earnings

Earnings guidance comes back into vogue

Tue, 03 Jun 2008 06:59:59 -0400

Not too long ago it looked like earnings guidance from big companies was on its way to extinction--a victim of Reg FD as much as anything. The thinking back then was that it was helpful to investors, but opened the company up to some possible liability, not to mention aggressive questioning by analysts. But a recent survey by the National Investor Relations Institute, reported in cfo.com, has found that guidance is back in vogue; about two-thirds of respondents offer earnings guidance, up from 51 percent a year ago. For some companies, this may reflect the market turmoil that we've seen recently. Especially for financial firms, earnings estimates are tricky endeavors. The sense may be that guidance done right may be the best way to control what could be a troubling earnings message.

For more:
- here's the article

Cyber attacks a Sarbox issue?

Tue, 22 Apr 2008 06:59:59 -0400

We all are aware of the threat of a cyber attack. But is that threat really a Sarbanes-Oxley issue? One commentator at CSOonline.com raises the issue by pointing out a 10Q filed by Respironics, a medical device maker recently acquired by Royal Philips Electronics, that noted a cyber attack could cause a material difference in reported earnings vs. forward-looking earnings. That an attack would shut down business is a remote possibility, but a possibility nonetheless. The issue, of course, is what to do about it; What could function as a control? Not that you need any more motivation.

For more:
- here's the commentary

Search the web for: Respironics | Royal Philips Electronics

The mortgage mess and KPMG

Tue, 15 Apr 2008 06:59:59 -0400

We've noted that a damning report by an independent Justice Department had little good to say about KPMG's roles in the meltdown of New Century, which in many ways ignited the mortgage meltdown. But it is important to note that nowhere does the report indicate that KPMG helped manipulate earnings. Nor was was it accused of fraud. So what did it do? One issue, as the New York Times notes, is whether you can really fault the firm for work based on information available at the time. KPMG did flag some issues, like the use of simple spreadsheets to calculate securities holdings and the lack of a policy to calculate reserves. But these were deemed inconsequential. Some executives and directors were growing very uncomfortable. Still, this is another demerit for KPMG, if only from a PR perspective.

For more:
- here's the New York Times article

Unintended consequences watch: Oil industry reserves

Tue, 15 Apr 2008 06:59:59 -0400

Here's another one of the unintended consequences of Sarbanes-Oxley: Arena Resources is among the many oil and gas companies that hires experts to estimate how much oil they have in reserves. But in the Sarbox era, those third-party experts are said to have become more conservative in their estimates. The result is lower estimates that can really jack up depreciation costs, which are based in part on the amount of undeveloped reserves. In the case of Arena Resources, the change led to earnings that were 11 cents a share below expectations, according to Investors' Business Daily. Few would have predicted that. I'm sure you have your own examples.

For more:
- here's the article via CNNmoney.com

ALSO NOTED: Banks say no to Sarbox-like set of rules;

Tue, 15 Apr 2008 06:59:58 -0400

> Bank reform and IT issues. Article
> Building a home-grown auditing system with SQL server. Article
> Justice trends away from trials. Article
> Some background on Sarbanes and how companies have dealt with it. Article
> Banks say no to Sarbox-like set of rules. Article
> How long to restate earnings? Article
> Forensic tools aid e-discovery probes. Article
> How much D&O insurance do ex-directors need? Article
> Fraud related restatement decline. Article
> Justice trends away from trials. Article

And finally ... Wall Street refugees seek new careers in finance. Article

Similarities between Bear Stearns and Enron?

Tue, 25 Mar 2008 07:59:59 -0400

The notion that Bear Stearns and Enron both were felled by panicked runs has been floating around recently. It's a tough issue. Enron's fall was preceded by massive fraud (according to the Lay and Skilling verdicts anyway) to inflate earnings. When the castle started falling, investors panicked. In the case of Bear Stearns, there has been no suggestion of massive corporate fraud. Still, you have to wonder what good Sarbanes-Oxley is if it can't prevent these sorts of meltdowns. There seems to be a real disconnect when it comes to the risk Bear Stearns exposed itself to, but this is a problem that reaches beyond either case.

For more:
- here's an article from the Houston Chronicle

Related Articles:
Ghost of Enron still haunts Wall Street. Article
Bear Stearns: A timeline of decline. View timeline

Tough time to serve on an audit committee

Tue, 18 Mar 2008 07:59:59 -0400

We've noted that serving on an audit committee is not an easy gig right now, especially at a financial services firm. Auditors are feeling a certain amount of pressure to take a hard line on mortgage-related assets. In December, the PCAOB issued an alert to auditors on how to calculate subprime losses. Many think that audit committees will feel the need to go overboard in writing down assets. Investors' Business Daily suggests the advent of FAS 157 may lead more companies to look unfavorably on internal models and suggest draconian writedowns. AIG is an example. Last month, it reported the value of its CDSs fell $4.88 billion in October and November, a figure much larger than its previous forecast; PricewaterhouseCoopers found a "material weakness" in its controls.

For more:
- here's the article via CNNmoney.com

Related Articles:
Audit committees wrestle with new powers. Article
Bank showdown with auditors looming. Article
FAS 157 wreaks havoc with bank earnings. Article

Can iPod users blame Sarbox for rental woes?

Tue, 05 Feb 2008 06:59:59 -0500

There was something of tempest in the Apple universe when it became know that fifth-generation iPods won't work with the new iTunes video rental service. Users are none too pleased. The speculation has been heavy. Some think it's a digital rights management issue. Some discern a "planned obsolescence" attempt to force upgrades. Some think it has to do with the fact that the 5G has an analog hole that might make copying easier. But the real reason may be Sarbanes Oxley--yet another of the proverbial unintended consequences. According to Infinite Loop, Apple says that Sarbox "would require it to restate earnings for previously purchased products if it were to offer any major feature enhancements." That's one reason why it is trending toward a subscription model.

For more:
- here's the article

ALSO NOTED: In biotech, lots of pessimism about compliance; Sarbox can be an earnings driver;

Tue, 29 Jan 2008 06:59:58 -0500

> Rogue employee hit bank; are you protected from such employees? Article

> XBRL and higher audit fees. Article

> Michael Oxley joins APCO. Article

> Sarbox can be an earnings driver. Article

> Foreign companies still trade in U.S.-via Pink Sheets. Article

> In biotech, lots of pessimism about compliance. Survey

> These days, nonprofit directors are expected to give. Article

And finally ... The richest people you've never heard of. Article

The costs of restatements

Tue, 22 Jan 2008 06:59:59 -0500

For large companies, financial restatements have become less of an issue. As companies have moved down the Sarbanes Oxley learning curve, they have reduced mistakes greatly. But the issue looks large for smaller companies, who are still more likely to restate earnings. Compliance with 404 may boost the number of restatements. A sobering thought, especially as the credit crunch lingers, is that restatements often translate into more expensive loans. Financial Week notes a study by professors John Graham of Duke University, Si Li of Wilfred Laurier University and Jiaping Qiu of McMaster University, that found that loan spreads for companies that issued restatements paid about 210 basis points over LIBOR compared with an average 141. When restatements were due to fraud, it was 245 points. The study also found that these loans also carry more stringent covenants, higher collateral requirements and shorter terms. There's an obvious lesson here.

For more:
- here's the Financial Week article