Professional Services Monitor: Today

 

June 28, 2010

Supreme Court Ruling Forces Minor Changes to Sarbanes-Oxley

Filed under: SOX 404 — psmtoday @ 11:10 am

A Supreme Court ruling today on the case Free Enterprise Fund v. Public Company Accounting Oversight Board will force some minor changes to the Public Accounting Oversight Board created by the Sarbanes-Oxley Act.  The narrowly-focused ruling, based on separations of powers, found that the law as written by Congress unduly restricted the president in hiring and firing board members of the PCAOB.

The high court, in a 5-4 opinion by Chief Justice John Roberts, found fault with some parts of the Public Company Accounting Oversight Board, which was created as part of the act in the wake of collapses at Enron and WorldCom.

Congress had given the five-member board, a not-for-profit corporation, broad regulatory authority over accounting firms that audit publicly traded companies.

Justice Roberts said the structure of the accounting board violated constitutional separation-of-powers principles because it was too difficult for the president to remove board members.

“The president cannot take care that the laws be faithfully executed if he cannot oversee the faithfulness of the officers who execute them,” Justice Roberts wrote.

Justice Roberts said Sarbanes-Oxley “remains fully operative as a law.” He said the unconstitutional provisions governing the board could be severed from the rest of the law.

Justice Roberts said the Securities and Exchange Commission will now have the authority to remove board members at will. Previously, the SEC could only remove members for good cause.

March 5, 2009

Deloitte Issues Going Concern Opinion on General Motors

Filed under: Deloitte,Firms,SOX 404 — psmtoday @ 10:40 am

In GM’s 2008 10-K, filed this morning, Deloitte’s audit opinion contained a “going concern” clause:

The accompanying consolidated financial statements for the year ended December 31, 2008, have been prepared assuming that the Corporation will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Corporation’s recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 2 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Furthermore, Deloitte’s 404 opinion on internal controls states that GM did not maintain effective internal controls due to a “material weakness related to ineffective controls over the period-end financial reporting…”
GM Auditors Raise Warning On Bankruptcy Risk : NPR

Although GM has warned for weeks that its cash-flow position was being eroded, Thursday’s announcement in an annual report filed with the U.S. Securities and Exchange Commission shows the full gravity of the situation as auto sales plummet to their lowest levels in more than a quarter century and revenue continues to drop sharply.

GM has already taken $13.4 billion in government loans, but the company has been unable to cut costs fast enough to stop the bleeding. Executives say they need another $16 billion to survive.

February 4, 2008

SEC to Make a CBA on SOX

Filed under: SOX 404 — psmtoday @ 11:53 am

The SEC has announced that it will conduct a cost-benefit analysis of the small-issuer 404 attestation requirement. The study will collect data from companies already subject to the attest part of SOX 404, including those just now becoming compliant.

At the same time, the SEC is proposing another one-year extension for this same group of companies.

In connection with the study, the four-member Commission unanimously proposed on Jan. 31, 2008, the one-year extension of the Section 404(b) auditor attestation requirement for smaller companies that SEC Chairman Christopher Cox had previously announced in testimony before the House Small Business Committee in December 2007. The postponement would allow time for completion of the study. Under the proposed extension, the Section 404(b) requirements would apply to smaller public companies beginning with fiscal years ending on or after Dec. 15, 2009.

(more…)

January 14, 2008

New Report Estimates Average SOX Costs for Smaller Filers

Filed under: SOX 404 — psmtoday @ 1:25 pm

Lord & Benoit, a SOX 404 consulting and risk management firm, has released a new study estimating compliance costs for smaller filers. In what seems to be a first for SOX issues, Lord & Benoit finds that costs are 14% below the SEC’s original estimates, $78,474 versus $91,000.

The SEC had initially predicted a cost of $91,000 for all public companies. However, a report by research company Lord & Benoit estimates that the average costs for smaller public companies are closer to $78,474.

The average cost of complying with just Section 404(a)’s requirement for the management assessment is estimated at $53,724 for non-accelerated filers. However, costs can range from $15,000 for a smaller software company to as high as $162,000 for a complex company.

For just Section 404(b)’s requirements for an auditor attestation of internal controls, the average is $24,750. Nevertheless, the fees could range from $7,517 to $86,417, according to Lord & Benoit.

August 22, 2007

BusinessWeek: “Consulting Pays Off for Accountants Again”

On Monday, BusinessWeek published an article on the new face of the old consulting-services businesses at the Big Four. Specifically, the article discusses Deloitte Consulting and the serendipitous collapse of the deal to spin-off the consulting in March 2003. Since then, Deloitte has continued as the only of the Big Four to have a major consulting practice named as such. E&Y sold its consulting practice to Cap Gemini; KPMG spun-off its consulting business to become BearingPoint; and PwC sold its consulting division to IBM to become part of IBM Global Services. And in the luckiest break of all, Andersen Consulting completed its prolonged and painful departure from Arthur Andersen in August 2000 to become Accenture.
Deloitte bucked the trend by keeping Deloitte Consulting under the same roof. Not only did it retain the business, as the article details, Deloitte has made the consulting business even more integrated with the audit and tax practices.

At Deloitte, partners say consultants are far more intertwined with the rest of the business than ever before, starting with their wallets. The SEC outlawed the practice of paying auditors based on non-audit work. So now Deloitte has one big pool of profit that auditors, tax experts, and consultants all share. Audit partners can still refer business to their consulting counterparts, but they only benefit in a broad sense, no longer directly. “Teaming became our mantra,” says Salzberg. James Quigley, chief executive of the global firm, Deloitte Touche Tohmatsu, says the U.S. firm’s array of services makes it “a category of one.”

But, as the article continues, the rest of the Big Four might quibble with Quigley’s assertion of Deloitte’s singular station in consulting. “And it hasn’t taken long for the other audit firms to do the math, and quickly rebuild their own consulting arms. KPMG Worldwide last year sold $5.3 billion of consulting, a 12% jump from the year before; PricewaterhouseCoopers (PwC) $3.7 billion, up 20%; and Ernst & Young $2.4 billion, a 2% increase.” As a Deloitte consulting executive told me even three years ago, “I know the rest of the firms have consulting, even if they’re aren’t calling it that anymore, because they’re bidding against me for the same consulting work.”

Link: Consulting Pays Off for Accountants Again – BusinessWeek

May 14, 2007

ARGI Releases 2007 Big Four Annual Report

Released today, ARGI’s 2007 Big Four Annual Report is the leading, comprehensive analysis of annual Big Four market share and operating results. The report uses a special methodology to analyze firm results and covers all areas critical to major professional service organizations.

2007 Big Four Annual Report cover

For 2007, the Report assesses trends and issues such as “Public Accounting in the Public Eye,” the need for world-class talent, the Post Crisis SOX 404 environment, and prospects for Big Four growth in the next 5-10 years. The report also provides an overview of important market share metrics, such win and losses, net audit market share gain in 2006, and total professional fees billed to public companies during 2006.

In other words, the Big Four Annual report offers an independent and objective comparison of the Big Four firms in clear measures. The biggest firm by revenue, the most profitable firm for partners, the firm with the most employees, and the firm with the highest average per-client fees are all questions answered.

Ordering information, along with sample pages from the report, are available from the Annual Report’s product page. Questions on the report may be directed to sales@amesrgi.com.

April 3, 2007

PCAOB Issues New Restatement Disclosures Proposal

Filed under: SOX 404 — psmtoday @ 3:22 pm

The PCAOB has proposed new standards for restatements, which would require auditor to distinguish between restatements due to errors and those due to changes in accounting principles.

The Public Company Accounting Oversight Board voted unanimously to circulate the proposal for public comment. The proposal would require auditors to include an explanatory paragraph in a report outlining whether a restatement reflected a change in an accounting principle or an error correction, according to Keith Wilson, PCAOB’s associate chief auditor.

“This is really intended to be an alert,” he said at a board meeting.

The proposal would still need to be approved by SEC and PCAOB before taking effect.

That financial restatements are explicitly disclosed at all is still relatively new. The SEC’s “Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date” took effect in August 2004 and created a new 8K item, 4.02, “Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.” Prior to that, restatements were made on 10Ks or 10Qs and press releases, but there was no formal disclosure at the time a company identified the need to restate earnings. The 8K requirement made identifying restatements much easier.

However, under current standards, 8K Item 4.02′s must be filed whether the restatement is due to some sort of mistake or malfeasance, or due to a change in accounting principals out of company’s control. In other words, the current system might tend to taint all restating companies. The PCAOB’s new proposal will provide additional and official granularity that filers will certainly appreciate.

January 22, 2007

Another SOX 404 Postponement for Small Companies

Filed under: SOX 404 — psmtoday @ 4:58 pm

Once again, SOX 404 internal controls audit requirements have been postponed for so-called “micro-cap” companies, those with market capitalizations below $75 million. In a speech today before the New York Society of CPAs, Conrad Hewitt, chief accountant at the SEC, said that the deadline has been extended until at least 2008. “For micro-cap companies … they will not have to have an internal control audit until 2008, and if we don’t see the cost-benefits are in line by then we’ll have to defer it even more,” Hewitt said. “We will come up with something different if AS5 does not help the companies to keep the cost down. We’ll have to wait and see for another year whether that 2008 requirement could be deferred again.”

Reuters: SEC may extend SOX deadline for small US companies

November 21, 2006

CRN.Com: “Dell’s Long Relationship With PwC Facing A Tough Test”

Filed under: Firms,PricewaterhouseCoopers,SOX 404 — psmtoday @ 5:34 pm

CRN.com ran an article this week, “Dell’s Long Relationship With PwC Facing A Tough Test,” discussing Dell’s ongoing SEC investigation and resulting delay in issuing financial statements, and the potential impact on the company’s twenty-plus year relationship with PricewaterhouseCoopers.
The article notes PwC’s attest requirements under SOX 404, the fact that Dell’s CFO is a former Price Waterhouse partner, and PwC’s $22 million in fees from Dell. Most interesting, however, was a quote from John Carney, a former SEC and U.S. Justice Department attorney and a now partner in the firm Baker & Hostetler.

“The financial statements are the responsibility, first and last, of management,” Carney said. “That’s the law of management. That’s the law (in) securities. The auditors are there in a watchdog capacity.” The auditor is tasked with determining whether the financial numbers Dell reports are a good indication of what’s really happening.

“There’s no way Pricewaterhouse knows as much as the client,” Carney said. “It’s not always fair to hold them accountable. . . They are not guarantors.”

Such as statement describing some limitation of an auditor responsibilities has gone out of vogue. Coming from a former SEC lawyer makes it even more remarkable.

September 12, 2006

WSJ Reports on New Capital Markets Committee

Filed under: Deloitte,Firms,PricewaterhouseCoopers,SOX 404 — psmtoday @ 2:57 pm

A column in the Wall Street Journal today describes a new committee launching soon. “The Committee on Capital Markets Regulation” is expected to recommend changes to the Sarbanes-Oxley Act and other laws and regulations in the spirit of increasing or renewing the competitiveness of the US markets. The commission is co-chaired by Glenn Hubbard, former White House economic adviser, and John Thornton, former Goldman Sachs president, and also includes Samuel DiPiazza of PricewaterhouseCoopers and Bill Parrett of Deloitte.

From the article:

The committee plans to submit its recommendations by the end of November — after the elections but in time for the administration to use in formulating legislative proposals for next year.

Still, there is an issue here that needs to be addressed. New York Stock Exchange CEO John Thain grabbed attention recently by pointing out that nine of the 10 largest initial public offerings this year, and 24 of the 25 largest last year, were done in overseas markets.

Links: Panel’s Mission: Easing Capital-Market Rules

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