Investors used to view a company’s appointment of new auditors with suspicion. Did it signal a disagreement between management and the old accountants that could cast doubt on the integrity of the financial statements? Companies never admitted as much, but investors learned to be skeptical; to some, a change in auditor sent a clear signal: […]
O'Hara Neil
Posted inInternal Controls
How Companies Go From Deficiencies To Weaknesses
Section 404 of The Sarbanes-Oxley Act of 2002 obliges companies to report only material weaknesses in internal controls over financial reporting, not significant deficiencies. However, there’s a catch, and it can be found in the standard used by accounting firms to audit a company’s internal control over financial reporting, as promulgated by the Public Company […]
Posted inInternal Controls
Bad Bets Trip Material Weakness Under SOX Section 404
Racetrack operator Magna Entertainment backed the wrong horses when it chose third parties to handle its pari-mutuel betting. When two of its three totalisator service providers, Scientific Games Racing and United Tote, failed to deliver Type II SAS 70 reports despite what its 10-K called “management’s timely requests,” Magna had to report a material weakness […]
Posted inBoards & Shareholders
Under-Exposure: Should Institutional Investors Bare All?
The ever-increasing burden of corporate disclosure recently prompted John Sunderland, chairman of Cadbury Schweppes and president of the Confederation of British Industry, to call for equivalent transparency from institutional investors. Sunderland In a speech delivered in late April to the Investor Relations Society in London, Sunderland criticized institutional investors in general, but saved his sharpest […]
Posted inData Privacy
Compliance From Below: Cos. Enforce Own Standards
When Congress passes laws like The Sarbanes-Oxley Act, companies have little choice but to comply, even if the regulations impose significant incremental business costs. Legislators legislate—those affected must go along or face sanctions. The only saving grace is the fact that the legislative process provides an opportunity for companies to lobby on behalf of their […]
Posted inInternal Controls
An Analysis Of The (Non) Impact Of SOX 404
In what may be the great non-event of 2005, most companies that report material weaknesses in their internal controls under Section 404 of the Sarbanes-Oxley Act are getting a pass from investors. MARKET REACTION Charted below are stock market reactions to the 18 companies that disclosed “material weaknesses” in their internal controls during the month […]
Posted inFrom the Archive
Rhymes With Dixie: ‘WKSI’ Proposal Flying Off The Shelf
When the SEC tried to overhaul the 1933 Securities Act five years ago, critics charged that the proposed reforms went too far and would undermine investor protection. The massive 1998 proposal—now known as the “aircraft carrier” reform initiatives—eventually sank under its own weight, leaving the procedures for securities offerings stuck in a 70-year-old time warp. […]
Posted inBoards & Shareholders
Delaware Court Decision Raises Bar For Expert Directors
Delaware’s Chancery Court set the corporate directors’ grapevine abuzz in May when it found several directors of a company called Emerging Communications personally liable for approving a merger with the company’s controlling stockholder at an unfair price. The plight of Salvatore Muoio, an investment banker with long experience in the telecommunications industry, has drawn particular […]
Posted inFrom the Archive
The 8-K Conundrum: Communication vs. Compliance
Companies who rely on form 8-K to satisfy the SEC’s new disclosure rules may miss an opportunity get their message across to shareholders. Eileen Morcos-Rauchberg, vice president of financial communications at Hill & Knowlton’s Los Angeles office recommends companies look beyond the letter of the law. “Step back and ask yourself how would prudent investors […]
Posted inFrom the Archive
New 8-K Disclosures Include Some Comp. Agreements
According to securities experts, the SEC’s instructions for the revised Form 8-K are such a travesty of plain English that companies may not realize the new rules capture some executive compensation agreements. The recent amendments to Form 8-K, which were effective Aug. 23, expanded the number and type of events required to be reported. The […]