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Monday, July 31, 2006

Four years later, Sarbanes-Oxley still an adjustment

Four years after the passage of the Sarbanes-Oxley corporate reforms, companies have begrudgingly adjusted to the law's hefty internal control requirements, but small companies are still worried about how much it will cost to comply with the law.

Companies of all sizes have complained that the law's internal control section, which requires companies' outside auditors to say publicly whether a company's controls are adequate, is too expensive.

Small companies, those with less than $75 million in market capitalization, will likely have to comply next year, SEC Chairman Christopher Cox has said.

That comes as a relief for some investors as fraud is often more likely to occur at smaller companies. But smaller companies are worried the law's onerous control requirements, known as section 404, will take a big chunk out of profits and their ability to invest in their businesses.

posted by Brian Moran @ 8:49 AM   0 comments

Friday, July 28, 2006

Oversight Systems Survey: Financial Executives Support SEC's New Ruling on the Reporting of Executive Compensation

ATLANTA (July 28, 2006) - A majority of financial executives endorse the Securities and Exchange Commission's new requirements for the full disclosure of executive compensation, according to a survey from Oversight Systems.

According to the survey of 230 financial executives, 58 percent say public companies must explicitly report the dollar value of all non-cash and non-stock compensation and benefits greater than $10,000, and 56 percent say public companies must explicitly report the dollar value of stock grants and potential future stock grants.

The complete Oversight Systems Financial Executive Report on Risk Management is available for download at

"This SEC ruling is the equivalent of Sarbanes-Oxley for executive compensation and stock option grants," said Patrick Taylor, CEO of Oversight Systems. "With the recent headlines about options backdating scandals, financial executives clearly are in favor of full disclosure of executive compensation. The new requirements for reporting stock-option grant information will drive companies to closely monitor and scrutinize their controls over options-based compensation."

posted by Brian Moran @ 9:32 AM   0 comments

Wednesday, July 26, 2006

Time running out for Sarbanes-Oxley compliance

Like it or not, the clock is ticking for non-US companies that need to be compliant to one of the most talked-about elements of the Sarbanes-Oxley (SOX) Act established in 2002.

With the passing of the critical 15 July milestone for foreign companies listed in the US to be compliant to Section 404 under SOX, they now have anything from a few weeks to nearly a year to meet the regulations or face the consequences. Under Section 404, publicly traded companies must have internal policies and controls in place to protect, document and process information for financial reporting.

The law requires affected businesses to comply by the end of their respective financial year after 15 July, 2006. The date is an extension of the original deadline of 15 July, 2005, set by the US Securities and Exchange Commission (SEC). Public US companies were required to be compliant in November 2004.

posted by Brian Moran @ 10:34 AM   0 comments

Tuesday, July 25, 2006

Backdating Charges Put Companies On Notice

Options dating may not make the front page of the NY Times or appear on Dateline, but the Feds could easily make this into the next Sarbanes-Oxley. By that, I mean you're guilty (not compliant) until you can prove that you have effective controls over equity awards. This is from Compliance Week. You'll have to pay for the full article.

With the first criminal and civil charges now filed against executives accused of manipulating the timing of stock option grants, federal prosecutors and regulators have sent a stern message to companies ensnared in backdating investigations: Clean up your act, or we'll do it for you.

Last Thursday the Securities and Exchange Commission, the FBI and the U.S. attorney in San Francisco all filed charges against two former executives at Brocade Communications Systems, a data storage company in California that allegedly hid $750 million in compensation costs by altering the dates of stock option grants. Indicted were Gregory Reyes, Brocade's former chief executive, and Stephanie Jensen, the company’s former vice president of human resources, each on one count of criminal securities fraud. The two also face civil charges with the SEC, as does Brocade’s former chief financial officer, Antonio Canova.

Experts say the charges make clear that the backdating scandal will mushroom further still. Nearly 60 companies are under investigation by the SEC or federal prosecutors, or are managing their own internal probes. How many more companies might join the crowd is anyone’s guess.

“The Brocade action sends the loud and clear message that the SEC and Justice intend to follow through in their numerous options backdating investigations by prosecuting corporate executives who knowingly engaged in misleading backdating practices,” says Spencer Barasch, former associate director in the SEC’s Fort Worth, Texas, office, and now a partner at Andrews Kurth.

posted by Brian Moran @ 8:57 AM   1 comments

Monday, July 24, 2006

Oversight Systems Partners with Spectrum Oversight Advisors for the Healthcare Market

Oversight's Continuous Monitoring Platform Automates Spectrum Oversight's Analysis to Correct & Eliminate Errors in Procurement & Contract Management

ATLANTA (July 24, 2006) – Oversight Systems Inc., the leading provider of continuous monitoring solutions, today announced it partnership with Spectrum Oversight Advisors, LLC to serve the healthcare market with continuous monitoring solutions that identify, correct and prevent transaction-level errors in financial processes.

"With blue chip healthcare clients and a track record of success, Spectrum Oversight Advisors is the perfect partner for us to introduce the benefits of continuous monitoring and real-time transaction inspection to the healthcare industry," Oversight Systems Vice President of Business Development Chris Rossie said.

Spectrum Oversight Advisors, a national management and services firm focused on healthcare providers, will incorporate the Oversight Systems continuous monitoring platform into its procurement and contract management service offerings. Spectrum's service offering now combines their healthcare expertise with Oversight's advanced reasoning engine to enhance the analysis of historical and real-time transactions to ensure contract compliance and eliminate transaction errors, such as incorrect invoicing, improper pricing and unrealized discounts and rebates.

"Spectrum Oversight Advisors conducted an intensive search to find the right technology partner that could compliment our service offering. We intend to jointly develop tools that will incorporate our methodology and industry expertise into a powerful application that will provide our clients with information that will continuously monitor and improve financial performance," said James K. Lawrence, Senior Partner and CEO of Spectrum Oversight Advisors. "Oversight Systems offered the most advanced platform for continuous monitoring that allows us to easily encode Spectrum’s proprietary analysis while also empowering non-technical finance managers to eliminate transaction-level errors from their day-to-day processes."

posted by Brian Moran @ 8:56 AM   0 comments

Friday, July 21, 2006

Next from Sarbox: Industry Exemptions

Here's an interesting idea. Great for discussion, but not much of a reality.

Will the next round of public comment call for sector-specific immunity from Section 404?

Dig up evidence of document retention procedures for auditors, or work on a viable treatment for prostate cancer. Print out screen shots that support testing of general computer controls, or answer an important phone call from a high net worth client. The choice is obvious for biotech and community bank executives who contend that meeting the Sarbanes-Oxley Act's Section 404 requirements are diverting money and attention away from conducting business in a more efficient manner.

The evolution of the argument, at least for the next round of public comment on Section 404, may be a call for industry-specific exemptions. To be sure, if the neither the Securities and the Exchange Commission or Congress see clear to providing small company immunity, then industry lobbyist may take a different tack, this time aimed at convincing regulators and lawmakers that sector-specific 404 exceptions are needed.

posted by Brian Moran @ 10:36 AM   0 comments

Thursday, July 20, 2006

Take off the SOX

Corporate America largely regards the 2002 Sarbanes-Oxley accounting law as a settled matter. So, it's telling that the pressure keeps mounting to relieve smaller public companies of the evident burdens the law places upon them.

"I never intended to have these guys comply with what General Motors complies with," former Pennsylvania lawmaker and current head of the Biotechnology Industry Organization Jim Greenwood told us at an editorial board meeting this month as he motioned to two local biotech executives who accompanied him. Both men said the law's one-size-fits-all reporting requirements (the dreaded Section 404) unduly burden companies like their own. As a proportion of revenues, compliance costs smaller firms several times what it costs larger ones -- among whom the real targets lurked, not among the mom and pops.

One of them, Gary Lessing, chief financial officer of cancer-drug developer Avalon Pharmaceuticals of Germantown, reports that nearly 2 percent of his company's $30 million in expenditures last year were related to Sarbanes-Oxley. The company, founded in 1999, has no sales as it awaits its oncological discoveries. That's typical in biotech, where products take years to reach the market. "Every dollar comes out of spending for novel therapeutics on cancer," he said.

posted by Brian Moran @ 9:31 AM   0 comments

Wednesday, July 19, 2006

Oversight Systems to Host Web Conference on Risk-Based Controls to Effectively Manage & Prove Segregation of Duties for Sarbanes-Oxley Compliance

Automate Compliance & Avoid Redeploying Your ERP System with Risk-Based Controls

ATLANTA (June 19, 2006) – Oversight Systems Inc., the leading provider of automated continuous monitoring solutions for real-time transaction inspection, will host a web conference entitled Segregation of Duties and Risk-Based Controls. The webcast will be held Wednesday, Aug. 2, at 2 p.m. (EDT) and will feature Oversight Vice President of Business Development Chris Rossie.

The 45-minute webinar will highlight the challenges of managing segregation of duties, build a case for risk-based management of segregation of duties, and discuss automated solutions for continuous monitoring that deliver affordable and effective Sarbanes-Oxley compliance.

"Real-world compliance demands risk-based controls," Rossie said. "Rather than spending millions of dollars to address low-risk control weaknesses, risk-based segregation of duties management guides your company to ensure financial integrity and meet your auditor’s demands without adding to your already excessive compliance costs."

Join the controls experts at Oversight Systems to learn how continuous monitoring drives risk-based controls to:

* Identify SoD conflicts across heterogeneous financial systems
* Analyze all historical transactions to determine if SoDs were ever violated
* Prioritize corrective actions based on occurrences of SoD violations
* Automate mitigating controls for remaining SoD conflicts
* Continuously monitor privileged users
* Prove SoD compliance with automated documentation and case management.

To register for the webcast, please call 404.920.2030 or visit:

posted by Brian Moran @ 8:50 AM   0 comments

Monday, July 17, 2006

Disclosure Adds Shareholder Value: Lessons from Sarbanes-Oxley's Predecessor

This opinion editorial appears in today's issue of Stanford Knowledgebase, the monthly electronic newsletter published by the Stanford Graduate School of Business,

The convictions of the late Kenneth Lay and Jeffrey Skilling on charges of fraud and conspiracy in the Enron trial are important reminders that corporate executives don't always operate in the best interests of shareholders. A natural impulse is to turn to government to devise regulations to force executives to operate the corporations they manage in the interests of shareholders and the employees. But what do we know about the success of these regulations?

o understand whether shareholders value government regulation in financial markets, we recently completed an analysis of the effects of the 1964 Securities Acts Amendments. The 1964 Amendments extended the disclosure requirements that have applied to firms traded on the New York and American Stock Exchanges (NYSE and AMEX) since 1934 to large over-the-counter (OTC, now known as NASDAQ) firms. The relatively lax disclosure requirements for OTC firms prior to 1964 meant that shareholders were generally on their own in obtaining reliable information on the functioning of their companies and in devising methods to penalize management for failures to maximize shareholder value.

The 1964 Amendments dramatically changed the disclosure requirements for large OTC firms. Specifically, large OTC firms were newly required to: (1) register with the Securities and Exchange Commission (SEC); (2) provide regular updates on their financial position, such as audited balance sheets and income statements; (3) issue detailed proxy statements to shareholders; and (4) report on insider holdings and trades. Our study tested how the 1964 Amendments affected the stock returns and operating performance of the newly covered OTC firms, relative to unaffected NYSE and AMEX firms.

We found that OTC firms that were newly required to begin complying with all four forms of mandatory disclosure had substantial one-time gains in stock value relative to comparable NYSE/AMEX firms that were unaffected by the legislation. Our estimates of the higher returns range from 11.5 percent to 22.1 percent and imply that the 1964 Amendments created $3.2 billion to $6.2 billion of value for shareholders of the OTC firms we studied.

posted by Brian Moran @ 9:20 AM   0 comments

Friday, July 14, 2006

Sarbanes-Oxley Goes Global

Europe has been experiencing an outbreak of Sarbanes-Oxley panic. As exchanges merge and more trading moves online, it's not always clear who should have regulatory power. The head of Britain's Financial Services Authority, Callum McCarthy, ignited controversy in June when he suggested that British firms might be subject to U.S. regulation if Nasdaq acquired the London Stock Exchange.

The New York-based exchange has built a 25% ownership stake in its British rival. "That has just sent a shiver down the collective spine of Europe," says Jim Kim, editor of "European companies, especially, really are just chafing at the mere prospect that they will someday have to comply with Sarbanes-Oxley."

For those companies listed in the U.S., however, the threat is already real. Most foreign firms have fiscal years ending Dec. 31, and they don't have to submit their compliance reports for another six months after that. Nevertheless, preparation began two years ago at many companies, according to Robert Lipstein, a partner at auditing firm KPMG.

posted by Brian Moran @ 9:43 AM   0 comments

Thursday, July 13, 2006

SEC seeks ideas on Sarbanes-Oxley controls

WASHINGTON, July 11 (Reuters) - U.S. securities regulators on Tuesday moved forward with a promised review of controversial corporate reform accounting rules by asking investors, companies and others for ideas to guide public companies in complying with the law.

Companies of all sizes have complained about the costs of implementing some of the Sarbanes-Oxley law requirements, especially those related to internal controls over financial reporting, also known as Section 404. The stricter requirements were adopted by Congress after shareholders were hurt by high-profile corporate scandals involving Enron Corp. and Worldcom.

To reduce excessive audit procedures -- which many companies have blamed for higher costs -- the SEC said it plans to issue guidance that focuses on "identifying risks to reliable financial reporting." That might include such things as clearly defining the terms "material weakness" and "significant deficiency" and laying out some fraud controls, it said.

posted by Brian Moran @ 2:41 PM   0 comments

Wednesday, July 12, 2006

SEC Moves Forward on Sarbanes-Oxley 404 Improvements

Washington, D.C., July 11, 2006 - The Securities and Exchange Commission, in another step toward improving the implementation of the Sarbanes-Oxley investor protection law, today published a Concept Release as a prelude to its forthcoming guidance for management in assessing a company's internal controls for financial reporting.

Following its May 10, 2006, Roundtable devoted to Sarbanes-Oxley Section 404 implementation issues, the Commission issued a roadmap for improvements entitled "Next Steps for Sarbanes-Oxley Implementation" (SEC Press Release 2006-75, May 17, 2006). Today's issuance of the Concept Release is one of the milestones on that roadmap, and it brings the SEC one step closer to issuing guidance for management that has been lacking since the law was enacted in 2002.

At the Roundtable, the Commission learned from participants that while Section 404 has produced benefits, its implementation has been unduly costly. The Commission also received specific feedback about issues that remain to be addressed, and actions that the SEC and the Public Company Accounting Oversight Board could take to make the internal control assessment and auditing more efficient and more effective. A separate Advisory Committee on Smaller Public Companies reported, following a year-long study, that companies which have not yet undertaken the process have special concerns with both costs and procedures. The planned guidance for management which is the subject of the Concept Release is intended to assist in dealing with all of these issues and concerns.

posted by Brian Moran @ 3:44 PM   0 comments

Risk-Based SoD Management with Continuous Monitoring Lowers Compliance Costs

Like controls documentation and access provisioning in previous years, segregation of duties management is part of this year's initiative for auditors and their review of your internal controls.

Unfortunately, this can escalate the already excessive costs of Sarbanes-Oxley compliance if companies continue to manage and test their internal controls like they have in the first years under Section 404 of the Enron-inspired law. Segregation of duties in the real world demands top-down management that eliminates financial risk without adding overhead costs.

This article highlights the challenges to managing segregation of duties, builds a case for risk-based SoD management, and discusses technology solutions for continuous monitoring that deliver affordable and effective SOX compliance.

posted by Brian Moran @ 3:04 PM   0 comments

Friday, July 07, 2006

Nonprofits, Governement Enitities Wearing Their Own SOX - July 07, 2006 - Four years after its enactment, the Sarbanes-Oxley (SOX) accounting reform law, designed primarily for public company reporting, is having major impact on the nonprofit sector and on state and local governments.

“Sarbanes-Oxley’s impact has been far broader than its supporters intended or envisioned,” James K. Gentry, a professor and former dean of the School of Journalism and Mass Communications at the University of Kansas, writes in a posting on the Web site. The impact has been especially pronounced on nonprofits.

His report notes that it is not unusual for nonprofits, particularly one with very large budgets, to be using “a number of practices that mirror those used by public companies,”

posted by Brian Moran @ 12:05 PM   0 comments

Thursday, July 06, 2006

A Board With Its Back To The Wall

Why does United-Health Group (UNH ) CEO William W. McGuire remain in his job? It's a question that has baffled corporate governance experts since The Wall Street Journal reported in March that UnitedHealth and other companies might have backdated options grants for officers to boost compensation. In the post-Sarbanes-Oxley world, boards are acting on the first whiffs of legal or ethical lapses. Already 15 executives and directors from the 50 or so companies under investigation for backdating have been forced out. Heck, Raytheon's board even docked CEO William H. Swanson a million bucks in May for plagiarizing passages of his book -- not even a criminal offense.

Yet despite shareholder suits, federal and state investigations, a possible earnings restatement, and the disappearance of some $17 billion in market value, UnitedHealth's McGuire remains in his post, sitting on unrealized options gains now worth around $1 billion.

Paul Hodgson, senior research associate at the Corporate Library, a governance tracker, blames a weak board that remains too deferential to its dynamic CEO. But directors have other reasons to let McGuire stay. For one, given his strong leadership -- shares soared from a split-adjusted $1 when he began in early 1991 to a high of $64 in December -- investors aren't pressing for his ouster. "No one wants to see him dismissed," says David Dreman, chairman and chief investment officer of Dreman Value Management, which recently bought 781,000 shares.

posted by Brian Moran @ 1:42 PM   0 comments


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