Investment

» stocktiger - 9/11 upside down is...

In response to 9/11 upside down is... posted by Kirk:

Ok guys, all you Woodstock era folks need to stay away from the red licorice , it has LSD in it.

-- posted by stocktiger

» Moonlight - Friday the 13th is TODAY!

In response to Friday the 13th is TODAY! posted by Kirk:

Kirk,

Congratulations' I looked up most of your stock picks today and you deserve a whopping congratulations. I didn't have the nerve to do most of the picks and sold last week on one, but I still made 30% on just that one. and in one month. You really hit the high mark.Thank you for sharing your knowledge, and with dignity and humor.

-- posted by Moonlight

» davey52 - Happy 19th anniversary

In response to Happy 19th anniversary posted by Kirk:

And today the Dow closes above 12k. What a difference a couple decades makes:)

-- posted by davey52

» bob90245 - Happy 19th anniversary

In response to Happy 19th anniversary posted by Kirk:

Shh... Not to loud. A jinx could cause the market to crash again.

-- posted by bob90245

» davey52 - Happy 19th anniversary

In response to Happy 19th anniversary posted by bob90245:

Shh indeed.CAT may give the DOW cause to pause today. Lets hope it's only the pause that refreshes.

-- posted by davey52

» lcha - Happy 19th anniversary

In response to Happy 19th anniversary posted by davey52:
Since Oct 20,1987 I have had a drawing hanging above my desk that I cut out of the Wall St. Journal on that day.

It was a tombstone that read, "RISK NOT THY WHOLE WAD".

-- posted by lcha

» Moonlight - Happy 19th anniversary

In response to Happy 19th anniversary posted by lcha:

Love your drawning. I cut one out of the editorial page of local paper. It was in 1982 I think. It showed a bear with the horns of a bull. The Capltion real Reagan's bull market. The joke was on them.

-- posted by Moonlight

» lcha - More on IPv6

In response to More on IPv6 posted by Kirk:
I brought up the ipv6 transition question and its affect on router companies about 6 months ago. Looks like as more time goes by it is becoming more a reality.

-- posted by lcha

» SteveT - Business wins its battle to ease a costly Sarbanes-Oxley rule

In response to Business wins its battle to ease a costly Sarbanes-Oxley rule posted by Kirk:

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Business Wins Its Battle to Ease
A Costly Sarbanes-Oxley Rule
By KARA SCANNELL and DEBORAH SOLOMON
November 10, 2006; Page A1

WASHINGTON -- Business has won the battle to ease one of the most controversial requirements mandated by the Sarbanes-Oxley corporate-reform law: that companies first review their own systems for ensuring accurate financial reports and then have them tested by outside auditors.

The nation's business lobby, which says Sarbanes-Oxley is too burdensome, would like to see even broader changes in the law, which was passed in the wake of the Enron scandal to promote good corporate governance and prevent fraud. Democrats' success in Tuesday's congressional elections makes wholesale changes in the statute less likely.

But securities and accounting regulators are yielding to pressure for a more flexible reading of a provision of the law known as Section 404. Regulators have said they will propose guidance next month to help companies and auditors interpret Section 404 in a way likely to save them time and money (See related article1).

That's a big victory for business, which has mounted a concerted push to alter the regulation. It could also be good news for U.S. stock exchanges, which in recent years have blamed Sarbanes-Oxley, and particularly Section 404, for discouraging companies from going public in the U.S. or listing stock here.

At issue is a four-paragraph section of the law that requires publicly traded companies to review and assess the controls they have in place to ensure reliable and accurate financial reporting. Companies must document such things as who can get access to their financial records and what procedures they have in place for recognizing revenue. The rule is intended to prevent any kind of fraud, manipulation or even error in a company's financial statements.

But companies, both large and small, have complained that the way Section 404 is interpreted is overly broad and requires them to spend many hours and millions of dollars documenting things that have nothing to do with the integrity of their financial statements. According to a study by one industry group, companies on average spent $3.8 million each in fiscal 2005 to comply with the rule. Some companies say auditors are interpreting the rules so literally that they are asking management to account for such things as who has access to an office key.

"The problem with 404 is the way it was implemented," John Thain, chief executive of the New York Stock Exchange, said at a recent conference. Mr. Thain says Section 404 lacks a "materiality standard."

Indeed, many business leaders say the rule encourages excessive caution and applies to too many corporate functions that don't have a material impact on a company's bottom line.

Some companies, meanwhile, have discovered a booming business in helping others comply with Section 404 and could see their growth slow if the rule is relaxed.

Besides the Big Four accounting firms, which provide the required audits, a variety of software products and consulting services have sprung up since the rule took effect in 2004. International Business Machines Corp., Oracle Corp., SAP AG and Microsoft Corp. have added software to their lineups to help businesses adhere to the rule. Sarbanes-Oxley work has also increased the revenue of Movaris Inc. and Paisley Consulting.

The Securities and Exchange Commission conceded earlier this year that the provision wasn't working as intended. In May, it said it would rework the rule so that companies -- and their auditors -- aren't engaging in "overly conservative" audits and are instead focused on areas that present a risk to the company and its investors. The agency also said it hoped to tailor the rule to companies of all sizes, so that small businesses, in particular, weren't overburdened.

The SEC says it will unveil its changes next month. The agency, along with the Public Company Accounting Oversight Board, the auditing industry's overseer, said it will propose a revision to the auditing standard known as AS2 that auditors follow when testing management's assessment of company controls.

SEC Chairman Christopher Cox wrote to the oversight board this week, urging it to include in its changes some of the recommendations made by the SEC's small-business advisory group, including one that the auditing rule be adapted to companies based on their size. In his Nov. 6 letter, Mr. Cox said the SEC agreed that the standard needed to be focused on matters that are material, or relevant, to a company's financial results.

It isn't clear how far the SEC might be willing to go in making it easier and less costly for businesses to comply with Section 404. And some observers are skeptical that the problems can be fixed.

"This may be a bell that can't be un-rung," says Joe Grundfest, a former SEC commissioner and co-director of the Rock Center for Corporate Governance at Stanford University. "The audit firms have already incorporated a lot of the inefficient 404 process into their integrated audits, and once audit firms have processes in place, it's very hard to persuade them to back off and ease up on those processes."

Much of the business community continues to support Sarbanes-Oxley's overall goal of improving corporate governance. But many complain that portions of the law, such as Section 404, and the broader regulatory climate are beginning to put U.S. companies at a competitive disadvantage. Two private-sector commissions have been set up to recommend regulatory changes.

President Bush, Vice President Dick Cheney and Treasury Secretary Henry Paulson have all backed an effort to rework the rules, suggesting the pendulum has swung too far. Even Rep. Barney Frank of Massachusetts, the Democrat who will be chairman of the House Financial Services Committee in the new Congress, has said some regulations are too burdensome.

David Chavern, chief of staff at the U.S. Chamber of Commerce, said that "right after the Enron scandals, there was a view among business that they just have to keep their mouth shut even if they saw problems. I think we were able to move out of that and talk about the problems without being apologists for the bad guys."

The SEC's Mr. Cox has opposed pressure from some business groups to rewrite other parts of Sarbanes-Oxley. He said recently that while it's always important to look at legislation, "because Sarbanes-Oxley is of such recent vintage, there is less reason to think that is necessary."

The drumbeat of complaints about Section 404 has intensified as companies have begun to implement the rule -- and foot the bill. Businesses say they are spending hundreds of man-hours and millions of dollars to hire employees and set up new computer systems to document and manage reams of data, as well as paying their auditors to recheck everything they have done.

Companies say auditors have become too conservative because they fear being sued by the SEC or investors if a fraud is uncovered at a company they advised. SEC Commissioner Paul Atkins, a Republican, often recites the tale of a European executive who identified 500 key internal controls while his firm's auditor found 60,000.

A study in the CPA Journal by Jack Ciesielski, editor of the Analyst's Accounting Observer newsletter, and Thomas Weirich, an accounting professor at Central Michigan University, found that audit fees for S&P 500 companies surged 63% to $4 billion in 2004 from $2.5 billion in 2002, the year Sarbanes-Oxley passed. While those fees include regular audit-related fees, Mr. Ciesielski said much of the increase is a result of Section 404, which went into effect in 2004.

"The whole auditing world changed," Mr. Ciesielski said. He said he thinks the increase in fees is a positive development, and that it suggests that auditors probably weren't doing a thorough-enough job before. "You never hear investors complain about the size of audit fees," he said. "But you will hear them complain about shoddy [financial] reporting."

A 2005 study by Financial Executives International, a membership and advocacy group for financial executives, found that compliance costs related to Section 404 have begun to drop, although not as much as many companies and the SEC had anticipated. On average, companies paid $3.8 million apiece in fiscal 2005 to comply with Section 404, down 16% from 2004, the study showed. Companies had expected their auditor fees to drop 26% in the second year the rule was in effect, after having paid out for necessary software and other start-up costs the first year, according to FEI.

Critics of Section 404, including Treasury Secretary Paulson, often cite the number of large IPOs done on foreign exchanges in London, Hong Kong and other places as evidence that the U.S. may be losing ground to its competitors, in part because of the regulatory environment. Of the top 20 IPOs so far in 2006, just three have occurred in the U.S., according to Dealogic. In 2002, before Sarbanes-Oxley went into effect, nine of the top 20 IPOs took place in the U.S., including one company that chose a dual listing.

Other factors influence companies' decision to list outside the U.S., including lower fees elsewhere, but many small and foreign businesses have complained loudly about Section 404. In an effort to reduce the loss of IPOs and foreign-company listings, the SEC recently proposed giving newly public U.S. companies and those based outside the U.S. that are listing for the first time on U.S. exchanges more time to comply with the measure.

Write to Kara Scannell at kara.scannell@wsj.com and Deborah Solomon at deborah.solomon@wsj.com

URL for this article:
http://online.wsj.com/article/SB11631292...

Hyperlinks in this Article:
(1) http://online.wsj.com/article/SB11631291...
(2) http://release.theplatform.com/content.s...
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-- posted by SteveT

» SteveT - Accounting Watchdog Falls Behind

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Regulator Has Yet to Issue
Annual Inspection Report
For Any of Big Four Firms
By DAVID REILLY
November 10, 2006; Page C3

The regulator that oversees accounting firms has fallen behind in a key task: issuing inspection reports on how well the country's biggest firms are doing in their work auditing public companies.

With the end of the year fast approaching, the Public Company Accounting Oversight Board has yet to issue an annual inspection report for any of the Big Four -- PricewaterhouseCoopers LLP, Deloitte & Touche LLP, Ernst & Young LLP and KPMG LLP.

While there is no official due date for the reports, by this time last year the PCAOB had issued reports on two of the Big Four and followed with the other two in mid-November. In 2004, the board issued its first-ever inspection reports on the firms in August, although those were based on limited inspections.

Investors and corporate board members say the oversight board's sluggish pace of issuing reports hampers their ability to assess corporate auditors, who are typically selected now by boards and voted on by shareholders in the spring. The inspection reports are the only public reckoning of how well the accounting firms, which audit nearly all of the biggest companies traded on U.S. stock exchanges, are doing.

"This is the process that is supposed to hold the firms accountable and to improve their procedures," said Barbara Roper, director of investor protection for the Consumer Federation of America. "But it's just too slow. It's a problem for [companies] because for them to make responsible decisions on who they use as an auditor they ought to have this information. And if you want to assure the investing public that something concrete is being done to make sure we don't go through the same [corporate scandals] we had a few years ago, this is how we reassure the markets."

The criticisms come as the PCAOB, created by the Sarbanes-Oxley corporate reform legislation of 2002, is under fire on other fronts. Companies have attacked the board over a rule it drafted to govern the way auditors check internal corporate controls -- the oversight board is expected in coming weeks to issue revisions to that standard -- and it faces a lawsuit challenging the constitutional legitimacy of the agency. The PCAOB is fighting that suit.

The oversight board didn't give a specific reason for the lack of any Big Four inspection reports this year. Rather, procedural issues related to the inspection process are at play, said PCAOB member Daniel Goelzer.

He said the board's inspectors can't begin their work until May of any given year, when auditors typically finish looking at clients' previous-year results. Also, the agency must take time to see that the inspections process is consistent for the different firms. Another possible delay: In some cases, an inspection raises issues that require the auditor to bring the company whose books were being audited into discussions with the PCAOB.

Once a report is nearly final, a draft is sent to the firm being inspected; it has 30 days to respond. The PCAOB reviews any comments before issuing a final, public report, usually a few weeks later. Mr. Goelzer said these draft final reports have been sent to two of the Big Four for review. Still, the board realizes that "these reports need to come out faster," Mr. Goelzer said.

The advent of the PCAOB, which opened its doors in 2003, ended decades of self-regulation by the accounting industry. The oversight board was charged with overseeing accounting firms, inspecting their work and setting auditing standards. Under the Sarbanes-Oxley Act, the agency is required to inspect annually the biggest accounting firms -- those who audit 100 or more pubic companies -- and to issue reports on the firms. Besides the Big Four, there are five other firms that receive annual inspections. Firms with fewer than 100 public audit clients are inspected every three years.

In last year's reports on the Big Four, the PCAOB cited the firms for problems such as failing to get "sufficient competent evidential matter" to support audit opinions, evaluate the assumptions and methods used by companies to value certain assets or liabilities and properly apply some accounting standards to various transactions. In some cases, the shortcomings identified by the PCAOB led to companies restating their financial results.

Investors and corporate board members say the increasingly long delay in seeing inspection reports is compromising their usefulness and make the board less relevant. This year's PCAOB reports on the Big Four will cover inspections done in 2005 of audits the firms conducted of 2004 financial results.

"The inspection reports provide greater transparency into the audit firms, but from an investor and board member perspective too much emphasis is placed on the past," said Donald Nicolaisen, a former chief accountant of the Securities and Exchange Commission who now sits on the boards, and audit committees, of three U.S. public companies including Morgan Stanley. "We know there were problems [with the auditors] three or four years earlier. The real question is how are they doing today?"

Mr. Goelzer understood investor patience may be running thin, but added they aren't the only ones served by the inspection process. "It is about the firms and their quality controls," he said. "It also serves a function of informing boards and public investors about our assessment of firms, but that's not the sole purpose of it."

Still, many corporate board members are unhappy and want more current information. "There is a lag and that is a problem," said Robert Swieringa, a dean and accounting professor at Cornell University who is a member of General Electric Co.'s audit committee. "I'd like to see them be more timely. It would enhance the usefulness and relevance of the information."

The delay in issuing inspection reports compounds another problem facing investors. While the reports flag general problem areas facing the firms, specific issues cited by the PCAOB usually aren't made public if the firms can show within the following 12 months that they have addressed the oversight board's concerns. That window starts when the reports are finally issued.

Write to David Reilly at david.reilly@wsj.com

URL for this article:
http://online.wsj.com/article/SB11631291...
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-- posted by SteveT