best-selling series.
Due out in January, according to the company's Web site, the book is being tagged as a "simple guide to the complex new accounting rules under Sarbanes-Oxley." And though I'm all for the saying that it's better late than never, anyone who needs an overview of the changes SOX has wrought in terms of corporate governance -- and has waited three years to search that impact out -- well, for lack of a better term, they might really be a dummy.
I didn't hear back from Wiley about who exactly the book's target market is, but I sincerely hope the accountants, lawyers, business owners and corporate managers mentioned on the book's Web page aren't the accountants, lawyers, business owners or corporate managers who come anywhere near my money.
The business world might be better served by having a "plain-English guide" that explains the legislation practically, but the truth of the thing is that much of SOX is being read in grays -- not black and white -- and as public companies of varying sizes and resources have sifted through what the changes mean for them, many affected by the law have said that the provision's effects are steeped in expensive documentation mandates for auditors.
posted by Brian Moran @ 8:35 AM
Tuesday, September 06, 2005
United States: The Impact of Regulatory Compliance Mandates on Business Process and IT Outsourcing
Regulatory compliance mandates are becoming increasingly pervasive and onerous in western countries (see Figure 1). They have become a driving force in influencing affected organizations investments, areas of attention and activity, and in extreme cases strategic direction (i.e., going private in an attempt to avoid regulatory mandates). Business process regulation has become a new an uglier "BPR".
An affected large company, for example, could easily have total direct and indirect costs for Sarbanes-Oxley (SOX) compliance in excess of $10M annually. AMR Research estimates that affected organizations worldwide will spend $6B+ on SOX related activities in 2005, not counting actual audit fees, and will spend $80B+ over the next five years on compliance as a whole. On top of these costs, it is not uncommon for organizations to experience a doubling in the fees they pay their external auditors. And these numbers do not take into account the opportunity cost of compliance and the distraction it creates from other critical activities.
posted by Brian Moran @ 10:14 AM
Thursday, September 01, 2005
Reporting season brings bafflement
The holidays are over in more ways than one. The accountancy profession faces a tough autumn and winter on several fronts. In particular, it will face difficulties over its audit role, the scrutiny of the quality of published corporate information and also the value and integrity of the new figures published under the incoming financial reporting standards regime.
The first problem is audit. As ever, it is a common bugbear of companies that bemoan a lack of competition in the sector. It is a service delivered, when it comes to the largest companies in the land, by only four audit firms. You can sense these firms' vulnerability to the argument.
PricewaterhouseCoopers has been running a media campaign stressing the value of audit, complete with a huge poster running across the frontage of London Bridge station alongside its one-time headquarters. This campaign argued that an audit was "one of this year's best investments". Certainly in a post-Enron world investors should agree that tough independent scrutiny is worth having.
But it is the post-Enron measures which, curiously, have undermined confidence in the audit. The huge increase in audit-related work carried out by the Big Four audit firms under the Sarbanes-Oxley legislation has meant an equally large increase in fees. Not for nothing is the Sarbanes-Oxley legislation known colloquially among audit partners in the US as the "Send my Children to Harvard Act". Figures released last month by Deloitte in the UK showed audit fees as powering past other disciplines as a proportion of the firms' total fees.
posted by Brian Moran @ 8:08 AM