Last week, new SEC head Mary Schapiro made it clear that small companies will have to comply with SOX.  This is consistent with how we saw the picture taking shape a few months ago, and it brings to a close a history of deadline extensions that have staved off compliance for non-accelerated filers.

In fact, the extension of the SOX compliance date for companies with a capitalization value less than $75M has been an annual event since 2004. Meanwhile, compliance requirements for accelerated filers have been widely recognized as, in many instances, over-reaching and too expensive.

But the time has come for universal compliance, according to Schapiro:

[Schapiro] says she wants to work with small businesses to make sure they have the tools to comply with Sarbanes-Oxley.

“It’s time that we bring uniformity to the system so that investors know what to expect from companies, while being sensitive to the needs of small businesses,” she said.

The new SEC chairwoman said internal company controls guarantee “accurate, robust and easy-to-understand financial reporting,” which is “critically important to investors and to the efficient functioning of our markets.”

Small businesses, which make up well over half of all traded companies, though a tiny fraction of overall market value, have complained that the costs of complying with the law would impose an undue burden on them.  In recognition of this, MFA has in place scaled down compliance requirements for non-accelerated filers, which are already deemed acceptable by our clients’ external audit firms.

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The question of whether fair value is, well, “fair” could be sorted out sometime soon, although the priority placed on addressing the issue remains in question.  This is reflected nicely in a pair of CFO Magazine articles that paint a picture of a true tug-of-war going on from ocean to ocean.

As the magazine writes in its January 20 article, What’s More Important than Fair Value? Plenty a panel of experts from the Financial Crisis Advisory Group (FCAG), assembled by the International Accounting Standards Board and the Financial Accounting Standards Board, met in London to discuss where the focus should lie over the next year:

The call to shut down fair-value accounting, especially for financial instruments in illiquid markets, may be waning…For his part, former U.S. Securities and Exchange Commission chairman and FCAG cochair Harvey Goldschmid said that the group had reached something of a consensus about keeping fair value accounting, but working to improve it.

On the other hand, the magazine also reported on January 16 in Volcker Calls for a New Look at Fair Value that a new report by the Group of 30 suggested a greater sense of urgency.  It states:

Calling for a fresh look at current mark-to-market financial reporting rules, Paul Volcker, a top economic adviser to President-elect Obama, has signed off on a financial-reform program more sympathetic to bankers’ views than the current Financial Accounting Standards Board’s fair-value regime has been thought to be.  The group [of 30 recommends that] fair value accounting principles and standards should be reevaluated with a view to developing more realistic guidelines for dealing with less liquid instruments and distressed markets.

We will continue to monitor the seesaw of motivation; as the new administration begins work, will fair value modifications rise to the top of the To Do list?

December’s ice storm caused major power outages in communities in the north central MA, southern NH and ME areas. This writer’s entire neighborhood was without power for eleven days. Everyone affected has stories to tell, and in all likelihood there will be others before we return to warm weather.

Here’s a valuable business lesson that’s worth passing on: a multi-million dollar client of MFA with offices in southern New Hampshire is a manufacturer of electronic components for the military and telecommunications industries. It has two facilities elsewhere in the country, however the financial and Enterprise Resources Planning (ERP) applications for all operations are maintained in NH.

The loss of power on Dec 12^th essentially shut down the entire company.

First thing Friday morning, the company’s corporate IT Manager took the initiative to purchase a portable generator, gas cans, power cord, and a 220V locking power plug needed to connect the power cord to the generator. By inputting the generated power thru the existing power conditioning - battery backup units, the company was able to restart critical application servers at the corporate headquarters. By midday the entire company returned to normal operations.

As the next several days unfolded, the equipment and supplies the IT manager purchased sold out throughout the three-state area. 220V locking power plugs that retail for $14 were being advertised on Craigslist.com for $75.

The IT manager was the hero of the day. He has realized, however, that the procedure he followed was entirely his own doing. If he had not taken those steps, there would have been significant lag time until operations restarted.

This manager is now making the smart move of documenting a disaster recovery / business continuity (DR/BC) plan for the company’s three operations. Comprehensive, yet easy-to-follow plans will be in place, instructing whoever is available on the required procedures needed to quickly restart operations, minimizing operational losses to the company.

Business life in New England – always an adventure!