My forecast for 2005: More corporate scandal, here's why --
.............
Article Published: Friday, December 31, 2004
Note: The author is 'too polite' as to what will be revealed,
IMHO -- Chispas
Firms scramble to square finances
Numbers and processes must conform to Congress' new accounting rules. The deadline is today.
By Aldo Svaldi
Denver Post Staff Writer
Many Colorado public companies are pushing down to the wire to meet a year-end deadline for complying with a complex new set of financial regulations. Not only must top executives continue to certify their company's financial information, they must document and vouch for the systems and procedures that produced that information.
Implementing the new rules contained within section 404 of the Sarbanes-Oxley corporate reform measures that Congress passed in 2002 has drawn comparisons to the Herculean effort to ensure computers could handle the switch to the year 2000.
"It has been tens of thousands of hours involving hundreds of people," said Pat Halbach, vice president of internal auditing at Qwest Communications International.
Large public companies in Colorado such as Qwest, First Data Corp. and Adolph Coors Co. have spent millions in a compliance effort that stretches back to 2002 and early 2003.
Even with that effort, some analysts estimate that between 20 percent to 30 percent of public companies won't be able to comply, said Anthony Peters, a managing director for the Denver of Protiviti, a risk- consulting-services company owned by Robert Half International, the largest financial staffing company.
What has executives on pins and needles is that they won't know whether they got it right until after the books are closed and auditors have done their review.
"Management can feel good about where they are, but the external auditor could come up with some issues and disagree," Peters said.
Complicating matters, consultants such as Protiviti aren't supposed to compare notes with the auditors. By the time auditors find problems, it will be too late to make changes.
Executives will have to make embarrassing revelations of "material weaknesses," or holes in their systems that could make their financial information less trustworthy.
"If upon implementation, our internal control over financial reporting is deemed to not be effective, investor confidence and share value may be negatively affected," cable programming giant Liberty Media warned in its most recent quarterly filing.
Small public firms, lacking staff and dollars needed to implement the measures, could find themselves especially vulnerable. Those with under $75 million in "public float," don't have to comply until June 15. Public float is the portion of a company's outstanding shares in the hands of public investors, as opposed to company officers, directors or controlling-interest investors.
Regulators with the U.S. Securities and Exchange Commission also gave firms with $700 million and under in public float an extra 45 days to complete their reviews and reports to shareholders, said Rick Angell, director of audit and accounting at Mayer Hoffman McCann.
But the extension doesn't apply to the Dec. 31 deadline for companies operating on a calendar year to have the necessary controls and safeguards in place, documented and tested.
Even at this late hour, small companies are lobbying the SEC for more time and more targeted rules that will reduce the burden.
Jessica Wright, executive director of the American Electronics Association Mountain States, a technology trade association based in Denver, is among those advocates.
She and other representatives plan to meet with the SEC's chief accountant Thursday to plead for more flexibility for small companies.
"The larger companies can deal with it because they have more people and resources," Wright said. Faced with their own resource crunches, accounting and consulting firms have dropped small companies in favor of larger clients, she adds.
"This has stretched the resources of public accounting firms," Angell said. "There is a significant lack of resources available."
As time-consuming and costly as the process has been, the corporate scandals the country endured justify the harsh medicine, some argue.
Gone will be the days of executives at chastened companies pleading before Congress that they had no clue what was going on under their watch, Peters said.
Halbach said the process on the whole has proven a positive one for Qwest, which endured an accounting scandal of its own. "We are going to be a better controlled company as result of what we have done here," Halbach said.
Staff writer Aldo Svaldi can be reached at 303-820-1410 or asvaldi@denverpost.com .
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