|  | | 2004 News and Press Releases | | |
HEADLINE NEWS:
First Big Sarbanes-Oxley Test Coming For $75M-Plus Market Cap Companies
Staff Writer
Investrend. November 29, 2004
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EXCERPT: When Investrend Director of Corporate Development Drew Connolly pressed General Electric’s (NYSE: GE) CNBC financial commentator Lawrence Kudlow, speaking at the recent Paulson (NASDAQ: PLCC) conference in New York, to help showcase what Kudlow referenced as the monumental burdens of Sarbanes-Oxley on small companies, Kudlow readily agreed to do so. The first real test of Sarbanes-Oxley, hurriedly passed a Congressional knee-jerk reaction to massive blue chip fraud at Enron, Worldcom, now part of MCI, Inc. (NASDAQ: MCIP), Tyco (NYSE: TYC), HealthSouth and others, is coming. According to TheStreet.com, hundreds of public companies, from the bluest chips to the pinkest, may soon be hung out to dry by their shareholders when they get a “failing grade on a key Sarbanes-Oxley-related report.” Many observers consider the reports, which were intended to prevent the next Enron-type debacle, to be the key provision of the Sarbanes-Oxley Act,” said TheStreet.com. “But some accounting experts and regulators are warning investors that just because a company turns in an imperfect report doesn't mean it's a corporate scandal in the making.” "It's important that investors have an understanding of what the material weakness is," Erica Sulkowski, special adviser to the chief accountant of the Securities and Exchange Commission, was quoted as saying pointing out. The companies must report on potential “material weaknesses” in their internal controls, a system of checks and balances that were meant to diminish the prospects for corporate fraud. For example, said TheStreet.com, “such a control might be a provision that the person in charge of approving expense reports not be the same person who is in charge of cutting checks.” Many small public companies don’t have enough employees for that to be possible. In fact, in some the same person may serve in more than one office or executive capacity. Companies with market caps over $75 million must provide an assessment of internal controls in their upcoming annual reports. Many companies have already said they won’t be able to comply, or will be able to do so only after considerable expense. Some auditors are predicting that up to 70% of companies won’t complete their reports on time, and one out of ten may not be able to report effective controls in place at all. Many of those may occur only because the auditors are themselves overwhelmed with the reports and are helping their largest clients first. "There's not enough accountants to go around -- although they're hard-pressed to make that admission," a spokesperson for the Financial Executives International was quoted as saying. The SEC is said to be thinking about providing temporary or limited extensions to resolve that issue. |
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