issuers

Materiality concept still evolving

Jim Kim — Thu, 17 Jul 2008 08:41:08 -0400

Recall that AS5 changed the concept of the "likelihood" of material misstatement, adopting the phrase "more than remote" likelihood from "reasonable possibility." That was part of a larger effort to make Sarbanes-Oxley more principles-oriented. In that vein, the larger accounting concept of material weakness is also morphing. An SEC advisory group is looking into the issue. According to CFO.com, the group will stop short of changing the existing guidance, but will issue complementary guidance that will push auditors and issuers to embrace qualitative factors, not just quantitative factors, from the perspective of a "reasonable investor." The hope is to inject judgment into the picture, not more rules. This is a tricky area. My sense is that this will not radically alter the status quo. True, restatements are rising. But most of this is at the smaller company level, where the Sarbanes-Oxley process has yet to take full effect. Restatements by larger filers have fallen off impressively.

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

ALSO NOTED: Another Sarbox boom: executive pay consultants; benefits of XBRL tagging?;

Tue, 22 Apr 2008 06:59:58 -0400

> Firm holds mock security breach. Article
> Demand for information security specialists strong. Article
> Sarbox for muni issuers? Article
> SaaS Wizard and compliance apps. Article
> SEC wants another $1 billion. Article
> Another Sarbox boom: Executive pay consultants. Article
> SEC aims to move XBRL ahead. Article
> Study: Limited benefits to XBRL tagging. Article

And finally ... Bad reunion: Family member steals non-public information to make trades. Article

Mortgage crisis to lead to Sarbox-like rules

Tue, 02 Oct 2007 06:59:59 -0400

The on-going crunch in the credit markets has been riveting. You can read all about it over on FierceFinance. According to some, the villians in all this are the credit ratings agencies. The notion of reform, for better or worse, is in the air, as it always seems to be with these firms. People are now talking about better disclosure of methodologies and relationships from these agencies, something like a mini-Sabanes Oxley. The thought that independent auditors need to get involved has also cropped up. And then there's the notion that audit committees at issuers ought to oversee the rating agency relationship. It's unclear how much of this will come to pass. Probably not much. But the language and proposals all reflect Sarbanes Oxley.

For more:
- here's background from the Wall Street Journal

Related articles:
- Credit-rating agency reform in the works
- Credit rating agencies in harsh spotlight
- More criticism of credit rating agencies

Editor's Corner: More Compliance Guidance

Wed, 15 Aug 2007 15:47:31 -0400

The PCAOB and the SEC say they will soon release more Sarbanes-Oxley compliance guidance, optimized mainly for smaller issuers. The twist: this round of guidance will be in plain-English. At least that's what they say. It will be very interesting to read how they grapple with some terms, such as materiality. The documents will be preceded by versions for public comment. The goal is to provide interpretations and examples that should help issuers control their costs. Of course, for small companies, the auditor's internal control requirement doesn't kick in until 2009. -Jim Kim

Big-think policy debates still heating up

Mon, 16 Apr 2007 20:01:39 -0400

The big-think debate about Sarbanes-Oxley just isn't going away. Many commentators still cite Sarbox as the key reason the domestic IPO market is flagging. But it is much more complex than that. It's fair to say that the law may have an effect, but there are many factors that come into play. We'll see how all this plays out. The recent strength of the U.S. market is a hopeful sign. Most interestingly, we've seen a resurgence in deals by foreign companies. So far this year, about 20 percent of all deals have been from foreign issuers, compared with about 16 percent a year ago. True, the NYSE has moved its unit that markets to foreign companies to Paris. And its push abroad may be driven by Sarbox. But the trend globally is toward more Sarbox-like regulations. I hold that the U.S. market may emerge stronger than ever.

For more on the state of the IPO market:
- read this Washington Post article

Update: The twilight of NYC?

Mon, 06 Nov 2006 19:01:39 -0500

You night have been tempted to think the "twilight of New York as a financial center" story was a fleeting one. But the city has done a good job keeping it in the news. The latest: Senator Charles Schumer has weighed in on the side of Mayor Bloomberg and others in arguing that Sarbox threatens the city's status. Recall that the city has hired McKinsey to help it sort through the issues. While there are sound reasons that Sarbox should be modified, the issue really boils down to Wall Street. IPOs have globalized a bit, and that has some people nervous. This is overblown for a few reasons: Top investment banks, all based in New York, have been cashing in despite the trend away from the city. They can underwrite around the world. Also, if things really get tight, top banks could always reduce fees to drum up business. And finally, longterm would-be issuers may realize they get much better after-market support in the U.S.

For more on Schumer and NYC:
- read this article from CNNmoney.com

ALSO: There still a healthy number of foreign companies interested in U.S. exchanges. Article

Related Article:
NYC officials hire McKinsey to explore exchange woes. Report

Finally, credit rating agency reform bill passes

Mon, 02 Oct 2006 20:01:39 -0400

Recall that a scantly discussed requirement of Sarbox called for a thorough study of credit ratings agencies. Reform of these agencies has moved on and off the front burners ever since. Many gave up hope that the House and Senate would ever agree to a bill. But they have done just that. The bill, which will likely be signed into law, would open up the industry to more raters than the current four. To be recognized as a rating agency, companies must have a three-year track record and perform consistently. I am sure Standard & Poor's and Moody's are taking all of this very seriously. But I do not expect a flood of new entrants, given high start-up costs. For issuers, it could add some new wrinkles. They might be able to shop around a bit if they are not satisfied with certain ratings. The effects will unfold slowly; there could be some unforeseen consequences, but it does seem like a move in the right direction.

For more on the bill:
- Here's a MarketWatch article

Euronext CEO insists Sarbox will "never" apply

Mon, 04 Sep 2006 20:01:39 -0400

Euronext's planned merger with the New York Stock Exchange has hit a few speed bumps, one of which is lingering concerns over Sarbanes Oxley. Euronext CEO Jean-Francois Theodore has insisted several times that the law will "never" apply to European issuers. As an added layer of assurance to nervous customers, Euronext says it will set up a Dutch foundation with an independent board that will decide on any regulatory changes. While I would never say never, it does seem unlikely that Sarbox would apply. Certainly, the NYSE would resist such a move. One reason all exchanges are diversifying geographically is to move into areas where the law is not a hindrance to underwriting activity.

For more on Euronext:
- Here's an update from AFX via Forbes
- One survey has found that European companies are reporting faster, catching up to U.S. companies. Article
- Euronext's profits soar. Article

AIM may not be an easy alternative to Nasdaq

Mon, 21 Aug 2006 20:01:39 -0400

We've discussed the rise of the London Stock Exchange before. Clearly, it's continuing to enjoy a banner year for initial public offerings. And more companies around the world are seeing it as a prime offering venue. The LSE hosted more offerings last year than all U.S. exchanges combined. The reasons for this have been debated vigorously. Predictably, some say that Sarbox is pushing issuers abroad. The fees charged by premier U.S. investment banks certainly do not help. But here's a new wrinkle in the debate: AIM's aftermarket seems like a lousy place to be when compared to the Nasdaq. A new study by M&A boutique Innovation Advisors has found that after two years, AIM companies lost 57 percent, while Nasdaq companies gained 12 percent. After the third year, returns for AIM companies were negative 65 percent versus a negative 26 percent for Nasdaq.

For more on the LSE:
- here's an article from BusinessDay.

PLUS: The London IPO market remains hot. Article

ALSO: Are NYSE companies thinking of defecting? Article

New thinking: The real reason IPOs are heading overseas

Mon, 07 Aug 2006 20:01:39 -0400

The conventional wisdom as of late has been that Sarbox and other compliance laws have pushed would-be issuers beyond the U.S. to Europe and Asia. It's a tempting conclusion. But there are other reasons as well. A recent report suggests that European markets are simply out more issuer-friendly. The costs of going public lower and the first-day rise in stock prices are much lower. Some countries are more aggressively promoting the idea of home-grown IPOs. So when it comes to capital formation of this sort, the U.S. may be lagging in significant ways.

> Read the article from Slate
> Here's some background from the FierceSarbox Web site.