Friday, March 31, 2006
IPOs head for Europe as Sarbox hits US markets
The true cost of the Sarbanes-Oxley Act for the capital markets in the US has emerged, as Europe raised more new funds from initial public offerings than the US for the first time in four years.
In its latest review of the European IPO market, the capital markets team at PricewaterhouseCoopers found that both the volume and value of European IPOs had grown substantially in 2005 and outstripped the US exchanges.
The number of IPOs in Europe last year grew 39% from 433 to 603 and the sums of new money raised almost doubled from 28bn euros (£19.3bn) to 51bn euros as international companies flooded into the European markets to avoid the onerous regulatory requirements imposed on the US exchanges by Sarbanes-Oxley.
posted by Brian Moran @ 9:06 AM
Thursday, March 30, 2006
Webinar: Segregation of Duties in the Real World
Webinar: Segregation of Duties in the Real World
Real world compliance demands a complete closed-loop control system that identifies SoD conflicts across multiple systems, quantifies control risks, monitors SoD risks and documents compliance.
posted by Brian Moran @ 2:52 PM
Make the rules work for you
It is almost 20 years since the Big Bang liberated the finance sector by sweeping away what were then considered outdated regulations. Since then, regulation - both at national and at international levels - has slowly crept back and threatens to create a mountain of bureaucracy.
A succession of scandals across the world from the Barings bank debacle to Enron and Worldcom have caused the regulatory pendulum to swing towards tighter rules. The growing list of rules includes the US Sarbanes-Oxley Act, the Basel II risk management rules for financial institutions and the Market in Financial Instruments Directive (MiFID).
The theory is that rules and regulations make for order and stability. But they are also a burden on business and add significantly to costs. Organisations are, therefore, looking for ways to mitigate the cost of compliance and squeeze out some real business benefits from what is a mandatory investment.
A recent survey of 261 US financial executives on the impact of Sarbanes-Oxley, conducted by financial software specialist Oversight Systems, suggests that companies are able to derive benefits from compliance. Improvements in the accuracy of financial reports were cited in 47 per cent of responses. Other perceived benefits included a reduction in errors in financial operations (48 per cent) and empowerment of the board's audit committee through better information.
posted by Brian Moran @ 8:54 AM
Friday, March 24, 2006
Sarbanes Counters Critics of 2002 Law
Sen. Paul Sarbanes, D-Md., offered his most sweeping defense of a law he co-authored following the collapse of Enron Corp. and suggested that current efforts to roll back the law are on shaky legal footing.
"We need to remind those who complain that Congress overreacted or overreached in passing Sarbanes-Oxley of several crucial points," he said Thursday in remarks to the Consumer Federation of America.
"It's asserted by some that the law was enacted in haste," Sarbanes said. "I think this is an affront to the hard work and the common sense of the members of Congress who shaped the legislation, moved it through their respective houses, and voted for it. We had an extremely thorough, careful set of hearings."
posted by Brian Moran @ 9:27 AM
Friday, March 17, 2006
How Nortel, auditor became joined at hip
Nortel Networks Corp. has faced years of financial statement restatements, accounting crises, a roller-coaster stock price, and changes to executive management, but throughout it all, Deloitte and Touche LLP has been a constant.
Deloitte, the world's biggest accounting services firm, has held on to the Nortel account even in the company's darkest times.
During Nortel's restatement years, Deloitte was paid $57 million in 2004 and $72.7 million in 2003 -- for what amounts to the largest fees in those years for audit, tax and related services paid by any Canadian company.
But after Nortel's decision last week to restate its accounts for the third time in as many years, the issue that's puzzling many is how Deloitte has held on to the Nortel account.
"It's a question we've been asking since last year at the [Nortel] annual meeting," said Bill Mackenzie, president of governance watchdog Fairvest Corp.
One answer is that other auditors are not in a position to do a better job than Deloitte, and might not be willing or able to tackle Nortel, Mr. Mackenzie said.
Nortel's sprawling business is "so complex," that it's difficult for any auditor to understand, he said. In fact, Deloitte's experience means the firm has the best knowledge of Nortel of any of the audit firms, Mr. Mackenzie said. And while it could seem like a sensible option to have another set of eyes look at the accounts, there have already been "a lot of fresh eyes on the Nortel accounts," he said.
posted by Brian Moran @ 10:35 AM
Thursday, March 16, 2006
Director liability should be capped: PwC CEO
PricewaterhouseCoopers' chief executive said the pendulum has swung too far against company directors after a string of accounting scandals and that now the risk of legal action threatens board recruitment.
CEO Samuel DiPiazza told Reuters in a telephone interview, "(We need) some type of financial cap around their (director) liability, so that you can't put a board member in the position of losing everything he's ever worked for in his whole life because he was misled by management."
In the aftermath of scandals in the past five years at Enron, Worldcom, Global Crossing, Parmalat and others, countries have tightened corporate governance rules.
In the U.S., Sarbanes-Oxley rules hold directors accountable for internal reporting checks and balances.
posted by Brian Moran @ 10:32 AM
Thursday, March 09, 2006
Cross-Exam of Ex-Enron CFO Fastow Continues
The former chief financial officer of Enron Corp. is facing a brutal cross-examination by a defense lawyer suggesting he is setting up his former bosses to save himself a life prison term.
The aggressive questioning by Daniel Petrocelli, lawyer for former Enron chief executive Kenneth Lay, is the first time ex-CFO Andrew Fastow has been grilled in public about his role in the Enron fraud. He pleaded the Fifth Amendment before Congress.
In a tense exchange Wednesday, Petrocelli, in a tone of disbelief, said Fastow watched his own wife go to prison rather than come clean to federal investigators about the his crimes.
Lea Fastow served a year in prison for submitting a tax return that failed to classify as income kickbacks intended for Fastow — some of which were sent in the form of checks to his two young sons.
posted by Brian Moran @ 8:35 AM
Wednesday, March 08, 2006
Executives who use accounting-motivated transactions to prop up financial results are among the obstacles to a principles-based approach, says Robert
The Financial Accounting Standards Board is conceding that its push for a principles-based accounting system could run smack into some powerfully entrenched interests.
FASB laid out the challenges it faces in a February 16 reply to a Securities and Exchange Commission report on improving the transparency of off-balance-sheet arrangements, which was issued eight months ago. Largely agreeing with the SEC, the board threw down the gauntlet against complexity, essentially calling for the U.S. accounting industry to move away from its traditional rules-based model to a more principles-based system.
In its letter, FASB agreed to revisit everything the SEC suggested: the accounting treatment of leases, defined-benefit pensions, and financial instruments, as well as consolidation policies. But the standards board also issued a broader critique, noting that form was surpassing function in financial reporting and that complexity was clouding transparency.
The response, however, reiterated the obstacles to change that FASB chairman Robert Herz hit on in a December speech to the American Institute of Certified Public Accountants (AICPA). "Fundamental structural, institutional, cultural, and behavioral forces have caused, and continue to cause, complexity in the system and impede transparent financial reporting," he said then.
posted by Brian Moran @ 8:58 AM
Tuesday, March 07, 2006
Enron: It's Fastow's turn on the stand
Former Enron chief financial officer Andrew Fastow -- one of the key figures in the collapse of the energy trader -- is poised to take the stand Tuesday in the trial of the failed energy trader's ex-CEOs.
Fastow would be the most senior executive to testify so far and is considered crucial in the case against Enron founder Kenneth Lay and former chief executive Jeffrey Skilling. Fastow is expected to provide critical details implicating his former bosses in the massive fraud that brought down Enron -- once the seventh largest company in the U.S.
His close ties to the defendants are expected to provide government prosecutors with damning evidence that Lay and Skilling were willing participants in the accounting scandal that pushed the company into bankruptcy in December 2001. But Fastow's own shady dealings and notoriously quick temper have been cause for concern for the prosecution -- and fuel for defense attorneys who hope to discredit him on the stand.
Fastow was the mastermind behind the fraudulent LJM partnerships -- the acronym actually stands for the first letters of his wife and two sons' names -- that were created to make complex deals to bolster Enron's profits and hide losses.
posted by Brian Moran @ 8:42 AM
Monday, March 06, 2006
Restatements Surged in 2005, Says Study
Restatements are busting out all over. The number of revisions of financial reports by publicly traded companies surged to a record 1,295 in 2005, nearly double the previous year's mark of 650, according to a new study by Glass, Lewis and Co., a corporate-governance research firm. The tally is also more than triple the total in 2002, the year the Sarbanes-Oxley Act (Sarbox) was passed.
According to the study, 1,195 companies — or 8.5 percent of all U.S. corporations — filed a restatement. That compares with 4.5 percent the previous year. From 1997 through 2005, public U.S. companies filed 3,642 restatements to correct accounting errors. That's about 30 percent of all public U.S. companies during the past nine years.
posted by Brian Moran @ 10:39 AM
Friday, March 03, 2006
F&A Outsourcing Providers Discover Competitive Advantage with Real-Time Transaction Inspection
Business Process Outsourcing (BPO) service providers specializing in finance and accounting (F&A) see a growing market opportunity but already face increasing price pressures. Advisory firms are commoditizing engagements and defining what service level guarantees should be. In addition, costs keep escalating in offshore locations, diminishing some benefits of labor arbitrage.
These market forces are creating immediate cost pressures on providers in the first year of outsourcing relationships. At the same time, providers need to focus on additional ways to increase their margins with existing clients. Due to innovative exploitation of existing technology, Oversight Systems provides a software-based solution that enables providers to meet these objectives with real-time transaction inspection.
posted by Brian Moran @ 8:47 AM
Thursday, March 02, 2006
Can Sarbanes-Oxley influence investors' trust?
What is a 'fair' price for fairness? New research from Washington University's Olin School of Business reveals that a just system of governance may not enhance trust when returns do not meet investors' expectations. This is sobering news for businesses that have spent countless hours and large amounts of money complying with the Sarbanes-Oxley Act (SOX) in the hopes of building stronger corporate governance.
Ron King, the Myron Northrop Professor of Accounting in the Olin School of Business conducted research on how trust is created under different combinations of procedural justice and payout fairness. King makes the following observations based on his research:
Fairness might be a trade-off for smaller returns.
• SOX proponents argue that the extra compliance costs can be justified because these costs are offset by the benefits of increased investors' trust and reduced investors' skittishness. "The central question raised by this policy issue relates to how people make tradeoffs between a fairer system and a smaller pool of resources (because the fairer system is costly)," King says. "That is, this is an issue of procedural and distributive justice."
Investors like the pie big
• The most critical case that demonstrates the benefits of better corporate governance occurs when returns are low - which can happen even with good governance. King finds that when returns are below expectations, investors do not have more trust in a firm with better governance. Rather, it appears that good outcomes trumps good process.
• "If people have high expectations, they turn a blind eye to procedural justice when returns are low," King says. "The takeaway for policy makers is that they should take care to balance the costs of a fairer system with the expenditure of resources to achieve the fairer system."
posted by Brian Moran @ 8:48 AM
Wednesday, March 01, 2006
Webinar: Segregation of Duties in the Real World
Date: Wednesday March 15
Time: 2 p.m. EST/ 11 a.m. PST
Duration: 45 minutes
Most financial processes don’t operate inside a vacuum of a single financial system or perfectly defined roles that eliminate all segregation of duties conflicts. Real world compliance demands a complete closed-loop control system that identifies SoD conflicts across multiple systems, quantifies control risk based on how (and if) a control weakness is exploited, monitors known risks where SoD conflicts cannot be eliminated, and provides documented proof of control effectiveness.
Join the controls experts at Oversight Systems for a 45-minute webinar to learn how real-time transaction inspection takes continuous controls monitoring to the next level with complete enterprise controls management:
* Continuous application and database configuration assessment
* Monitor & analyze transaction artifacts (data) as they are posted
* Analyze multi-application and multi-site environments
* Detect human and system errors and misuse
* Transaction-based anti-fraud control
posted by Brian Moran @ 8:45 AM