capital markets

ALSO NOTED: Stumped for more ethics training?; Deloitte launches Asia forensics team;

Tue, 11 Dec 2007 06:59:58 -0500

> Conrad Black gets 6 1/2 years. Article
> Survey: Nonprofits embrace Sarbanes Oxley. Article
> Conflicts of interest at exec pay consultants? Article
> Committee on Capital Markets Regulation issues report on competitiveness. Article
> Foreign companies flee U.S. markets. Article
> Stumped for more ethics training? Release
> Scandals ensnare HR execs. Article
> In U.K., Companies Act strikes many as kin to Sarbanes Oxley. Article
> Deloitte launches Asia forensics team. Article
> PCAOB to rely on overseas counterparts for audits? Article
> CFO optimism slumps significantly. Article
> Year-end games with working capital? Video

IT Watch:
> PCI driving better network security? Article

And finally ... CFOs: more employees raid 401(k)s. Article

Sarbox fueling acquisitions of overseas companies?

Tue, 25 Sep 2007 06:59:59 -0400

Tomas Jandik, associate professor of finance at the University of Arkansas, has looked at Sarbanes Oxley from a foreign company perspective and found that the law may be one factor boosting acquisitions of overseas company. The logic is clear. Foreign companies that want access to the U.S. capital markets for obvious reasons have been stymied somewhat by Sarbox. But that might have led to more of them being exposed to the U.S. markets via cross-border acquisitions. The target company essentially gains the benefits that stem from being subject to U.S. regulations without having to bear the full cost. An interesting concept. This is interesting at a time when overseas assets are expensive.

For more:
- here's the Newswise article

What exactly is material from a Sarbox perspective?

Mon, 25 Jun 2007 20:01:39 -0400

One of the big complaints about AS2 was about the way it defined materiality. It's "more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected" resulted in rigidly conservative approaches by audit firms. One that has been disavowed now. Many were expecting AS5 to weigh on this and provide just a bit more guidance. They got their wish to an extent. The "remote" language is now a "reasonable possibility." But the issue for some is how to define materiality in terms of a percent of pre-tax earnings. That has never been defined, and some find that vexing. So what to do. One might just adopt the long standing convention of assuming that 5 percent is the magic number. This was proposed by the Committee on Capital Markets Regulations. In the absence of specific guidance, it's as good as any other number.

- here's an article from CFO.com

PCAOB not going quietly

Mon, 19 Feb 2007 19:01:39 -0500

The Public Company Accounting Oversight Board has been much maligned recently. The constitutional attacks, the fiasco of AS2, the semi-confusion over AS5 are big problems. But the board is not going quietly. In fact, Charles Niemeier, a member of the board, has warned that rolling back Sarbox might damage the reputation and competitiveness of U.S. markets, which raises a damned-if-you-do or don't debate. Perhaps Sarbox is just right. Now that's a position that won't fly. Obviously, the answer is to tinker in a way that doesn't affect the competitiveness of the capital markets but keeps investor protections strong. That's hard to do, but one could make a case where that is exactly what is happening in the long arduous process.

For more:
- here's a CFO.com article

What to make of the SEC's Sarbox recommendations

Mon, 18 Dec 2006 19:01:39 -0500

The SEC's Sarbox proposals last week contained few surprises. Broadly speaking, the SEC indicated its support of a new compliance philosophy, one that encourages auditors to focus on areas that are likely to result in "material" deficiencies instead of forcing auditors into a cover-your-butt mentality that views all control issues equally (here's a funny point on "coffee procurement"). One issue is how to define "material." The SEC did not provide a definition. But perhaps one, even a loose one, will bubble forth from the soon-to-arrive rewrite of AS2 by the PCAOB. The recent report from the Committee on Capital Markets Regulations proposed something of a 5 percent of pre-tax income rule, which would suffice. All in all, the details will be key, but the high-level view looks good. While the SEC voted to issue guidance, we'll need to see what the guidance looks like. One improvement: The SEC is proposing that compliance with the guidance constitutes compliance with the law. In addition, the SEC will require only one audit opinion, on the effectiveness of controls. But again, this will require an opinion on management's assessment. So the benefits may be elusive. As for small companies, there's a lot to think through (see next item).

For more:
- here's an article from CFO.com
- see the SEC's release

What to make of the vaunted report?

Mon, 04 Dec 2006 19:01:39 -0500

Well, the "Interim Report of the Committee on Capital Markets Regulations" has already come and gone. With somewhat predictable conclusions and reactions. My take is that if it is remembered for much longer, it will likely be because of its recommendations for capital markets and governance, not Sarbox. Which is not to say it didn't weigh in. It aims for a redraft of AS2. The report did the world a favor by suggesting a threshold of five percent of pre-tax income. Which I expect will find its way into the coming SEC rules. It also wants to change the probability threshold to "reasonably possible," which is more realistic than the "more than remote likelihood" standard now in place. Both these changes are expected to happen. The report also called for multi-year rotational testing of some procedures, which seems novel and would no doubt be welcomed. Small company reform and reporting reform were also listed, though nothing earth shattering. I think much more heat will be generated once the SEC and PCAOB make the new rules known. For now, the two are locked in discussions that have been going on for two weeks.

- For the report, click here

More on the politics of Sarbox

Mon, 27 Nov 2006 19:01:39 -0500

Republicans and Democrats agree that Sarbox is in need of reform. But there is a fine line between relief for Corporate America and a disregard for shareholders and the public. The incoming chairman of the Senate Banking Committee will be facing these issues very soon. Chris Dodd, the Democrat from Connecticut, has already signaled that he was satisfied with Sarbanes-Oxley. Satisfied? That is not something we have heard from Democrats or Republicans. Most are firmly on the big reform bandwagon. But Dodd has so far not agreed with this crowd and is speaking up for shareholders and transparency. I find this oddly refreshing. At least he's willing to be different. In the end, this minority view likely will not prevail given the current mood. But it will be interesting to see what he says as the reform effort proceeds.

For more:
- read this New York Times article

PLUS: Newly elected New York governor Eliot Spitzer is suspicious of attempts to rollback Sarbox. Article

ALSO: The Committee on Capital Markets Regulation, formed by Henry Paulson, will release a study this week that will promote Sarbox reform. Article

The politics of Sarbanes-Oxley

Mon, 30 Oct 2006 19:01:39 -0500

Sarbox isn't exactly a political issue. But you get the sense that there is a fairly strong movement afoot to ensure the law evolves in ways that are slightly more favorable to companies. That could be good news for you, but the devil will surely be in the details. For the moment, President Bush has gone on record that Sarbox could use some fine tuning. SEC Chairman Chris Cox is likely of a similar mind; it will be interesting to see the guidance proposals that will be discussed in December. New Treasury Secretary Henry Paulson has been something of an attack dog on the perils of the law, and Dick Cheney has joined the battle. Here's more on the work of the Committee on Capital Markets Regulation. Some conservative think tanks are pressing for a rollback. There could be some unintended consequences. Many of you have achieved a steady state regarding compliance. This could tip the ship, resulting in more costs and new processes in the name of simplicity. We'll have to reserve judgment for the moment.

For more on the movement to rollback Sarbox:
- read this New York Times article

Can the Committee succeed in reforming law?

Mon, 18 Sep 2006 20:01:39 -0400

Will the Committee on Capital Markets Regulation--which boasts an impressive roster of luminaries--be able to do anything about Sarbox? It's too early to tell, but the fact that Henry Paulson supports the group is a sign that the committee should not be taken lightly. The committee has undertaken a study to explore the competitiveness of U.S. companies in light of the law. It will issue a report by the end of November with a focus on Section 404. The director of the group is Harvard law professor Hal Scott. This is yet another sign of Corporate America fighting the law. It suggests that some tinkering to the law will be forthcoming, which means you'll have that much more to keep up with. The proposals will be interesting; the issue is whether they will offer changes that retain the bite of 404 or will they water the section down thoroughly. At this point, the debate will likely turn on details.

For more on the committee:
- Here's an AP article
- Here's an article from The Economist
For more on Paulson:
- Here's an article from The Times

Avoiding Sarbox: worth the reputation hit?

Mon, 26 Jun 2006 20:01:36 -0400

We've noted the London's Stock Exchange's AIM (Alternative Investment Market), whose rising popularity seems to be at the expense of the NASDAQ. By one measure, raising $50 million on NASDAQ costs roughly $5 million, thanks in part to Sarbox. Raising the same amount via AIM would cost about $3.5 million. Still, there are after-market concerns to be weighed. Quality is certainly an issue. It's fair to say that if AIM goes too far in its bid to attract companies, it runs the risk of developing an almost Pink Sheets sort of reputation. Depth of trading and liquidity must also be factored in. So, the calculus is really complex.

> Here's an article from The Daily Telegraph.
> Not even AIM, however, is immune to the economy. Article
> Speaking of the Pink Sheets, does it stand to get a boost from more companies choosing to delist? One company's story.

PLUS: This is a theme we hit often: the relative unattractiveness of the U.S.
capital markets in the eyes of foreign firms. The latest news on the subject is that the Bank of China says it will not list here, in part due to Sarbox concerns. Article