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Archive for May, 2010

More SOX relief in the works?

May 18th, 2010 by Michelle Mackey

The SOX debate continues…. As noted in this recent Compliance Week post, the Senate is gearing up to take on financial reform, and the SOX 404 regulation discussion is emerging again; this time though it’s being debated by Congress and not by the SEC. Senator Mary Landrieu (D-LA), the Chairman of the Small Business and Entrepreneurship Committee and 6 other Senator co-sponsors have filed a 3-pronged amendment (S. 3785) within the Senate financial reform bill (S. 3217) that would exempt public companies with a market capitalization of under $150M from the auditor attestation requirements specified within the SOX 404(b) regulations. The amendment also calls for a new study to be completed to see how to reduce compliance burdens of companies with market capitalizations between $150M-$700M. And lastly, it includes a recommendation about whether the exemption should be extended further to larger companies above $700M.

Back in December 2009, the approved House version of the bill (H.R.3817) included a similar amendment to exempt companies with market caps of less than $75M. It’s worth noting, this amendment passed the House even with the strenuous objections of the Chairman of the Financial Services Committee, Congressman Barney Frank (D-MA).  As Compliance Week writes, the “issue is a lightning rod for controversy. Most business groups and companies support measures to reign in 404(b). However, most investor and consumer groups strongly oppose any exemption from the provision.”

The Sarbanes-Oxley regulation is considered to be the most costly regulation imposed on public companies.The two specific regulation components debated and talked about, since its inception, are 404(a) and 404(b).The difference between the two; SOX 404(a) only requires company management to report on their internal control environment while SOX 404(b) requires an actual external ‘audit’ of the company’s internal control environment.

For companies with market caps of over $75M, undergoing the external audit (the 404(b) component) has been an annual event since 2004. The SEC has waived the requirement for companies under $75M numerous times, but as it currently stands, all companies with fiscal year ends on or after June 15th, 2010 must complyunless Congress now changes this too.

Whichever direction the final bill takes, for the House and Senate must eventually agree on a market cap number, all companies will still be required to comply with SOX 404(a). The bottom line, whether you need to have an external audit completed or not, is that MFA still believes it is in the interest of every publically traded company to ensure they have adequate controls and support behind their internal control environment. Who wants to be the next SEC test case?

Posted in Accounting, Audit, Sarbanes Oxley | 1 Comment »

CFOs seeing steps to recovery…are you?

May 4th, 2010 by Travis Drouin

One of the best things about my role as a certified public accountant in a vibrant economy such as Massachusetts is how I get to meet and work with companies of all sizes, across a broad range of industries. Like most people reading this blog, I’m an avid consumer of information and love to share what I read. While I have not been blind to the past 18+ months, and I understand the basic principles of macro-economics, I’ve often pondered where the economists get their data. To be sure, there are exceptions to every observation, but the vast majority of MFA’s clients and prospects that I’ve spoken to have found success despite the recession. In some cases, success may be measured by results that beat otherwise dismal 2009 budgets by a wide margin, whereas others saw revenue growth during 2009 of 20% to 400%, and still others were successful in raising significant new rounds of equity capital on terms favorable to the company. Admittedly, cost cuts were made in many cases as the recession first settled in, and the job market has yet to recover in many cases, but when I look around at all the anecdotal evidence that I see on a daily basis, I’m sometimes left wondering who exactly the recession has hit so hard.

Perhaps I am a greater optimist than others, and am looking at things with rose-colored glasses, but a Q1 survey conducted by Financial Executives International took the temperatures of CFOs nationwide, and got some encouraging results.  While they’re not exactly dancing on the grave of the recession, those surveyed did seem to feel that signs of growth are visible and that their own companies have reached or are close to reaching a turning point. The survey centered on FEI’s “CFO Optimism Index,” which indicated a slight improvement over Q4 2009, but a significant jump from the all-time low when the glass was decidedly half empty in Q1 2009.   A press release on the survey notes that “significantly, CFOs are predicting double-digit percentage increases over the next 12 months in net earnings (26%), revenue (13%), capital spending (13%) and technology spending (10%).”

Now that’s optimism! Perhaps this has something to do with the third and fourth quarters during 2009, where I personally saw most of the positive 2009 data points. And the most recent Q1 didn’t look too shabby either (though not as great as Q3 and Q4 of last year!). I’m sure it also helps that the stock markets in general have been showing continued improvement over the course of the most recent trailing twelve months.

Do you believe the survey accurately reflects the situation today?  Is it just my sunny disposition talking, or are you also seeing positive signs? I’d be fascinated to hear from others on this subject.

Posted in General Business | 2 Comments »