Professional Services Monitor: Today

The Wall Street Journal reports this evening that a Russian appellate court has upheld a ruling by a lower court.

A Russian court upheld a ruling that PricewaterhouseCoopers LLP essentially was a participant in massive tax evasion by former oil giant OAO Yukos.

The ruling ratchets up pressure on the auditor as the Kremlin gears up for more charges in the politically tinged Yukos case.

On Monday, Russia’s Ninth Arbitration Appellate Court abruptly ended consideration of Pricewaterhouse’s appeal of a lower-court ruling. The original ruling found that Pricewaterhouse’s contract with Yukos should be voided because it involved criminal wrongdoing.

The article also say that is still unclear what impact this will have on PwC’s Russian firm business. PwC says that it is looking for other avenues for appeal.

While not yet available to civilians, CFO.com has reviewed an advance copy of Cynthia Cooper’s new book, “Extraordinary Circumstances: The Journey of a Corporate Whistleblower.” The book, which is due for release on Feb. 4, 2008, is Cooper’s account of the accounting scandal that brought down WorldCom.

Cynthia Cooper, the internal auditor who unearthed the WorldCom accounting scandal, doesn’t record such a refrain in Extraordinary Circumstances, her gripping new book about her investigation. But Cooper’s bywords might well have been: “If you don’t understand it, and nobody can explain it, keep digging until you find out what it means.”
…
For her part, Cooper wasn’t following money, but information — or, rather, the lack of it. Time and again, as she worked her way through a labyrinth of misplaced accounting entries, she encountered jargon that sounded authoritative, but proved to be completely phony.
It was the kind of empty language that investors at the time had heard from Enron as well, as executives of the energy company tried to justify assetless accounting and bogus special-purpose entities.

The review notes that the strength of the book is Cooper’s first-hand accounts of her investigation, moving up WorldCom’s chain of command, including Ebber’s outsized ego and willful ignorance.

XBRL, the long-ruminating standard for extensible, modern financial data reporting, may rival SOX 404 in implementation costs, according to the SEC’s Advisory Committee on Improvements to Financial Reporting (CIFR). In addition to the technical costs to the bringing financial reporting into the near-modern age, the CIFR expresses concern on additional assurance costs. It it currently unclear whether a company’s auditor would need to provide assurance on whether the registrant properly translated its internal reporting into XBRL, once XBRL becomes mandatory.

Some of the committee’s members, including a current and former CFO, have worried that auditors’ fees for XBRL could rise to the level seen during the first few years of complying with Section 404 of the Sarbanes-Oxley Act. XBRL advocates on the panel dispute that claim. Still, the committee is acknowledging that while internally prepared XBRL documents should be independently reviewed, it should not result in a significant increase in audit fees.

One suggestion by the CIFR is a staged implementation, putting the largest 500 companies under the requirement first, large accelerated filers a year later, and then a final decision whether to extend XBRL requirements to all filers.

According to the CFO.com article, fall 2008 would be the soonest the SEC would institute any XBRL requirement.

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.