Got this from Alan Sunday I had E-mailed him earlyer. Wanted you to have this as it explains exactly why we are still in a holding pattern (other than an exchange and the obvious differences in company size … although it gets worse as you go from large companies to smaller ones because there are even less audit and accounting resources available due to the prioritized focus on bigger companies with higher bill rates and profits). I expect that we should be able to finally file later this week barring any other last minute “technical reviews” or equivalent. Cheers.
Alan S. Knitowski
Chairman
Caneum, Inc. ("CANM")
2 San Joaquin Plaza, Suite 240
Newport Beach, CA 92660
(949) 273-4003 [direct]
(949) 721-1472 [fax]
www.caneum.com
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Dealing With Sarbox
By KENNETH WILCOX
June 1, 2007; Page A13
When we (all of us: the press, companies, lobbyists, Congress) talk about the level of burden that accounting firms have been placing on corporations these past five years, we tend to debate Sarbanes-Oxley. The result is that people line up on either side: The companies say that it's excessive and Congress says that it's not. Many of our elected politicians say that people have gotten used to it, that it brought with it a needed level of discipline, and that the costs should diminish over time. Then they point to a somewhat flawed and arguably self-serving study conducted by the Big Four accounting firms that purports to prove the cost in year two was only about 40% of what it was in year one.
Notwithstanding the findings of this study, most companies are paying much more to the Big Four today. As a result, shareholders earn less than they would otherwise. Companies contemplating an IPO reportedly give serious consideration to exchanges on other continents, notably in London or Hong Kong . Employees, exhausted by the amount of time and energy they devote to compliance-oriented chores that corporations have piled on top of their existing job descriptions, have become both discouraged and risk averse. And all of the above, taken together, would appear to have rendered us less competitive as an economy.
My own company (SVB Financial Group, which trades on the Nasdaq) is likely indicative. In 2006 we paid over $20 million to the Big Four (including what is left of Arthur Andersen), for an average of about $17,000 per employee. This is more than five times as much as we paid them only three years ago.
It turns out, however, that only a diminishing portion of this increase is due to Sarbox. More and more of it is due to the significantly increased amount of time that audits are taking, and the much larger number of people that they involve. Trying to tease out exactly why they are taking longer and why more people are involved is difficult. When I ask, I get a host of different but related answers. The auditors are operating with droves of often newly hired and therefore inexperienced people. They appear to have lost any sense of the time-honored accounting concept of "materiality." They appear to have very little decision-making power. Decisions, which increasingly need to be sent to superiors in far-away locations, take much longer than just a few years ago.
Nobody appears to want to exercise judgment, either with respect to the applicability of a given Financial Accounting Standards Board (FASB) pronouncement, or to its application. Rules are applied, whether the original framers were targeting the situation at hand or not. And testing takes forever. In situations where just a few years ago just a few tests might have sufficed, today several times as many may be required. Finally, everybody seems to be operating from a position of fear, of rejection or remonstrance.
When I ask about the causes of that, I am told the following: Neither companies nor auditors can really understand all of the primary accounting pronouncements coming out of the FASB, the number of which has gone from 104 in 1989 to 159 today. Many of them are 50 pages or more in length with accompanying interpretations that may be 10 times as long as the pronouncement itself.
The Public Company Accounting Oversight Board (PCAOB) discourages the auditors from either offering advice or exercising judgment. Instead, auditors apply rules, whether they were meant to apply or not, and in the most draconian manner possible, out of fear of reprisal from above.
The SEC is contributing to the fear factor as well, and in many of the same ways as the PCAOB. As a result, almost 10% of all publicly traded companies announced restatements in 2006. Finally, market factors, namely supply and demand, have added to the turmoil. There are nowhere near enough accountants available to staff these greatly expanded audits, which has helped to drive up their price significantly.
We seem to have created a self-reinforcing system which is difficult to adjust. Every aspect of it appears to reinforce the workings of the whole, and no one appears to be either able or willing to help us break out of it. There is a lot of finger-pointing, but very little leadership and -- as a result -- very little relief.
Is this really the system that we want for our economy? Is it really serving the shareholders of our publicly traded companies in a way that justifies the cost? Are we really helping to make America a better place to live and work? Or are we punishing the many for the crimes of the few because, in the end, it's just plain easier?
Mr. Wilcox is president and CEO, SVB Financial Group.
