Public Company Insights

How equity-based compensation affects EPS

No single number can fully reflect a company’s financial performance. But public company investors generally believe that earnings per share (EPS) comes close. This article explains how equity-based compensation programs affect calculation of EPS. It also makes a distinction between basic and diluted EPS and discusses how stock options and restricted stock affect EPS. A section offers an example of the role that equity-based compensation plays. Full Article

Does say-on-pay create a Catch-22 for companies?

The “say-on-pay” provision in last year’s Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) requires companies to give shareholders a nonbinding “advisory” vote on compensation for top executives. But attempts to modify nonqualified deferred compensation arrangements may run afoul of Internal Revenue Code Section 409A. In fact, making changes to an executive’s nonqualified deferred compensation — even for legitimate business reasons — presents tax risks. Full Article

CAQ takes the mystery out of audits

Independent audits of public companies are a critical tool for building confidence in the U.S. capital markets. Yet many investors and other nonauditors lack a full understanding of the audit process and the auditor’s responsibilities. This article discusses a Center for Audit Quality (CAQ) guide that provides an overview of the audit process, key players and critical issues involved in audits of public companies. Full Article

Final whistleblower rules — SEC addresses internal reporting concerns

One of the more controversial provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was to provide significant cash incentives to whistleblowers who report suspected financial misconduct directly to the SEC, instead of reporting it internally. Some critics have worried that it encourages employees to bypass their employer’s internal compliance and reporting systems. This article discusses how the SEC’s recently finalized whistleblower rules have addressed some of these concerns. Full Article

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This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use. © 2011   PCIon11

Simplifying your legal structure can reduce risk and costs

In the years leading up to the global financial crisis in 2008, many companies grew through mergers and acquisitions — ending up with highly complex structures consisting of dozens or even hundreds of legal entities. But the associated costs and risks can be high. This article discusses how a program of legal entity simplification can reduce costs and a variety of tax, accounting and auditing risks. Full Article

FASB’s goodwill proposal is good news for many companies

Recently, the Financial Accounting Standards Board published a proposed Accounting Standards Update (ASU) that would simplify goodwill impairment testing. The proposal would allow companies to use a qualitative approach to identifying potential impairment. This article lists several examples of qualitative factors that, according to the proposed ASU, should be examined. Full Article

Rounding up recent accounting standards activity

While there has been limited technical activity over the past two months, public companies should become familiar with two recent PCAOB releases focused on possible changes to the auditor reporting model and possible mandatory audit firm rotation. Full Article

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Get ready for new lease accounting rules

As part of their continuing convergence project, in 2010 the Financial Accounting Standards Board and International Accounting Standards Board issued a joint proposal for overhauling lease accounting standards. The proposed changes are expected to have a big impact on companies engaged in significant leasing activities — particularly those with off-balance-sheet “operating” leases. This article summarizes these changes. A section discusses the proposed requirement to account separately for distinct service components of a lease. Full Article

Merging? FASB clarifies disclosure requirements

To ensure consistent financial reporting for business combinations involving public companies, the Financial Accounting Standards Board recently issued Accounting Standards Update (ASU) 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations. The ASU reports on amendments to Accounting Standards Codification Topic 805, Business Combinations. This article talks about how the amendments affect timing considerations when companies disclose pro forma information on financial statements regarding business combinations. Full Article 

How to check your conflict of interest policy for teeth

 
All public companies need a conflict of interest policy — but it’s not enough to simply have one. Companies also need to ensure their policy is effective. This article discusses the importance of creating a policy that covers all potential areas of conflict and auditing it periodically to ensure that it’s effectively mitigating the risks associated with actual or perceived conflicts. Full Article 

SEC considers overhauling the U.S. proxy system

Last year, the SEC published a “concept release” to solicit public comments on the U.S. proxy system. Based on these comments, it will conduct a “broad review” of the proxy system and consider updating its rules to address perceived weaknesses. This article discusses the issues that are on the table and how an overhaul might affect public companies. Full Article

Rounding up recent accounting standards

While activity at the Financial Accounting Standards Board (FASB) has slowed in recent months, a new Accounting Standard Update (ASU) related to clarifying guidance for creditors in determining if a restructured receivable constitutes a troubled debt restructuring and a new proposed ASU related to the initial assessment of qualitative factors to determine if step one of the goodwill impairment test is required could have significant implications for some public companies. Full Article

Are we there yet? A view from the road to international accounting standards

As the journey to International Financial Reporting Standards (IFRS) continues, the SEC is plotting the best route. Although the destination is clear — a single set of high-quality, globally accepted accounting standards — questions still remain about how to get there. This article summarizes progress thus far, including the SEC’s consideration of six factors in determining whether, when, and how the transition should take place. It also reviews some of the outstanding issues, such as funding and regulatory impact. Full Article 

Wall Street reform makes whistleblower rules critical

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) makes it easier and more lucrative for whistleblowers to bring retaliation claims against a company, and one provision outlines cash incentives for whistleblowers who report suspected misconduct directly to the SEC. Such changes may expose companies to new risks. This article describes those risks and how companies can minimize them by strengthening their internal whistleblowing procedures. Full Article 

COSO report: A snapshot of financial fraud 

According to the Committee of Sponsoring Organizations of the Treadway Commission (COSO), companies involved with fraud are more likely to experience bankruptcy, stock exchange delisting or other negative long-term consequences. This short article discusses a recent COSO report that provides valuable insights into the nature of financial fraud. Full Article

Streamline your accounts reconciliation process with BlackLine Systems

Many companies today, including those operating with multiple national, and global offices with financial responsibility or multi-currency environments — still complete the account reconciliation process with manual data entry, approval and review. This results in costly resources being tied up in account reconciliations, difficulty in closing the books on time, inconsistency across systems, and increased audit and restatement risk. Full Article

Improving your financial close process 25% or more

Early adopters of the “Fast Close” process have been realizing the benefits of a streamlined financial close process for several years, but many other public and private companies have yet to optimize their monthly, quarterly and year-end close process. New regulations, additional compliance and digitization have added to a finance and accounting department’s responsibilities, while having to maintain the same level of staffing.

Several local public companies, such as H.J. Heinz Company, Education Management Corporation (EDMC), Michael Baker Corporation, and Allegheny Energy as well as national companies have realized both direct and indirect benefits by improving their financial close process and implementing technology solutions such as BlackLine Systems. FULL ARTICLE > 

Rounding up recent accounting standards activity

Revenue recognition — Get ready for big changes

In June 2010, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued exposure drafts proposing a new joint revenue recognition standard as part of their project to converge U.S. and international accounting standards. It’s not yet certain when the new rules will take effect, but public companies must begin to evaluate the impact of the proposed standard. This article discusses details of the proposal, and a section offers one example of a company’s goods and services that, under the proposal, would be distinct and, therefore, accounted for as separate performance obligations.   FULL ARTICLE > 

Credit ratings: To include or not to include?

To promote more accurate credit ratings, a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 has made Nationally Recognized Statistical Rating Organizations (NRSROs) subject to the same liability and consent requirements as other experts. But, as this article explains, the SEC has issued interpretive guidance that clarifies that certain uses of credit ratings continue to be permissible even without the rating agency’s consent. FULL ARTICLE > 

How the SOX 404 exemption affects your company

The SEC has issued a final rule permanently exempting nonaccelerated filers from Section 404(b) of the Sarbanes-Oxley Act (SOX). This exemption is good news for many smaller public companies, but — as this article relates — not all of them. FULL ARTICLE >

Rounding up recent accounting standards activity

The Financial Accounting Standards Board (FASB) continues to be active with the proposal of several new Accounting Standard Updates (ASU). The ASUs that are highlighted in this article amend current guidance related to the disclosure of pro forma information for business combinations, the determination of a reporting unit’s carrying amount for purposes of goodwill impairment testing, and the determination of whether receivable restructuring qualifies as a troubled debt restructuring.  FULL ARTICLE > 

Wall Street reform: What does it mean for public companies?

The Dodd-Frank Wall Street Reform and Consumer Protection Act focuses on reforms to the financial services industry, but it also makes several significant changes that affect public companies in general. This article summarizes some of these changes related to proxy access, executive compensation, clawbacks and compensation committee independence. And it provides action steps for companies to take now. A section explains that Dodd-Frank permanently exempts smaller public companies from Sec. 404(b)’s mandate that management evaluate the adequacy of its internal controls over financial reporting. FULL ARTICLE > 

Handle foreign tax credits with care

The foreign tax credit (FTC) is designed to help prevent double taxation of multinational companies’ foreign source income. But, to restrict or eliminate certain international tax planning techniques, Congress recently placed new limits on uses of the FTC. This article advises companies with foreign income to exercise care to avoid unpleasant tax surprises. FULL ARTICLE > 

Specifics, please — SEC targets generic risk disclosures

Recently, the SEC recently has expressed a desire for more “targeted” risk disclosures. As this article explains, this means companies should avoid using generic descriptions and boilerplate language in discussions of risk factors that affect their operations and financial performance. FULL ARTICLE >

What to expect from new outsourcing audit standards

Statement on Auditing Standards (SAS) No. 70 has long provided guidance for CPAs who audit companies that outsource services such as payroll and benefit administration and those who report on service organizations’ internal controls. However, new standards more in line with international standards are on the way. This article describes how Statement on Standards for Attestation Engagements (SSAE) No. 16 proposes to change outsourcing audits. FULL ARTICLE > 

This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use. © 2009   PCIye10

Rounding up recent accounting standards activity

The Financial Accounting Standards Board (FASB) continues to be active with the proposal of an Accounting Standard Update (ASU) to establish a new accounting model that would significantly change the manner in which leases are currently accounted for by lessees and lessors (including the elimination of the concept of an operating lease), and an ASU that would have a direct effect on the classification of participant loans in defined contribution plans. The SEC has also proposed some additional disclosure requirements in MD&A.  FULL ARTICLE >

How effective is your audit committee?

In the eight years since the Sarbanes-Oxley Act came into being, the audit committee has become directly responsible for appointing, compensating and overseeing external auditors and preapproving auditors’ audit and nonaudit services. Given this critical role, the audit committee should be evaluated periodically. One way is for the committee to perform annual self-evaluations. This article discusses the benefits and risks, ways to reduce the downside and looks at common approaches to self-evaluation. FULL ARTICLE > 

What to do when your stock options are underwater

Although the economy is gradually improving, many public companies’ stock prices remain depressed. In some cases, stock options held by key employees are “underwater” — their exercise price exceeds the stock’s current fair market value. Some companies have responded to the problem by repricing underwater options. But companies considering such a move need to obtain shareholder approval and consider other potential risks and costs. FULL ARTICLE >

New IRS schedule would require tax uncertainties disclosure

Effective whistleblower procedures pay off

In its 2010 study of occupational fraud, the Association of Certified Fraud Examiners reported that three times as many frauds in the study were uncovered by a tip as by any other method. So it pays to go beyond mere compliance and establish a comprehensive complaint-handling process. The procedures should make it easy for employees to make reports, but it’s also essential to follow up, even when tips don’t pan out. FULL ARTICLE >

 

This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use. © 2009   PCIso10

Rounding up recently released accounting standards

The Financial Accounting Standards Board (FASB) has been very active in 2010 with the issuance of a number of Accounting Standard Updates (ASU) and the proposal of several others. We expect the trend to continue through the end of the year and into next year in advance of the final push by the FASB and the International Accounting Standards Board (IASB) towards the convergence of U.S. GAAP and International Financial Reporting Standards (IFRS). Public company financial and accounting professionals should monitor the changes closely as the new guidance has the potential to have a pervasive effect on accounting policy and financial statement disclosures. Stay tuned to future issues of our newsletter for additional updates. FULL ARTICLE > 

Building a better audit — New standard requires additional quality review

The Public Company Accounting Oversight Board (PCAOB) adopted a suite of eight auditing standards on August 5, 2010 related to the auditor’s assessment of, and response to, risk in an audit. The suite of risk assessment standards, Auditing Standards No. 8 through No. 15, sets forth requirements that enhance the effectiveness of the auditor's assessment of, and response to, the risks of material misstatement in the financial statements.
FULL ARTICLE >

Does your company meet credit data security requirements?

Contrary to popular belief, the Payment Card Industry Data Security Standard (PCI DSS) isn’t only for companies that process a lot of credit card payments. PCI DSS establishes minimum requirements for securing sensitive cardholder data, and even one transaction is enough to compel compliance. The penalties for noncompliance can be severe. Companies are strongly encouraged to review the PCI DSS framework and ensure their organizations meet its 12 basic requirements and validate compliance with the standard. This will help them avoid penalties, as well as liability for data security breaches and potentially irreparable damage to their reputation. FULL ARTICLE > 

Statistical analysis: Your fraud early warning system

Auditors use a variety of techniques to detect occupational fraud, including statistical analysis. One such technique is “Benford’s Law,” which rests on the assumption that smaller digits occur more frequently than larger ones in sets of random data. When fraud perpetrators attempt to manipulate numbers in certain financial documents, this pattern becomes skewed. In fact, it’s nearly impossible to manipulate data so that it conforms to Benford’s Law. This doesn’t prove fraud, but can indicate that further investigation is necessary. FULL ARTICLE >

 

This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use. © 2009   PCIja10