10 Years of Sarbanes-Oxley

by Dennis Stuchell 23. October 2012 09:45
It may be hard to believe, but the Sarbanes-Oxley Act and the Public Company Accounting Oversight Board (PCAOB) have been with us now for ten years. And the PCAOB inspections of audit issuers continue to find serious deficiencies. During a recent keynote address at the American Law Institute (ALI) CLE conference in Chicago, Board Member Jeanette M. Franzel spoke to some of the common areas of audit deficiencies, which include revenue recognition, fair value of financial instruments, management estimates, testing and evaluating internal controls, related party transactions, and the auditor’s assessment and response to fraud risk. The full text of the speech  is available on the PCAOB website. Urish Popeck has signficant experience with revenue recognition, valuation, and other critical assurance and accounting advisory issues. We would be pleased to assist you in these areas and other public company accounting needs. And let us know if you have any questions regarding SOX or PCAOB oversight.
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Categories: Advisory

SEC Approval Pending for AS 16

by Ken Urish 10. October 2012 13:42
Auditing Standard (AS) 16, Communications with Audit Committees, was approved recently by the PCAOB. AS 16 largely retains current guidance contained in AU 380, Communications with Audit Committees, and does not impose any new performance requirements on the auditor. Rather, for the purpose of promoting improved financial reporting, it expands and/or enhances requirements that emphasize the relevance, timeliness and quality of the communications between the auditor and the audit committee.  The goal is to better align auditing standards with the requirements of the Sarbanes-Oxley Act of 2002, so as to facilitate audit committees’ financial reporting oversight. All new auditing standards and amendments to PCAOB standards adopted by the Board are submitted to the Securities and Exchange Commission for approval. AS 16 will become effective with SEC approval, which was pending as of this writing. The new standard and related amendments, if approved by the SEC, will be effective for public company audits of fiscal periods beginning after Dec. 15, 2012. 
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Categories: Advisory

Growth Companies or Empty Shells?

by Hiller Hardie 22. June 2012 11:00
    Two months after the JOBS Act was introduced, many “emerging growth companies” that benefit by reduced SEC and Sarbanes-Oxley compliance burdens, have practically zero employees. According to the Wall Street Journal, a large portion of the companies benefitting from reduced regulation are special-purpose acquisition companies, which are often used in mergers as a backdoor into U.S. stock listings. Watching this unfold is like witnessing a collision for the second time; it’s only been one year since the Chinese reverse-merger collapse, where several Chinese companies saw $18 billion of their capitalization vanish. Only adding to the mix, China announced a plan to gain local control over the Big Four accounting firms operating within its borders. This plan will amplify the problem, because the U.S. Securities and Exchange Commission needs to be able to ensure that listed companies accurately prepare their financial statements. This is difficult when the SEC cannot even gain access to Chinese-based auditors to ensure they are conducting quality audits. As a veteran Senator recently said, “Rather than growing our economy, we are courting the next accounting scandal, the next stock bubble, the next financial crisis.”    
Categories: Advisory

The JOBS Act: Trading IPOs for Blind Spots

by Hiller Hardie 26. April 2012 15:55
The Jumpstart Our Business Startups (JOBS) Act was passed into law on April 5, 2012. It encourages private companies to complete IPO’s by giving them reporting relief if they qualify as an emerging growth company (EGC). EGCs have less than $1 billion in revenue and $700 million in publicly traded stock. A previous blog warned about this legislation eliminating the Sarbanes Oxley requirement of an auditor’s report on a company’s internal control over financial reporting. However, the Act does require management to report on such internal control. Nevertheless, it is now more likely that EGCs will have errors or issues with their financial statements heading into a public offering. This was the case in 2011, when the SEC examined Groupon’s financial statements heading into its November IPO. Groupon had already revised its financials twice before that date because of the SEC’s scrutiny, and is revising them again due to inadequate reserves for customer refunds. This news prompted a sell off and drop in share price from $20 to $15.27. AuditAnalytics.com recently conducted a study of companies with SOX issues since 2004, when the SOX requirement for internal control took effect. They identified 104 companies with SOX issues who would have been exempt from auditor scrutiny if the JOBS Act had been in effect at that time. For more information on the JOBS Act see the April 2012 edition of BDO Knows: The Jumpstart Our Business Startups Act.
Categories: Advisory

House Approves Some SOX Relief for Issuers < $1B

by Hiller Hardie 14. March 2012 11:00
  The House recently approved a measure aimed at creating jobs and easing the regulatory burden on smaller businesses.   A major component of this bill exempts small and mid size businesses initiating public offerings from some key provisions of Sarbanes Oxley.  As drafted, prospective issuers with less than $1 billion in revenue and $700 million in publicly traded stock would no longer be subject to external audits of their internal controls (among other things).   As I have noted in prior blogs, there has been tension between the conflicting goals of protecting investors and shielding business from excessive regulation.  While the above measure still needs to pass the Senate and be signed by the President, it is a strong indication that the latter goal is gaining traction. I do believe this is a good trend but also urge caution in moving too far. There continue to be major “blows” in financial reporting, such as those recently announced by Diamond Foods.  Moreover, outright fraud can be perpetrated by public companies.  The recent story of Puda Coal (a Chinese company which gained access to the US securities markets via a “reverse merger”) is an excellent case in point.  In this saga, the executives of this company effectively stripped the company of all operating assets, leaving shareholders with a shell company.   
Categories: Assurance