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SOX Be Damned: Registrations On Upswing
Self-Assessments: True Views On Controls
Court Checks SEC Reach On Fraud Charges
SEC’s Fair Funds System Falls Short Again
Nasdaq Seeks Cover; SEC 404 Powers; More
Fair Value Input Sought; Restatements Up
Trying Times: Activists Take To The Courts
Internal Control, IT Frameworks Converging
Comments Done, E-Proxy Proposal Proceeds
Comings And Goings In Risk, Compliance
Compliance, Governance Events In 2006
A record number of small companies filed with the SEC to raise money in the capital markets last year, undermining the popular argument that onerous regulations such as the Sarbanes-Oxley Act would scare them away. Nearly 900 small companies filed registration statements in 2005, more than double the 435 filed in 2003. What gives? Some experts say companies raise capital however they can, regardless of regulatory burden. “The thought is once they have the money, they can comply with the rules,” says BDO Seidman's Lee Graul. Others say SOX isn't the boogeyman critics claim. Details on the numbers and related articles are inside.
Graul
SOX Be Damned: Registrations On The Upswing
To understand how to monitor internal controls more effectively, some companies are turning to Corporate America’s favorite evaluation tool: the self-assessment survey. Chicago-based natural gas utility Peoples Energy, for example, circulates an 80-question survey to its top employees on SOX 404 issues. But how should assessment surveys be conducted? Some experts, like RSM McGladrey’s Dennis Keglovits, recommend outsourcing to guarantee honest responses. “It’s difficult for someone in-house to go to people and get an honest opinion, because there is always a concern that they are going to use the answers for other purposes,” he says. A look at self-assessment surveys, including a downloadable version of Peoples’ questionnaire, is inside.
Keglovits
Self-Assessments: True Views On Controls
A federal judge in New York recently became the first to squarely rule that the SEC cannot hold a corporate officer or director liable for assisting in securities fraud unless the person has “actual knowledge” of the wrongdoing. The judge, ruling in favor of a director at a small boxing promotions company who had been accused of condoning false reports to the SEC, said the Commission’s interpretation of its powers under the Private Securities Litigation Reform Act was overaggressive. Directors should feel relieved, says Fenwick & West partner Susan Muck, because “it’s very hard to prove actual knowledge of wrongdoing.” A text of the decision and related coverage is inside.
Muck
Court Checks SEC Reach On Fraud Charges
In a case that underscores the SEC’s trouble distributing legal settlements to aggrieved shareholders, the Commission recently asked that a $250 million settlement with Qwest Communications be disbursed by private agents, rather than the Fair Fund system created by the Sarbanes-Oxley Act. The SEC, which has been unable to return disgorged monies to shareholders in a timely manner, is looking to consolidate money currently held in the Fair Fund with a class action settlement. According to Haynes & Boone partner Nicholas Even, the linkage of SEC and civil settlement distributions means that class action defendants could see an increase in the number of claims filed by class members in civil settlements, “because there’s a bigger pot of money at the end of the day.” Details and related documents are inside.
Even
SEC’s Fair Funds System Falls Short Again
The Nasdaq Stock Market has filed a petition with the SEC to designate securities listed on the Nasdaq Capital Market as “covered securities” under the Securities Act of 1933, largely exempting businesses trading on that market from state regulations. The move is partly a response to the NYSE’s merger with Archipelago Holdings, which extended the Big Board’s covered status to Archipelago listers. Also in this week’s Filing Cabinet: Two key Republican lawmakers say the SEC does have the authority to grant exemptions to Section 404 of SOX; SEC Commissioner Roel Campos frets about e-proxies.
Campos
Nasdaq Seeks Cover; SEC 404 Powers; More
Accounting rulemakers want readers of financial statements to say whether they like what they’ve seen so far in fair value accounting, and where else fair value might be helpful in financial reporting. In a jointly released questionnaire, FASB and IASB acknowledge that fair value so far has focused on recognition and measurement of financial instruments, and less on disclosure requirements regarding past or projected changes in value. A copy of the questionnaire is inside this week’s Accounting Industry Update, as is news about the record number of restatements in 2005, and an AICPA proposal on auditor communications.
Fair Value Input Sought; Restatements Up; More
Like it or not, shareholder activism to exert control over corporate governance and board behavior is moving into the courtroom as never before, giving judges and juries unusual sway over how companies are run. This week, our resident institutional experts, Stephen Davis and Jon Lukomnik, survey the courthouse battles shaping governance today, from Nortel Networks to News Corp. According to Davis and Lukomnik, canny executives can take steps to avoid getting into plaintiff lawyers’ crosshairs. Inside, the duo offers some practical tips on how to work with investors, rather than go to court with them.
Trying Times: Activists Take To The Courts
A mid-level manager recently contacted Compliance Week, wondering how managers can apply enterprise-wide approaches to Sarbanes-Oxley compliance within their own departments or divisions. “While no one entity has yet to identify any deficiencies that would satisfy the corporate criteria for significant or material,” he wrote, “what guidance can be used to help them identify issues that should be reported?” This week, Jack Finley of Hudson Financial Solutions provides an answer.
Finley
Read Answer, Ask Questions In The Remediation Center
A vast expanse still divides the concerns of the CFO and CIO, but new efforts to combine the compliance challenges for financial reporting and IT are emerging—giving hope that companies finally can gain that holistic view of internal controls vital to successful enterprise risk management. The effort centers on new frameworks for IT controls, integrating them into the well-known COSO framework. “The goal,” says Gene Kim, CTO of software company Tripwire, “is to bring together the best minds in internal audit, external audit and IT, and say, ‘We all know what we want, so how do we get there?’ ” A look at the various IT control frameworks and how they interact with COSO is inside.
Kim
Internal Control, IT Frameworks Converging
The SEC’s proposal to allow online access to proxy statements—rather than paper copies mailed to investors—has garnered sharp criticism recently, much of it from doubters who say the plan will have “unanticipated and adverse effects” on certain investors like retirees. Not surprisingly, the most hostile comments came from companies whose legacy businesses would be negatively impacted by the rule. SEC staffers will review all the comments before drawing up the final rules, which could come as early as this summer. Details on the comments, as well as the proposal and related coverage, are inside.
Comments Done, E-Proxy Proposal Proceeds
On Mar. 30, Compliance Week will host a free Webcast with Paul Shlanta, general counsel and chief ethics and compliance officer at AGL Resources, a public utility in Atlanta. The session is the latest in a series of monthly Webcasts with governance and compliance officers at public companies. To register, listen to recent sessions, or to view the complete schedule of upcoming Webcasts, use the link below:
Shlanta
Click Here To Register For The Webcast
Women grabbed the governance and compliance headlines last week with numerous promotions and exits. At the $1 billion pharmaceutical Perrigo Company, Judy Brown was promoted from controller to chief accounting officer and chief financial officer. A former finance director at Whirlpool overseeing divisional SEC reporting, Brown had previously spent nine years at Ernst & Young. In other news, Barbara Hatcher was promoted to general counsel at Exide Technologies, and Anne Lloyd was elected treasurer of Martin Marietta Metals. Additional hirings, promotions, dismissals, and compliance software announcements are inside.
Brown
Comings And Goings In Risk, Compliance
Check inside for a comprehensive listing of compliance- and governance-related conferences, speeches and professional networking events to be held throughout the United States and overseas. Examples of events in March: a training session on internal audit for chief compliance officers; The Conference Board's 2006 Compensation Conference; an ERM strategy seminar in Alberta; and multiple courses around the U.S. on how to make Section 404 compliance sustainable.
Compliance, Governance Events In 2006
Date
Lead Article
Description
Mar. 7
SEC Gives Filers One-Time Break
The SEC is quietly allowing a one-time chance to correct cash flow classifications without restating.
Feb. 28
Uncertainty Remains On 404
The SEC special advisory committee on smaller public companies is unable to reach consensus on non-accelerated filer issues.
Feb. 21
Internal Audit
And SOX Woes
How internal audit departments can handle SOX-related issues that arise outside of Section 404 audits.
Feb. 14
Control Guidance Likely By April
COSO hopes to finish guidance for how small companies can grapple with internal controls testing within the next two months.
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