November 4, 2009 Sarbanes-Oxley Amendment Talk

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I wanted to throw this out there...

I am a small business owner and know that small businesses are what make this country run.  I get that.  I also know that there are many ways to generate capital and going public is just one option so I don't feel badly for companies who are "subjected" to SOX standards - that is just a cost of doing business and nowadays, you can become compliant for under $10,000 so it is now affordable.

The Representatives who are pushing for the SOX amendment are public servants.  Repealing the SOX requirements and using language such as "free[ing] small businesses from onerous regulations" seems like reckless talk to me.  Again, since they are only pushing for a 404(b) repeal, are they suggesting companies lie about 404(a) and 302 since they consider the legislation to be "onerous?"  Who are they serving by suggestion this amendment?  Not the investing public that the legislation is trying to protect...

Teresa Bockwoldt MBA, MST

CEO & Co-Founder

Vibato, LLC

655 Montgomery Street, 5th Floor, Suite 540 San Francisco, CA 94111

Office: 415.240.4867 | Mobile: 707.477.0008 | Fax: 888.407.7725

tbockwoldt@vibato.com |  SOX Compliance Made Simple® | http://www.soxprofessionals.com/

Maybe SOX Isn’t the Problem After all? Maybe it is External Audit!

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I had another thought on this topic.

There is a real conflict of interest between using for profit, private external auditors to audit the financials and internal controls of any company.  Think of it this way for the external auditors; on one hand, you have a company whose purpose is to serve their clients and make a profit (and a tidy one at that). On the other hand, you have a company whose responsibility is to the general public to produce an unbiased report on the accuracy of a company's financials.  I've seen external auditors be put in a serious bind because they are torn between these two responsibilities; a client is freaking out over the time and complexity of the audit and threatens the auditor with replacement if they do not do what the client wants.  That same auditor cannot do what the client wants because it would not be in the best interest of the shareholders...so, they face firing or come to some sort of compromise to save their job but who is left holding the short-end of the stick?  The shareholders because the black and white truth was not told.  Perhaps the only way to save public companies from the excessive expense of complying with the requirements of being public is to further the responsibility of the Public Companies Accounting Oversight Board (PCAOB) and take the external audit requirements away from private companies and put it into the hands of those that would truly be unbiased; the governing bodies who impose the regulations themselves.  These same governing bodies could help control the costs of the audits as well which would help everyone.

I know, unlikely, but this has crossed my mind on many occasions.

All my best,

Teresa Bockwoldt MBA, MST
CEO & Co-Founder

Vibato, LLC
655 Montgomery Street, 5th Floor, Suite 540 San Francisco, CA 94111
Office: 415.240.4867 | Mobile: 707.477.0008 | Fax: 888.407.7725

tbockwoldt@vibato.com | SOX Compliance Made Simple® | http://www.vibato.com

Permanent Extension on 404(b) for Non-Accelerated Filers?

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The House Panel passed an amendment today that would prevent non-accelerated filers from facing 404(b) requirements permanently.  Non-accelerated filers are defined as having a market cap of less than $75 million. 

There are two parts of SOX that need to be understood:

SOX 404(a): Management Attestation, Effective December 15, 2007:

• Requires the management of a public company to assess the effectiveness of the company's internal controls
• Requires management to include in the company's annual report the conclusion of that assessment

SOX 404(b): Auditor Attestation, Effective June 15, 2009:

• Management's external auditor's must review management's assessment and complete their own assessment and publish their results

The amendment, proposed by Reps. Scott Garrett (R., N.J.) and John Adler (D., N.J.), would grant a permanent reprieve for non-accelerated filers for section 404(b).  Scott Garrett said this reprieve would "free small businesses from onerous regulations."

Again, I left scratching my head. 

The Representatives would not require 404(b) but leave 404(a) in place which would continue to subject small businesses to the SOX requirements and annual certifications.   Just because 404(b) isn't in place does not mean that 404(a) does not apply.  Additionally, public companies are required to certify the effectiveness of their internal controls quarterly via the 302 attestations.  So, again, 404(a) and the 302 attestation are in place and yet companies would not be required to have auditors check if they are telling the truth.  This amendment does nothing to "free small businesses from onerous regulations"; the Representatives are mistaken and misguided.  If they were truly trying to accomplish what they stated, they would repeal both 404(a) and the 302 attestations as well.  I am not sure if they are just trying to look like hero's to small businesses but it seems they are not sure about what they are trying to accomplish. 

By Teresa Bockwoldt MBA, MST

CEO and Co-Founder of Vibato®, LLC

tbockwoldt@vibato.com

Office: 415.240.4867 | Mobile: 707.477.0008 | Fax: 888.407.7725

Gartner, Inc. "Regulation 2.0" by Mark McDonald Blog Comments

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I recently responded to a blog posting by Mark McDonald from Gartner, Inc about next generation regulatory requirements.  I like where Mark is heading and can see real merit in the discussion.  View his posting and our discussion via this link: http://blogs.gartner.com/mark_mcdonald/2009/10/29/regulation-2-0-%e2%80%93-hopefully-not-regulation-1-0-squared-1-of-2/comment-page-1/#comment-780

By Teresa Bockwoldt MBA, MST

CEO and Co-Founder of Vibato®, LLC

tbockwoldt@vibato.com

Office: 415.240.4867 | Mobile: 707.477.0008 | Fax: 888.407.7725

The End of Sarbanes-Oxley Compliance Requirements?

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I recently commented on a Compliance Week blog post regarding two amendments to delay or even rescind Section 404.  One amendment will postpone Section 404(b) until 2011 for non-accelerated filers (it will be voted on again on Nov. 4.).  The other amendment takes it a step further: "exempting all companies with less than $700 million in market capitalization from Section 404(b), which would include many filers already complying with it."  

These types of amendments have come up from time-to-time over the past years and I always find it interesting and disturbing at the same time.  The amendments are typically created by people who do not have the opportunity to see the detailed work produced by the accounting departments of the world; the work that shareholders ultimately place their reliance upon when making investing decisions. 

A study performed by Compliance Week called "SOX 404 Deficiencies Preceded By "Effective" 302 Reports" by Melissa Klein Aguilar from July 26, 2005 found that of the 366 companies who received a qualified opinion through May 2, 2005, 94% of them had claimed a clean internal controls environment via their previous quarters 302 certification.  My daily experiences in the detailed accounting work produced by public companies worldwide has led me to believe that these statistics are still real and will show up again once 404(b) kicks in for non-accelerated filers.  The only conclusion I can draw is that SOX is not even close to overkill - in my opinion - it is reasonable and most 302 and 404(a) certifications are lip service until companies are subjected to 404(b).  

Feel free to read my blog response via this link: http://www.complianceweek.com/blog/aguilar/2009/10/30/drama-intrigue-congress-and-section-404/#comment-250%0d%0a%0d%0a

By Teresa Bockwoldt MBA, MST

CEO and Co-Founder of Vibato®, LLC

tbockwoldt@vibato.com

Office: 415.240.4867 | Mobile: 707.477.0008 | Fax: 888.407.7725