Recent Articles
Posted on May 9th, 2008 by Sarah »Permalink
It’s been longer than we care to share since, Econ 101, but the steady hand of supply and demand is impressive still today. Seems like only yesterday [links] that we were reading all over about how hard it is to find qualified accounting folk, and how in-demand they are, and voila! Today we read news that this year’s crop of accounting grads, both undergrad and graduate, is the highest in 36 years.
Speaking of supply and demand, low demand for the US Dollar — and higher demand for just about anything but the dollar (or the Zimbabwean Dollar — yikes), is impacting companies with large global operations (and clients who pay in Euros, Yen and the like). Financial Week warns, though, that gains may be fleeting as the dollar gains strength.
Elsewhere from Financial Week — check this out — an examination of how risk experts are working to account for human behavior in developing risk management policies. We’ll be interested to see where this discussion goes. We’ve talked before about the impossibility of legislating behavior, but planning for it might be something else entirely.
Finally, any NY-area readers might want to mark your calendars — it seems the S&P is holding a fair value accounting forum next Thursday, featuring FASB chairman Bob Herz and S&P’s chief accountant, among others.
Nothing like getting guidance straight from the experts, is there?
Tags: FASB, fair value, accounting industry, GRC, risk management
Posted on May 6th, 2008 by Priya Ramesh »Permalink
It’s shaping up to be quite a busy week for Wall Street. Bloomberg’s got the skinny on the latest goings-on in Microsoft’s bid for Yahoo! (as in, rough day for Yahoo! shareholders although happier days may come), and
Professor Bainbridge has an interesting related take on just what might have soured things in the end — and prevented a hostile bid from MSFT.
Elsewhere on Wall Street, reports that the FASB is about to get a good deal tougher on folks involved in the subprime mortgage meldtown, assembling a task force of assorted agencies to look into whether any of them committed mortgage fraud, insider trading and accounting fraud.” We’ll be watching this one closely.
Meanwhile, WebCPA has the goods on Interpublic’s deal with the SEC and the $12 million they had to cough up to settle charges of accounting fraud — without admitting or denying the charges.
Finally, in what has to be the best-headlined story we’ve read in ages, CFO’s got an interesting piece up this week on how accounting students are planning for the switch from GAAP to IFRS. It’s worth the read.
Tags: Yahoo!, Microsoft, GAAP, IFRS, FASB
Posted on May 2nd, 2008 by Priya Ramesh »Permalink
Howdy, everyone. There’s all kind of news today from the the world of finance. FASB is saying we-told-you-so about the subprime fallout, and just about everyone else is still scrambling to deal with the leftover mess. According to Financial Week, Senator Menendez (of the great state of New Jersey and the Senate Banking Committee), says that it’s time for reform for ratings agencies — that they’re playing both coach and referee.
Senator Menendez isn’t the only one calling for change. A senior official at the Treasury department is also advocating increased transparency in the marketplace, encouraging financial markets participants to adopt “voluntary measures to prevent abuses, reduce risk and boost transparency — or or face new rules requiring changes,” say the folks at Financial Week.
So we need improved transparency and fewer foxes guarding henhouses. Why does that sound so familiar, nearly six years after SOX?
Meanwhile, FierceSarbox picked up a study that CIO recently covered showing that more than 70% of security professionals list damage to brand as a top concern — more so even than avoiding regulatory violations or data breaches or ID theft. That level of awareness of the less tangible, but still serious damage that can come from compliance weaknesses is pretty enlightening. Looks like awareness of the importance of an enterprise-wide focus on GRC is really catching on . . .
Finally, because we’re not above tooting our own horns at Audit Trail, we thought our readers would be interested to hear that Approva has been named to the 2008 Red Herring Top 100 most innovative private technology companies headquartered in North America. You can read a little more about this here.
Tags: subprime meltdown, security officers, GRC, governance, risk and compliance, Red Herring 100
Posted on May 1st, 2008 by Julie Garland McLellan »Permalink
This is the most important aspect of board governance. The oversight function is the absolute minimum that investors and owners have a right to expect from boards. Some boards are too focused on simply providing the minimum.
Board members should, individually and collectively, have experience of business and community life that will enable them to add value to the organisation as well as to effectively monitor its operations. They add this value by the insights they bring.
Oversight is looking at a function and asking the compliance related questions:
• Should we be doing this?
• Are we doing this correctly?
• Are the right people doing this and do they have the right tools and training?
Insight comes when the board start ask questions about performance such as:
• Are these activities the best activities for generating the results we want?
• If they are the best activities, could we do them more effectively or efficiently?
• What would help our people to be more effective?
• Who does these activities better than we do and what could we learn from them?
An insightful board will challenge and support the President or CEO by helping to keep the organisation focused on outcomes rather than processes.
Foresight comes when the board can predict aspects of future performance by monitoring current KPIs. A board with foresight is able to look at the evolving corporate landscape and ask questions such as:
• What activities will be required in the future?
• What must we learn now to be more effective in the future?
• How will we track that our people are learning the required skills?
• When should we start to deploy new activities?
It is important to remember that the oversight role is the foundation for the insight role. No board can sensibly offer advice on improving performance if there is any doubt about the veracity of the information they are basing their insights upon. Similarly the board must have appropriate good quality data from their performance insight to be able to make any use of their instincts regarding foresight. Attempting to move to a higher level without the data from the lower levels is dangerous; it can leave a board exposed to making decisions that do not stand the test of later analysis.
Attempting to govern a successful company without progressing from oversight to foresight is also dangerous. The board can become trapped in old paradigm thinking and performance can deteriorate to a point where future options are limited by lack of resources. Boards must have confidence in their data to be able to move successfully through from oversight to insight and then to foresight so that their organisation moves from compliance to performance to sustained competitive advantage.
Tags: corporate boards, risk management, compliance
Posted on April 29th, 2008 by Priya Ramesh »Permalink
Happy Tuesday, everyone. It seems that the PCAOB is considering a rule requiring accounting firms to disclose to audit committees any potential conflicts of interest between themselves and the operations they’re auditing. Fierce Sarbox says it’s a no-brainer, and we’re inclined to agree. Anybody out there want to argue otherwise? That’s what our comments are for — let your voice be heard.
Meanwhile, risk seems to be the topic of the week. Financial Week examines how demand has soared for Chief Risk Officers (most recently at Washington Mutual).
As the Financial Week article linked above says, “The credit crunch has pushed risk management to the top of corporate directors’ list of concerns.” No telling how much farther it will climb amid increasingly grim financial news, like Morgan Stanley’s warning that problems for big banks have only just begun. But according to company CFOs, economic forecasts are indeed grim — just not for their own companies. Hmmm. So is this just a high-profile case of cognitive dissonance, or do they know something we (and the Fed) don’t?
Tags: PCAOB, risk management, conflict disclosure, credit crunch
Posted on April 28th, 2008 by Audit Trail »Permalink
We just returned from a very busy week at COLLABORATE 08 and wanted to share some thoughts on what we saw and heard in Denver. The conference was very impressive – some 7,000 attendees, hundreds of vendors, and thousands of sessions.
It was clear to us early-on in the conference that interest in internal controls has grown well beyond simple user access. While user access and SOD are still priorities, the people we encountered were most interested in the ability to implement controls over things like systems settings and transactions – and in risk management, data privacy, and fraud prevention.
There also seemed to be a mad rush to upgrade to newer, more current versions of Oracle and PeopleSoft. We found ourselves talking a good bit about the need to set up controls appropriately within upgraded systems.
Our own sessions drew a healthy audiences – in fact, our session on strengthening data privacy in Peoplesoft (live-blogged here) ultimately got so full that folks were being turned away. While we’d like to credit our fabulous presentation skills, the truth is that more and more businesses are interesting in leveraging controls and compliance efforts for broader business goals, and data privacy is a top concern for many we encountered – regardless of role or business size.
We talked to everyone from business professionals, IT staff and controls/compliance and audit folks about this issue, from companies small and very, very large, and these issues were at the forefront for nearly all of them* as we discussed risk, controls, and compliance.
*We said “nearly” for a reason. Almost everyone wanted to talk about SOD, user access, data privacy or something related, but as happens at every event, several just wanted to talk about how they Love A Good Audit and take home an Approva or button or two. We even met one woman who’d made her own I Love a Good Audit button! Now that’s dedication.
Tags: COLLABORATE 08, Peoplesoft, Oracle, data privacy, controls intelligence
— Monica Elliott and Brian Groves
Brian Groves is Senior Director, Product Marketing, Oracle at Approva.
Monica Elliott is Manager, Product Marketing, PeopleSoft at Approva
Posted on April 24th, 2008 by Julie Garland McLellan »Permalink
Have you recently read any articles about what your board should be focused on? Was it bird-flu, Internet portals, Terrorism or some other fad?
I wish I had a dollar for every article on the latest buzz-word that every board should worry about. Or fifty cents for every list of twenty questions board members should ask about the craze. I would hate to be on a board that was so easily sidetracked from their real concern; running the company so that it achieves what it was set up to achieve.
In some great research from Australia, Neil Buck surveyed real company directors on what risks they thought most likely to impact their companies. His initiative revealed 16 categories of risk which, when read by company directors, were recognised as things they worry about.
I have followed up on that research and interviewed 241 company directors on the big risks facing their company. Unsurprisingly the number one risk was financial but (sad news for the audit community) it was not financial statement misstatement or fraud, but simple cash flow risk that kept directors awake at night. Fixing this is a question of strengthening the business. Improving reporting or ticking boxes in the board room won’t help.
Directors the world over are focused (as they should be) on running businesses to generate wealth (or benefits in a not-for-profit context) in an environmentally and socially acceptable manner. If bird flu is important for the business they will focus on that. If not, they should focus on what is important for their business.
Directors can rely on their own judgement to help them to evaluate such things. They may get it wrong occasionally (all boards, when they are being honest, have a decision they regret in their history) but it rarely is so wrong that they can’t fix it. Unless, of course, they are rushing from one fad to the next without pause for thought.
Anyone who suggests that every possible risk should be a board focus is either totally inexperienced in the board room or hoping to sell your board something. For optimum results, focus your board on what is important for your organisation by holding an annual discussion of strategic aims and current targets. Forget the current fashion and just talk about what the organisation needs to achieve and what are the risks that threaten that achievement.
You will be amazed by the power that the board can generate and the value that they can add.
Tags: corporate boards, risk management
Julie Garland McLellan is a professional company director and corporate governance consultant. Her book “All Above Board” is a practical manual for government sector boards. Julie delivers practical boardroom training and performance assessments that empower boards to achieve results. Readers are invited to subscribe to her newsletter ‘The Director’s Dilemma” free of charge until 1 January 2009.
Posted on April 22nd, 2008 by Priya Ramesh »Permalink
Last week was pretty exciting for many of us at Approva. Our own Monica Elliott and Brian Groves attended COLLAORATE 08, which we’ll be telling you more about shortly (stay tuned!). We can tell you about one highlight right away, though — Chris Heller from Grey Sparling solutions live-blogged Monica’s session on strengthening data privacy in PeopleSoft. It’s a good read — be sure to check it out.
Speaking of good reads, Charles over at Trust Matters has an interesting take on how important trust is in customer relationships, and the positive impacts that honest dealings have on a company’s bottom line.
Finally, because it’s been something crazy like four whole days since we blogged about executive compensation, an interesting piece from Compliance Week on exec tax gross-ups, which shareholders (and many average Joes) despise but which — according to our friends at tThe Corporate Library, don’t seem to be going away any time soon.
Tags: COLLABORATE 08, corporate trust, executive compensation
Posted on April 21st, 2008 by Priya Ramesh »Permalink
Happy Monday, everyone. Not-good news out today from Bank of America, which just posted a 77% decline in quarterly profit, with losses being blamed on ongoing credit problems. They’re not the only ones — not by a long shot — who are a little cash-strapped these days. Are we the only ones getting weary of new of CDOs, structured debt products and and credit squeezes?
Financial Week is reporting on a Moody’s analysis that shows a record number of corporate bond issuers with weak liquidity ratings. Weak liquidity ratings are often a precursor to defaults. Since no market operates in a vaccum, defaults almost always manage to spiral, bull-in-china-shop style, through the economy, so we doubt this is that last we’ll hear about the defaults.
Speaking of spiraling effects, NPR had a good discussion last week of collateralized debt obligations (CDOs) and their role in the ongoing credit crisis. One of the more illuminating points was how hard it is to assess a value for the CDOs in financial instutitions’ profiles, since no one’s buying them right now. Banks have been doing their best to guess, and when they think they’ve guessed wrong, we see write-downs.
Which leads us to an interesting interesting read on the transition to fair-value accounting. It seems that average Joes aren’t only ones struggling to make sense of CDOs and what they mean for the market. It seems that no less than the board members of FASB have run into some issues when discussing how best to assign value to liabilities that have no market — so much so that they had to interrupt a meeting on this issue to give time for clarifying complicated fine points on fair-value accounting.
Maybe we should recommend reading this little ditty, and oldie-but-goody from late last year? It’s practically educational.
Tags: credit squeeze, CDOs, fair value accounting, FASB
Posted on April 17th, 2008 by Julie Garland McLellan »Permalink
Governance relies on culture, and establishing an appropriate culture is one of the most important jobs for a board. Checking that the culture the board wanted is the culture they actually have is also important.
The board will get some idea of the culture within the organisation by observing the behaviours of the CEO and senior executives. Behaviours that are rewarded and recognised will be emulated and repeated and will eventually coalesce into ‘the way things get done round here’ or the basic culture of the organisation. Different departments will have slight variations on the basic culture but these must never stray so far from the norm that they become alien to the rest of the organisation.
A good indicator for boards is the relationship between the support and control functions and the line management within the core operations. If risk management, internal audit and human resources are generally welcomed as ‘people who help us get our jobs done’ then the culture is likely to be reasonably compliance focused. If there are strong tensions or a dramatic divide between “us” and “them” then the culture is probably not right. The board can find this out by seeking opportunities to meet staff from the support functions and asking these staff how they feel they are viewed by their colleagues in the line functions. This can happen in the boardroom.
First hand experience is better than any indicator. Boards should get out and about within the organisation as much as they can. Talking to staff about the control system and why it is important will reinforce the value of compliant behaviour and demonstrate that the board is genuinely interested in compliance.
There is a good reason that sayings such as “whatever interests my boss fascinates me” and “what gets measured gets done”; they are true! Boards need to show they are interested and measure compliant behaviour so that the staff are aware that their compliance is monitored.
Boards also need to pay attention to the mythology within the organisation. What are the things that make an employee a hero or heroine in the eyes of their colleagues? If gung ho risk taking and non-compliant behaviour are stuff that heroic reputations are built upon the board is not going to get much compliance from the best and brightest members of staff. Boards should be careful that they reward compliance as well as performance. Whilst many boards are wary of introducing complex reward systems if a company has a good controls system and monitors compliance it will be easy to pick an objective quantifiable indicator of good compliance and to build that in to the reward system.
Rewarding a manager, for example, on the reduction in non compliances by his or her direct reports will soon have managers focused on reinforcing the control system or changing it when it needs to be changed to support a better performance outcome. When the control system is viewed as something that prevents performance good managers will naturally try to find a way to operate outside the fetters the system imposes. When the system is designed to support performance and when rewards are attached to supporting and working within the system then the board can rest assured that the culture will have an adequate focus on compliance.
Julie Garland McLellan has over 20 years experience in strategic business development in resources, utilities and energy industries. She is currently a corporate governance consultant with Blackrock ITS, a leading Australian IT services and solutions firm. Previously, she served as associate director with McLennan Magasanik Associates, and a board member of the Victorian Minerals and Energy Council, the Victorian Energy Networks Corporation (VENCorp), the Melbourne University Engineering Foundation and City West Water. Julie has an honours degree in civil engineering from City University in London, an MBA from the leading Spanish Business School (Instituto de Empresa in Madrid) and is qualified in finance and corporate governance.
Tags: corporate governance, compliance
