SOX Center

Study finds small firms hit especially hard

A new University of Georgia study finds that the landmark Sarbanes-Oxley Act of 2002 and related rule changes of the major stock exchanges have dramatically altered the makeup of corporate boards, making them larger and more independent. The legislation also had the unintended effect of increasing director pay by more than 50 percent.

“Post Sarbanes-Oxley, the demand for directors by firms is up and the supply is down because the job is harder,” said study co-author Jeff Netter, a finance professor and chair holder in UGA’s Terry College of Business. “So what do you find” Pay is up – pay is way up.”

The Sarbanes-Oxley Act (SOX) was passed with near unanimous Congressional approval following the corporate scandals that brought down companies such as Enron and WorldCom. Among other things, the act and changes imposed by the New York Stock Exchange and Nasdaq sought to enhance corporate governance by promoting board independence and imposing greater responsibility and accountability on board members.

EurekAlert: UGA study finds surge in director pay following landmark Sarbanes-Oxley Act of 2002

Jack Ciesielski submits: CFO.com reports that Senators John Kerry (Massachusetts) and Olympia Snowe (Maine) have sent another letter to SEC Chairman Christopher Cox requesting further delay in the implementation of the Sarbanes-Oxley Act’s Section 404 for small companies.

It’s deja vu all over again: they sent a letter to him last February on the same subject.

Here’s a link to the letter. The senators didn’t ask for a specific extension - but wanted an answer from Chairman Cox in 30 days. Last time, the specifically asked the SEC to give small firms until the end of 2008 to have management report on their internal controls, and another year afterwards for the auditors to report on the same.

Yahoo.com: The Protected Class: Senators’ Request For Sarbox Delay - Part II

The Sarbanes-Oxley Act hasn’t helped in the long-running battle against corporate fraud, according to a recent survey of certified fraud examiners — a staggering 76 percent of whom reported that fraud is more prevalent today than five years ago.

The 2007 Report on Corporate Fraud, conducted for governance software vendor Oversight Systems Inc., noted that that was up nine percentage points from its survey in 2005, and that a mere 3 percent of respondents felt that fraud was less prevalent, down from 7 percent in 2005.

“This survey indicates the checklist approach to compliance is not effectively reducing fraud,” said Oversight Systems chief executive Patrick Taylor, in a statement.

Furthermore, 43 percent of respondents felt that “vigilance and interest by corporate leaders” in creating a culture of integrity and fraud prevention had “already started to fade.”

WebCPA: Survey: Fraud Is Up, Despite SOX

You almost have to get lost to find Ocean Bio-Chem, a Fort Lauderdale company that makes the Star Brite brand of cleaning products for boats. It’s hidden away in the back of an industrial park alongside Florida’s Turnpike. Walk into CEO Peter Dornau’s cramped ground-floor office, and Jake, his chocolate Labrador, follows you in.

You get the picture. It isn’t exactly the IBM corporate campus or Coca-Cola’s headquarters.

Nevertheless, Ocean Bio-Chem’s shares trade on the Nasdaq, and like all companies listed on major exchanges, it must adhere to the Sarbanes-Oxley Act of 2002, the stiffened financial reporting requirements introduced in the aftermath of the Enron and fraud scandals.

Sun-Sentinel: Small businesses struggle with Sarbanes-Oxley

The two top members of the House Small Business Committee asked regulators on Monday how much newly approved revisions to the Sarbanes-Oxley Act would save small companies, with the panel’s chairwoman saying a hearing about the law last week yielded only promises, not estimates.

In letters to Securities and Exchange Commission Chairman Christopher Cox and Public Company Accounting Oversight Board Chairman Mark Olson, Small Business Committee Chairwoman Nydia Velázquez, D-N.Y., and top panel Republican Steve Chabot, R-Ohio, asked for clarification about whether the SEC has developed cost estimates associated with changes to the 2002 corporate-governance law.

The letters follow a June 5 hearing about the law in the committee, and the adoption by the SEC and the accounting board of new guidance that will allow for focused checks on “internal controls” over financial reporting — the policies and procedures companies use to catch potential fraud on their books.

MarketWatch: Regulators asked for Sarbanes-Oxley costs

John Kerry and Olympia Snowe want another delay for small companies.

Senators John Kerry and Olympia Snowe have sent another letter to Securities and Exchange Commission chairman Christopher Cox asking him to give small companies more time to prepare for complying with the internal-control provisions of the Sarbanes-Oxley Act.

The small-business committees in both the House and Senate have recently met with Cox and Public Company Accounting Oversight Board Chairman Mark Olson to go over how the revised management guidance and corresponding new auditing standard for internal control over financial reporting address the concerns of small businesses. Those companies with a market capitalization of less than $75 million must include 404 management reports starting with their 10-Ks filed on or after December 15, 2007 and auditor-attestation reports one year later.

CFO.com: Senators Urge SEC to Delay 404, Again

The Department of Labor’s Administrative Review Board has ruled that a whistleblower’s accusations were not protected under the Sarbanes-Oxley Act whistleblower protection provision, CFO.com reports.

David Welch, former CFO of Virginia bank Cardinal Bancshares, in 2004 was the first person to win whistleblower protection under SOX. Welch said the bank fired him after he raised questions about the bank’s accounting policies and internal controls. In June 2006, a Labor Department judge ordered that the bank reinstate him and restore pay and benefits.

The bank appealed, leading to this most recent ruling by the Labor Department’s appeals board.

SmartPros: First SOX Whistleblower Loses Case

Securities and Exchange Commission internal control reporting requirements because smaller banks are already required to report to their bank regulators.

Testifying before the House Small Business Committee, Diane Casey-Landry, ACB president and CEO, said: “Community banks are part of a highly regulated industry subject to alternative requirements, heightening the need for relief from the unnecessary and duplicative burdens they face.” ACB was the only banking group to be invited to testify.

Casey-Landry explained that banks have 11 years of experience in filing internal control reports with their primary regulator and the FDIC, but now face the additional burden of costs and a second layer of internal control financial reporting required by section 404 of the Sarbanes-Oxley Act. “No other publicly traded company is subjected to the same scrutiny as a publicly trade bank,” she declared.

Yahoo News: ACB Calls for Exemption of Community Banks From Requirements of Sarbanes-Oxley Act

CCH principal analyst and leading author on securities law, Jim Hamilton, JD, LLM, has released a white paper on the long-awaited Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) issuances on internal controls over financial reporting under section 404 of the Sarbanes-Oxley Act.
CCH, a leading provider of securities law information, is part of Wolters Kluwer Law & Business.

Reporting on the adequacy of internal controls was a significant element of the corporate reforms embodied in the Sarbanes-Oxley legislation. Hamilton can explain and comment on the new regulations, including:

• Why regulators felt a new approach was necessary;
• The broad principles behind the guidance; and
• What the new issuances mean in practice for auditors.

“The issuances emphasize a ‘principles-based’ and risk-based approach,” said Hamilton. “This allows for greater discretion and judgment in assessing the effectiveness of the company’s internal control over financial reporting.”

Yahoo!Finance: New CCH White Paper Covers SEC, PCAOB Internal Controls Guidance

Two more UK companies have announced they will delist their shares from the New York stock market to avoid the burden of complying with legislation such as the Sarbanes-Oxley Act.

Both United Utilities and ICI expect to cut their compliance costs by millions of pounds a year by dropping their secondary listings in the US.

Warrington-based United Utilities, which operates electricity and water networks, said today it was running up “significant costs” by complying with the US Securities Exchange Act and Sarbanes-Oxley.

Business Guardian: United Utilities and ICI drop New York listings