filers

Small companies struggle with controls

Jim Kim — Wed, 17 Sep 2008 09:33:42 -0400

No one thought non-accelerated filers would be all that smooth. But no one thought they would be an outright disaster. Most people assumed that most they would find a way to muddle through their first year of Sarbanes-Oxley compliance. And that's pretty much what happened. According to a Lord & Benoit survey, more than one-third of small companies reported they had ineffective internal controls this year. Only about half that percentage of larger companies said the same. Of course, CFO.com reports, these filers do not yet have to have an audit firm attest to the effectiveness of the controls, which could mask even more problems. Interestingly, about 20 percent of survey respondents did not comply with Sarbox, either by not filing a 404 report or failing to express an opinion about controls. You can bet performance will improve next year when 404(b) kicks in.

For more:
- here's the article

Another 404(b) extension for small companies

Jim Kim — Sat, 28 Jun 2008 13:31:52 -0400

The SEC has approved another gift for non-accelerated filers: another one-year reprieve on Section 404(b) compliance. Even as investor advocates howl, the news came as a relief to many companies. For those betting on another delay, congratulations! You bet correctly. This will give you more time to get everything straight. Of course, 404(a) compliance processes are well underway (or should be). That requirement is not affected. There are some companies that had moved down the 404(b) path, which has been watered down significantly. That work was not in vain, as those companies now are ahead of the curve. If you really want to push it, you could always comply voluntarily. Investors will appreciate that, but the costs have to be weighed.

For more:
- here's the article
- Politicians praise the extension. Article

So how much will it cost to comply?

Tue, 15 Jan 2008 06:59:59 -0500

Small companies, even with the likelihood of another delay, are rightfully concerned with how much 404 compliance will cost them. The issue is not an easy one. There's not a lot of data out there. Indeed, the delay in compliance for nonaccelerated filers is being driven by the need for more data; Congress has asked for better cost estimates. Sarbox consulting firm Lord & Benoit has come out with a new report, based on a look at 29 companies. It concludes that the average first-year cost for management assessment and additional audit fees would be $78,474. That's 14 percent less than the $91,000 cost the SEC initially said. Of course the complexity of the company must be factored in. Some might have to spend a lot more. And there are benefits to be weighed against. Whether you think it's worth it or not, at some point--looks like the auditor attestation delay will extend to fiscal years that end after 2009 now--compliance will be a reality.

For more:
- here's a copy of the report (reg. req.)

Another small company 404 delay

Tue, 18 Dec 2007 06:59:59 -0500

For much of the year, I had been telling people not to hold their breath for another Sarbanes Oxley 404 delay for nonacclerated filers. My point was you couldn't count on any sort of regulatory decisions, so your smartest choice was to act as if you would have to comply. But it appears as if small companies will get a holiday gift in the form of yet another delay. Previously, small firms were required to comply with 404 if their fiscal years ended before Dec. 15, 2008. The head of the SEC has proposed another one-year delay, one that many of the 5,000 affected companies will applaud. Christopher Cox told Congress he wants some time to study the competitiveness issues. Who knows, the way things are going, the requirement could be scrapped all together. Here's an idea. Comply anyway. Shareholders just might show their appreciation.

For more:
- here's a New York Times article
- the Council of Institutional Investors is not happy about this
- Grant Thornton opposes another delay. Release

Update: Interactive financial reports

Tue, 24 Jul 2007 06:59:59 -0400

The movement to adopt interactive financial reports, which most agree is a good idea, has not really taken off in the U.S. Extensible Business Reporting Language (XBRL) is still not mandatory, and U.S. companies collectively are lagging companies in Europe and Asia. In Europe, according to Financial Week, Basel II compliance is forcing banks to adopt XBRL. England is considering a move to require tax filings be filed in XBRL starting in 2010. At the SEC, the issue is hot apparently. A working group called XBRL US plans to release new interactive formats for 10-K and 10-Q filings this fall, and the agency is mulling whether to requiring all accelerated filers to use XBRL. Some proposals may be coming out this year. This would be a huge event for compliance and financial executives. You may want to start thinking about it.

For more:
- here's an article from Financial Week

Top 10 material weaknesses for small companies

Mon, 04 Jun 2007 20:01:39 -0400

For non-accelerated filers, it's showtime. For the first time, they will have to fulfill 404 control requirements, as there is little chance of yet another extension. So it's time to gear up. Lord & Benoit has put together a list of the most likely material weaknesses for small companies. The list was compiled based on the results of 148 first time companies with revenues under $100 million. It's fair to say that compliance will be a challenge for many. Unsurprisingly, the most likely deficiencies relate to accounting and disclosure controls, such as GAAP issues and inadequate statement disclosures. Treasury-oriented weaknesses come in next. Other areas: Training and competency of financial officials, audit committee effectiveness, lack of adequate controls generally, revenue recognition and financial closing processes.

For more on the list:
- here's an article from accountingweb.com

Sarbox costs continue to decline, audit fees remain high

Mon, 21 May 2007 20:01:39 -0400

In year three of actual compliance, many companies have moved along the learning curve enough that the inside costs of compliance are dropping even more. A survey of accelerated filers by Financial Executives International has found that the average cost last year was $2.9 million. That's a 23 percent decline from the previous year. The number of in-house hours required for compliance dipped 10 percent. External hours dropped 14 percent. The big wildcard remains auditor fees, which fell less than 1 percent. Going forward, there is still a lot of uncertainty regarding such fees. A lot is riding on the new AS5, which is still in the works. It will take a lot to really induce auditors not to take an overly conservative approach. It also must be said that the big audit firms have really benefited from Sarbanes-Oxley through increased revenue. We'll see how easily they change their tune.

For more:
- here's an article from cfo.com

Small company compliance timeline issues heat up

Mon, 30 Apr 2007 20:01:39 -0400

More than 6,000 small companies are awaiting word on when they'll have to start complying with 404 internal control and attestation requirements. Recall that they've won a series of deadline extensions. As of now, non-accelerated filers, in their 10-Ks for fiscal years that end on or after Dec. 15, 2007, must meet the management assessment requirement. The auditors' attestation reports aren't due until reports are filed for fiscal years after Dec. 15, 2008. The issue now is whether the deadlines will be pushed back again. Some clues have emerged. Chris Cox, chairman of the SEC, has noted that another delay is not the agency's Plan A. He notes that another extension would mean that the first 404 audit reports for small businesses wouldn't be filed until three years from now, in March 2010. He's sticking to the current plans. Which means that small companies should really pay attention to how the current guidance shapes up.

For more:
- here's a brief from accountingweb