Tag: Sarbanes Oxley

Accounting News Roundup: Southwest Loves AirTran; PCAOB Starts Negotiations with European Counterparts; Debunking the ObamaCare Tax on Home Sales | 09.27.10

Southwest Airlines to Buy AirTran [WSJ]
“Southwest Airlines agreed to acquire AirTran Holdings Inc. for $1.4 billion in cash and stock, the first major merger among healthy U.S. discount carriers.

The proposed deal follows Southwest’s failed effort to acquire Denver-based Frontier Airlines earlier this year and would revive its stalled efforts to launch international services by accessing AirTran’s network to the Caribbean.”

Troubling Trades Found Ahead of Flash Crash [DealBook]
“The Chicago data firmed strange patterns — dubbed “crop circles” — in stock market data around the flash crash on May 6 has put together a new analysis that it says backs the theory that one or more trading firms was intentionally trying to flood exchanges with orders.

The firm, Nanex, hopes the Securities and Exchange Commission and the Commodity Futures Trading Commission will be able to address its analysis in their long-awaited report on the flash crash due to be published before the end of this month.”

Treasury Said to Prepare AIG Exit, Repayment Plan [Bloomberg]
“The U.S. Treasury Department may announce plans as early as this week to return American International Group Inc. to independence and recoup taxpayer money from the insurer’s bailout, according to three people with knowledge of the talks.

The biggest part of that strategy is for Treasury to begin converting its $49 billion preferred stake into common stock for sales by the first half of next year, said the people, who declined to be identified because the negotiations are private. The timing of an announcement depends on the pace of talks between regulators and the New York-based insurer, and discussions may extend beyond this week, the people said.”

PCAOB Begins Negotiations With European Regulators [Compliance Week]
“Now that Congress and the European Union have removed a big obstacle to international audit inspections, the Public Company Accounting Oversight Board is trying to forge some new relationships with its counterparts overseas to get back on track.

PCAOB spokesman Colleen Brennan said the board is beginning to negotiate with various audit regulators in Europe to see how it can proceed in each country inspecting audit firms that audit financial statements in U.S. capital markets. The board is hopeful it can reach bilateral agreements with individual regulators to perhaps gain access to work papers that will enable the board to fulfill its inspection mandate under the Sarbanes-Oxley Act.”

IRS Offers Olive Branch to Business [CFO]
“The Internal Revenue Service has taken taxpayers’ comments to heart and revised its proposal on uncertain tax positions, in a way that is much more favorable to corporations. The final Form 1120, called Schedule UTP, and its instructions eliminate two draft requirements that companies argued were particularly onerous: the calculation and inclusion of a maximum tax adjustment for each position, and disclosures around positions that are not subject to an accounting reserve.

IRS Commissioner Douglas Shulman announced the release of Schedule UTP on Friday, in a speech delivered to the American Bar Association in Toronto. The agency has instituted a five-year phase-in period for filing the schedule, said Shulman.”


Job Interview Is Where Most Mistakes Are Made, According to Survey [FINS]
If you make a faux pas during an interview, rather than faint consider five suggestions that FINS has to keep your hopes alive.

PwC names industry leaders and academics as non-execs [Accountancy Age]
“Dame Karen Dunnell; Sir Ian Gibson; Professor Andrew Hamilton; Sir Richard Lapthorne; and Paul Skinner and come from the fields of business, academia and the public and professional services sectors.

They will sit on a newly-formed public interest body where they will be joined by partners fo [sic] the firm but have a majority.”

Cloud Computing: What Accountants Need to Know [JofA]
A crash course.

Finding Surprises in the Small-Business Jobs Bill [You’re The Boss/NYT]
“Most of the controversy surrounding the small-business jobs bill that cleared the House of Representatives on Thursday — after nearly a year of discussion — concerned a $30 billion small-business lending fund to be established by the Treasury Department.

But like most of the legislation, the lending fund is a temporary fix. It will make investments in banks for just one year. The tax breaks in the bill, worth about $12 billion, are mostly good for a year or two.”

Dodd-Frank Lets Small-Company Auditors Off the Internal Controls Hook: Putting a Partial Lid on the Sarbox [Re:Balance]
Jim Peterson reflects on Dodd-Frank’s ‘get out of jail free’ for small company filers.

Would “ObamaCare” (Health Care Reform) Tax the Sale of Your Home? Probably Not. [Tax Foundation]
“There has been a story and an e-mail floating around for some time claiming that the recent health care reform bill (PPACA) would impose a 3.8 percent “sales” tax on the sale of every home. The e-mail has been rightfully debunked by the usuals (Factcheck.org and Snopes), but here is what the bill would actually do regarding taxation of the sales of homes.”

Pastors Defy IRS On ‘Pulpit Freedom Sunday’ [ABC News]
“The pastors, along with the Scottsdale, Ariz.-based nonprofit Alliance Defense Fund, planned today’s event as a reaction to a law stating that churches are not allowed to support politicians from the pulpit, according to the ADF.

The growing trend is a challenge to the IRS from the churches, and may jeopardize their all-important tax-exempt status. But some pastors and church leaders said they are willing to defy the law to defend their right to freedom of speech.”

Happy Birthday Sarbanes-Oxley!

Eight years ago on this this glorious day, the ‘Public Company Accounting Reform and Investor Protection Act’ (in the Senate) and ‘Corporate and Auditing Accountability and Responsibility Act’ (in the House) came together to bring us Sarbanes-Oxley.

Most of you didn’t realize it at the time but this particular piece of legislation created thousands of new jobs at Big 4 firms, only to find those people out on their asses a few years later. Oh, well. Luckily, there are plenty of options with you holders of the accounting degree.


We perused the SOx Wikipedia page to find out some things worth noting:

• The final version passed the House 423-3 – Jeff Flake (R-AZ) and Ron Paul (R-TX) were two of the three voting ‘nay,’ but Flake and Paul pretty much vote against everything.

• It passed the Senate 99-0 but our friend Jim Peterson has said, “the inability of Sarbox to reach global-scale problems shows the futility of legislation so politically anodyne that it passed the US Senate [unanimously].”

• GWB called SOx, “the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt.” This, many will argue, has now been trumped.

• The PCAOB! If it wasn’t for Sarbanes-Oxley, there would be no PCAOB. Well, and some recent help from the SCOTUS.

Anyway, we’ve probably said enough. If you have fond wishes or memories of Sarbanes-Oxley that have transpired over the last eight years, cut loose in the comments.

(UPDATE) The PCAOB’s Statement on the Signing of The Dodd-Frank Act Isn’t Exactly Enthusiastic

~ Includes statement from PCAOB spokesperson

Hey! Did you hear? Dodd-Frank got signed into law yesterday and plenty of people are excited (namely Dodd, Frank, BO) and there are plenty who are not.

The PCAOB, it seems, lands somewhere in the middle. Sure the dopes exempted public companies with market caps under $75 million from complying with 404 but putting things in perspective, the Board is probably just amped that the SCOTUS didn’t kick them off the playground.


To show their gratitude, the PCAOB doesn’t bother mentioning the exemption in their press release from yesterday, instead focusing on…foreign auditor oversight (pretty much a black hole) and authority over auditors of broker-dealers. We understand that playing nice is part of the game but COME ON.

We emailed the nice folks over at the Board to ask them about the 404 exemption but we’re still waiting to hear back from them. Perhaps they’re putting on their smiley faces to address this one since they’ve probably been gritting their teeth for the last 20 or so hours.

A PCAOB spokesperson provided us with the following statement:

The PCAOB believes that the internal control audit report required under SOX Section 404(b) has improved the reliability of financial reporting and audit quality. The Board has taken steps to make sure that the internal control auditing standard is scalable to companies of all sizes and has issued guidance and held educational forums to assist smaller company auditors in understanding how to apply that standard to smaller companies. The internal control audit requirement relates to the content of SEC filings, and SEC Chairman Schapiro opposed the exemption for non-accelerated filers.

So, in other words, the compliance technically falls under the SEC and the PCAOB issues the audit standards but it still has to hit a little close to home.

BPR:

PCAOB STATEMENT UPON SIGNING OF THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT
Washington, D.C. , July 21, 2010

Today’s enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act facilitates the PCAOB’s ability to share information with foreign auditor oversight authorities and closes gaps in the Board’s authority to oversee audits of brokers and dealers.

While the Sarbanes-Oxley Act of 2002 protects the PCAOB’s inspection and investigative processes from public disclosure, it permits the Board, in certain circumstances, to share information with federal and state authorities. However, at the time the Sarbanes-Oxley Act was enacted, very few other countries had audit oversight bodies and, therefore, there was no provision in the Sarbanes-Oxley Act authorizing the PCAOB to share information with foreign authorities. Since that time, many countries have established or are in the process of establishing audit oversight bodies. The Dodd-Frank Act allows the Board, under certain circumstances, to share information with such foreign auditor oversight authorities.

The Dodd-Frank Act also expands the PCAOB’s authority to oversee auditors of brokers and dealers. Under the Sarbanes-Oxley Act, auditors of brokers and dealers were required to register with the Board. The Dodd-Frank Act provides the PCAOB with standard-setting, inspection and disciplinary authority regarding broker-dealer audits.

More information about the PCAOB’s plans to implement this authority and guidance for auditors of brokers and dealers will be forthcoming.

The Way Things Are Going, Eventually No One Will Have to Comply with Sarbanes-Oxley Section 404

As we trudge toward a Senate vote on he financial reform bill, one issue that is of utmost interest to those in the accounting/audit biz is that of small businesses complying with Section 404(b) of Sarbanes-Oxley.

As it stands, only a small number of non-accelerated filers are voluntarily in compliance with 404. Those not jumping at the voluntarily complying with 404 have enjoyed the repeated delays by the SEC since the legislation was passed in 2002.

But if reform bill passes in its current form, all companies with market caps of less than $75 million will be exempt from complying with the requirement to have an audit of their internal control system. And even those companies that went to the trouble of voluntary compliance, might not continue doing so:

Dan Crow is one of the few small-company CFOs with an auditor’s stamp on his internal controls. Getting it wasn’t as time-consuming or as costly as it would have been several years ago, when large public companies first began complying with one of the most onerous requirements of the 2002 Sarbanes-Oxley Act, known as Section 404.

Still, Crow, who oversees finance for retailer Hastings Entertainment, doesn’t rule out dropping the extra review next year if Congress decides to permanently exempt small public companies from needing an auditor’s sign-off on their internal controls — as it seems poised to do. The Senate is expected to vote this week on the final version of the financial regulatory reform bill, which would exempt companies with market caps less than $75 million from complying with Section 404(b), the rule in question. (The House has already passed the bill.)

But that’s not all! Because 404(b) is clearly “red tape” (a popular rallying cry in an election year) that provides no benefits whatsoever and just crushes the spirit of small business (the backbone of America, we might add!) Congress has called for a study of “how the ‘burden’ of 404(b) compliance for companies with market capitalization between $75 million and $250 million could be reduced, and whether an exemption for them could increase the number of initial public offerings in the United States,” in the bill.

Christ, where does it end? Let’s just study the whole damn thing over while we’re at it. Apparently the entire Congressional body has completely ignored the benefits of Sarbanes-Oxley; never mind that costs of gone down significantly in the past eight years, making compliance less financially painful.

And not to mention that smaller companies are at greater risk for fraud and accounting manipulation. Look at the roster of companies on Sam Antar’s website and you’ll note that many of them have market caps of $1 billion or less. If these companies can’t resist the temptation to get shifty with financial reporting in order to meet (or not) the short-term focus of Wall Street, it’s difficult to reason that even smaller public companies won’t succumb to it.

To 404(b), or Not to 404(b)? [CFO]

Supreme Court Ruling Could Expose PCAOB to More Political Pressure

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

We’re not quite as sure as others are that yesterday’s Supreme Court decision regarding SarbOx is so utterly meaningless regarding the future of the Public Company Accounting Oversight Board.

Sure, the court said the law is still fully in effect, blah, blah, blah.

But letting the Securities and Exchange Commission fire PCAOB board members for any reason instead of “for cause” could easily subject the board to significantly more political influence.


While Floyd Norris says the commission is unlikely to fire anyone on the PCAOB, the fact is the has commission has thrown its weight around in similar fashion in the case of the Financial Accounting Standards Board when companies have complained to Washington about FASB’s accounting rule making.

What’s to stop them from complaining to the SEC that the PCAOB is being too hard on its auditors, and the SEC from succumbing to that pressure?

Much depends, of course, on who’s leading the commission. Mary Schapiro might not easily bend to the political winds, but her predecessor, Christopher Cox, clearly did just that in connection with FASB.

After all, when during a conference on accounting I asked Conrad Hewitt, the SEC’s last chief accountant under Cox, about the SEC’s threat to hold up approval of FASB’s budget unless it let the commission vet nominations to the board in advance, Hewitt said the SEC was acting properly in its heightened role as the FASB’s overseer under SarbOx.

Yet a FASB member privately insisted to me afterward that the SEC had no authority to do what it did.

And at another conference a few months later, I asked Hewitt what the White House was telling the SEC to do about exemptions for small companies from SarbOx’s requirements for internal controls, the infamous provision known as Section 404. At that, Hewitt, as somnolent a figure as ever occupied the job, sat up in his chair as if he’d just had a bucket of cold water thrown in his face, and insisted that the SEC was an independent agency.

But given what happened to Cox’s predecessor, William Donaldson, I think Hewitt’s reaction to this question was disingenuous.

And both of his answers help explain why the big argument on the court yesterday over the theory of “the unitary executive” and the ability of the president to fire “independent” agency personnel isn’t quite as irrelevant to the PCAOB’s future as most everyone else seems to think.

Accounting News Roundup: Financial Reform Finalized; Banco Espirito v. BDO 2.0; Small Win for Skilling, Big Loss for PCAOB? | 06.25.10

U.S. Lawmakers Reach Accord on New Finance Rules [WSJ]
By the end of this one, can’t you picture an exhausted Barney Frank with his tie loosened to mid-torso, pants undone with fly wide open open and some staffer dabbing his sweaty brow?

“After more than 20 hours of continuous wrangling, Congressional Democrats and White House officials reached agreement on the final shape of legislation that would transform financial regulation, avoiding last-minute defections among New York lawmakers that had threatened to upend the bill.

After months of uncertainty about how the U.S. would craft new rules, the agreement offers thince the financial crisis of how markets and the government will interact for decades to come. The common thread: large financial companies are facing a tougher leash.”

Just in case you missed it yesterday, former SEC Chairman Arthur Levitt isn’t nearly as excited as some people about the bill. The President is expected to sign the bill before July 4.

Sidenote on this one: how the Journal managed to slip Maxine Waters through as one of a dozen “players” in this bill should cause you to question – if even for just a minute – the credibility of the paper.

Florida Appeals Court Turns Down Heat, For Now, On BDO Seidman [Re: The Auditors]
Francine’s take on the decision by the Florida 3rd District Court of Appeal to order a trial in the Banco Espirito v. BDO case. An event she isn’t thrilled about, “My doubts about the efficacy of a new trial are based on the disappointing, frustrating and completely unsatisfying way the court and the judges in this case have proceeded. Some of the additional comments raised by the Appeals Court do not bode well for this plaintiff’s chances next time around.”


Supreme Court Rolls Back a Law Born of Enron [NYT/Floyd Norris]
In more Congressional ineptitude (at least in the eyes of the SCOTUS), former Enron CEO Jeff Skilling won his case at the high court, arguing that “the concept of committing fraud through depriving an employer of ‘honest services’ was not adequately defined in the law,” Floyd Norris writes.

In other words, the “idea” of fraud being a kickback or a bribe is obvious and was defined. Manipulating mark-to-market and off-balance sheet accounting rules or “something else equally outrageous” were not and thus the law was unconstitutional. Long story/short, Norris writes, is that

Funny story on the way to this Skilling outcome – if the SCOTUS rules against the PCAOB (it is expected on Monday), “It will blame Congress for writing bad laws,” Norris writes. And who forced Congress into action on Sarbanes-Oxley?

BP: Oil-Spill Cost Hits $2.35 Billion [WSJ]
Has anyone handicapped this? Obviously the $20 billion reserve is a good ballpark figure but the overs have to be a pretty solid bet on that. Takers?

Caturano being acquired by RSM McGladrey [Boston Business Journal]
The firm fka RSM McGladrey purchased Caturano and Company, the fifth largest firm in Boston. The deal, if approved by H&R Block, would make RSM McGladrey…the fifth largest firm in Boston.

Accounting News Roundup: More Execs Say Benefits Sarbanes-Oxley Outweigh Costs; New Jersey Millionaire Tax Fails; Has the SEC Learned Anything? | 06.22.10

As Congress Mulls SOX Exemption, Survey Suggests Acceptance [Compliance Week]
Just when Sarbanes-Oxley compliance was about to get torpedoed by the financial reform bill, a new study comes out that shows companies are starting to see benefits from the legislation, “In its 2010 Sarbanes-Oxley compliance survey, Protiviti says 70 percent of executives in at least their fourth year of working to comply with Sarbanes-Oxley say they believe the benefits outweigh the costs. That’s a big swing from the first year the firm asked the same question and heard only 39 percenbenefits greater than the costs.”


Showdown Over Strippers [WSJ]
Some people in the Show Me State are not interested in living up to that name, “Last month, the Republican-controlled legislature passed one of the nation’s toughest state laws aimed at strip clubs and other adult-entertainment venues. It would ban nude dancing and the serving of alcohol in adult cabarets, force strip clubs to close at midnight and forbid seminude dancers to touch patrons.”

The legislation is currently awaiting sign/veto from MO Governor Jay Nixon.

Opponents argue that the state’s very economic recovery is at stake, “Club owners and dancers say that the venues rarely attract crime, and that the new rules would be so strict that hundreds of jobs and millions of dollars in state revenue could be lost at a time when Missouri’s economy is struggling to recover from the recession.”

JP Morgan Names Doug Braunstein CFO in Shake-Up [AP]
“JPMorgan Chase said Tuesday it is shuffling the positions of three executives, including naming a new chief financial officer. The shake up is part of a program JPMorgan Chase has put in place to have executives work across multiple divisions to broaden their experience. Doug Braunstein is taking over as CFO. He was previously head of the bank’s investment banking division in the Americas. Braunstein, 49, replaces Michael Cavanagh, who had served as CFO since 2004. Cavanagh was named head of the bank’s treasury and securities services business.”

Tropical Storm May Pose Threat to BP Spill Cleanup [Bloomberg]
The first storm of the Atlantic hurricane season may enter the Gulf of Mexico as soon as next week, possibly disrupting BP Plc’s efforts to clean up the worst oil spill in U.S. history.

Thunderstorms in the Caribbean may strengthen into a tropical storm this week before heading into the Gulf between Mexico and Cuba, said Jim Rouiller, a senior energy meteorologist at Planalytics Inc. in Berwyn, Pennsylvania.

“The first named tropical storm of the 2010 season appears more likely to form over the northwestern Caribbean late this week and will go on to represent a formidable threat to the Gulf, along with heightening concerns about the oil slick,” Rouiller said in an e-mail yesterday.

Forecasters are predicting this year’s Atlantic hurricane season, which runs from June 1 to Nov. 30, may be among the most active on record and hamper the U.K. oil company’s efforts to plug the leaking well. AccuWeather Inc. forecast at least three storms will move through the region affected by the spill.

New Jersey Democrats fail to extend millionaires tax [Reuters]
Garden State millionaires rejoice!

SEC Crazy Talk [Portfolio/Gary Weiss]
Sam Antar recently turned over 37,000 documents to the Securities and Exchange Commission but not because the SEC was getting nostalgic for the Crazy Eddie days.

The SEC wanted documents, emails etc. from both Antar and Fraud Discovery Institute founder Barry Minkow on companies that have been covered by both men. The information relates mostly from information obtained from short-sellers. However, Gary Weiss writes that the SEC also asked for emails that the two exchanged with two reporters and from Antar’s ex-wife.

Gary thinks that this poking around by the Commission is all too familiar, “Well, I think what we may be seeing is a repeat of the [David] Einhorn fiasco, and then some,” referring to the SEC’s investigation into Einhorn’s criticism and short-selling of companies.

Einhorn was eventually vindicated and the companies – most notably Allied Capital – outed for their shady practices. Why the SEC is digging around the very people trying to help them isn’t quite clear but then again the SEC doesn’t have the greatest track record.

Accounting News Roundup: UK Launches Probe of E&Y’s Final Lehman Audit; Revolving Door at SEC Scrutinized; Swiss Upper House Rejects Referendum | 06.16.10

UK watchdog launches Lehman audit probe [Reuters]
The UK’s Accountancy and Actuarial Discipline Board (AADB), investigative and disciplinary body for accountants, has started an investigation into the Ernst & Young’s final audit of Lehman Brothers’ UK operations for the year ending November 30, 2007.

E&Y, completely familiar with this drill, is sticking to their guns, “Ernst & Young’s audit opinion stated that Lehman’s financial statements for that year were fairly presented in accordance with the relevant accounting standards, and we remain of that view.”


SEC ‘Revolving Door’ Under Review [WSJ]
Currently, the SEC does not have a cooling off period for former staffers that take a position with a private firm. Former staffers (i.e. lower-level employees) need only to provide a written letter disclosing the fact that they will be representing their new employer in an investigation.

The Journal reports that Senator Charles Grassley (R-IA) announced on Tuesday that an investigation into the practice had recently been launched by the Inspector General David Kotz, “[W]e are currently conducting an investigation of allegations very recently brought to our attention that a prominent law firm’s significant ties with the SEC, specifically, the prevalence of SEC attorneys leaving the agency to join this particular law firm, led to the SEC’s failure to take appropriate actions in a matter involving the law firm,” Mr Kotz said.

The Journal reports that law firm in question “could not be determined.”

There have been several instances of quick transitions of former Commission staffers to new representing their new firms, including the most recent example of an attorney leaving the Division of Trading and Markets for the Chicago-based high frequency trading firm Getco, LLC and an accountant from the enforcement division who represented his new employer in a nonpublic investigation.

IRS hatches new assault on ‘Survivor’ [Tax Watchdog]
Thanks reality TV gods, Richard Hatch is still in our lives. He still owes $1.7 million in taxes from 2000 and 2001.

The CAE’s real challenge – ethics, courage, and complacency [IIA/Marks on Governance]
Norman Marks responds to a commenter that believes that a Chief Audit Executive need not focus on auditing and communicating those results and risks but instead “be conscious of and responsive to management expectations,” and basically substantiate that internal audit isn’t a giant waste of money.

Mr Marks questions this notion in its entirety, “It’s fine to supplement essential assurance activities with the tangible value-adding programs…But, the assurance work has to be covered or (in my opinion) internal audit is failing to do its job. When that is a conscious decision, I have to question the ethics – and the courage – of the individuals involved.”

Swiss Upper House Rejects Call for Referendum on UBS Pact [WSJ]
The upper house in Swiss Parliament would like their counterparts in the lower house to leave their popular referendum idea wherever they found it. Presumably everyone understands that super secret Swiss banking as the world knows it is over and lower house is a little slow to catch on. They’re supposedly debating the referendum circa now.

Class Action Complaint against Amedisys uses Sarbanes-Oxley Act Corporate Governance Provisions to Battle Alleged Corporate Malfeasance [White Collar Fraud]
Amedisys got caught red-handed by the Wall St. Journal abusing the Medicare system and Sam Antar hopes that this is a sign of things to come:

The SEC rules under Sarbanes-Oxley for public company codes of ethics broadly define corporate malfeasance by senior financial officers, requires such companies to promptly report any misconduct, prohibits companies from ignoring any misconduct, and makes it relatively easy for investors to sue for misconduct.
…
Hopefully, more lawsuits will cite code of ethics violations by public company senior financial officers in the future.

Pros and Cons of the CFO Serving on the Board of Directors

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

While shareholders and Sarbanes-Oxley demand more independent directors on boards, a new study shows companies with boards that have at least one key insider, the CFO, are better at financial reporting than those without that executive on their boards. But that doesn’t necessarily mean that all companies should appoint their CFOs to their boards, not at least without taking other considerations seriously into account. In fact, most companies probablelsewhere for the expertise that CFOs supply.


The study found that companies with CFOs on their boards have more effective internal controls over financial reporting, higher accrual quality and a lower likelihood of restatements.

The study measured the quality of financial reporting by examining the incidence of material weaknesses reported under Section 404 of Sarbanes-Oxley. The provisions require companies to document and test internal control over financial reporting, and the company’s independent auditor to independently test those controls and opine on internal control effectiveness.

“One overarching benefit we saw was that there was an improvement in financial reporting when a CFO was on the board,” Rani Hoitash, a professor in the department of accountancy at Bentley University and co-author along with professors Jean Bedard of Bentley and Udi Hoitash, of Northeastern University, “Chief Financial Officers on Their Company’s Board of Directors: An Examination of Financial Reporting Quality and Entrenchment,” told CFOZone.

From 2004 to 2007, 12 percent of those with a CFO on the board reported problems with their internal controls, compared with 15 percent of those without their CFOs on the board, according to the study. Companies with their CFOs on their boards were also 15 percent less likely to restate their results.

These results imply that having a CFO on the board is more likely to align management’s interests with those of shareholders. One reason, the study says, is that CFOs are more likely to share information with other board members about the status of the financial reporting function, and secure sufficient resources to invest in the establishment, documentation and testing of internal controls.

Yet only 8 percent of the more than 7,000 companies studied had their own CFOs on the board.

Of course, SarBox says a CFO can’t serve on his or her company’s audit committee because of the obvious conflict of interest. But as Hoitash points out, “they can have input.”

And SarBox also requires a board to have financial expertise. A CFO obviously fits that bill.

But having a CFO on the board is not without its drawbacks. CFOs serving on boards are more highly compensated than those in other companies, earning an average of $218,715, or 34 percent more in total compensation than their nondirector peers did. There was also a 35 percent lower turnover rate, 8.2 percent compared to 12.7 percent, among CFOs who sat on their own companies’ boards, an advantage that sometimes existed despite a decline in earnings. Hoitash said the findings were evidence that CFOs who serve on boards are more firmly entrenched than those who are not.

That can be a good or bad, depending on a company’s performance. While in many cases where companies are performing poorly, they will fire the CFO without addressing the underlying causes, Hoitash noted that the opposite is true in cases where the CFO is on the board, and that’s obviously not a good thing either. “If the CFO is on the board and the company is performing poorly we found that they sometimes don’t leave, because they have power and influence,” he said.

The question is, will they use the power to do good or bad?” asked Hoitash. If they see themselves as part of the board and work to achieve goals, that is clearly a good thing. However, that power could also be used in their interest to the detriment of shareholders.

That makes some observers wary of appointing CFOs to boards. Instead, say these observers, they should merely attend all board meetings so as to share their expertise without becoming entrenched. “Look back in history, what transgressions brought us to Sarbanes-Oxley and other regulatory reforms?” asked Marc Palker, a certified management accountant and director of CFO Consulting Partners. “Once the CFO was granted stock options in the same manner as the CEO, there was a possible partnership for crime,” Palker added.

Others go even further by recommending that CFOs not attend meetings devoted to discussions of the company’s finance functions. In that case, “it might be appropriate to hold them without the CFO present,” said Sue Mills, a consultant with Tatum, an executive services firm that provides interim CFOs.

Bottom line: CFOs don’t belong on boards unless they cannot otherwise get financial expertise. In that case, Hoitash said, “you might want” to consider the idea.

Accounting News Roundup: The Psychology of Cheating on Your Taxes; The Silver Lining in Sarbanes-Oxley; Is It Time to Go Solo? | 04.15.10

Happy Tax Day! It was a breeze right? Hopefully you tax pros have wrapped everything up and the extensions are out the door so you can enjoy a relatively easy day. And if you’re in DC, don’t forget to get yourself a Blizzard.

Why we cheat on our taxes [MSNBC]
Sorry rich folks but it’s mostly your fault that people cheat on their taxes. Yes, that’s right. Once again, the wealthy need to explain themselves with their richy rich ways. Never mind that the complexity of the Internal Revenue Code that encourages the 1040 malfeasance, it’s the perception that the wealthy are all cheating on their taxes (that’s how they got rich after all) so the little guy needs to do whatever it takes to get his.

While the country’s federal tax code is considered progressive, some people feel that it grants the wealthy many loopholes — something that further perpetuates the resentment among those who believe the tax burden can sometimes fall unjustly on those who are least able to afford it.

“Many wealthy people earn income, such as capital gains, that is taxed at lower levels than regular income,” Callahan said. “So, in some cases, a wealthy guy sitting by his pool, living off his stock portfolio is paying a lower tax rate than the guy cleaning his pool. Tax evasion scams by the wealthy are so often revealed, and so there’s the perception that the rich cheat heavily on their taxes. There’s truth to that perception, which is what keeps it alive.”

While the attempt at the psychology behind cheating is a worthy exercise, the facts remain that the wealthy are paying more than their fair share of taxes. Or just ask them, they’ll tell you.

Something to Like about Sarbox [CFO Blog]
Forget Section 404. A less debatable benefit from SOx is Section 403 which “shortened the time between when officers and directors make a change in their stock holdings and when they report it through a Form 4 filing, from within 10 days at the end of the calendar month to just 2 business days.”

Harvard Professor Francois Brochet reviewed more than 50,000 filings from 1997 to 2006 and argues that, not only does Section 403 allow investors to react to insider trades more quickly (which prevents bigger drops in stock prices on suspected bad news, he argues), it allows smaller companies to trumpet their company’s prowess even if they’re not widely covered by analysts. Oh, and the cost is virtually nil compared to 404 compliance.

Hanging Your Own Shingle: Starting a CPA Business [FINS]
Now that today marks the end of another tax season/busy season is it time for you to move on or is it time for you to be the boss?

A recent survey of CFOs indicates that most companies are in no rush to hire and with layoffs coming and/or your post-busy season burn out raging, you’re probably weighing your options. FINS reports that “Roughly three-quarters of the country’s 44,000 tax businesses are one-person shops, according to the American Institute of Certified Public Accountants (AICPA). And almost half of tax accountants work in companies with fewer than 10 employees,” so there’s plenty of people already on their own. Plus, there’s no sign of the tax code getting any simpler, so more and more taxpayers will be needing a professional to help them.