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Control Chatter                                                    December  2009
News that Control Professionals Need to Know

 
In This Issue
Sarbanes-Oxley - Articles on Point
Corporate Governance: Don't Rush Reforms
Small Business Admendment
How to Keep Your Best Experts
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Greetings!
warnerIn this month's issue of Control Chatter we want to take this opportunity to wish you the very best of the holiday season. We have some headlines to share regarding Sarbanes-Oxley and developments in Corporate Governance but our emphasis this month is focused on family and friends.
 
After you've read the articles in this issue, I hope you'll pause for a moment and think about who is important in your life and take a moment to say thank you to each of them.
 
Our mission at the Internal Control Institute is to serve those with internal control and corporate governance responsibilities for both large and small companies around the world. Our members cover a wide range of professionals and geographic locations.  As this holiday season draws to a close we want to say thank you to each of you who have supported ICI over the past years. We look forward to the opportunities of a new year to be of service to you and welcome new friends from around the world. 

 
Our success is your success...pass it on! 
 
H.C. "Pete" Warner, CPA, CIA, CICP
President
Sarbanes-Oxley - Articles on Point

Sarbanes-Oxley - Excepts of Articles on Point
Gerald Czarnecki, Chairman & CEO of the Deltennium Group
 
The failures we have seen in the quality and integrity of financial reporting in corporate America are clear evidence that something was awry. It is the responsibility of corporate boards, managements, public accounting firms and regulatory agencies to put confidence back into the financial statements issued by our society's most significant entities. Although some would argue that Sarbanes Oxley went too far, it is also now evident that government action and the use of enforcement muscle was required, if for no other reason than to move toward rebuilding public trust. There is no doubt that Sarbanes Oxley, and in particular, Section 404, has increased the expense of doing business for public corporations; however, this is neither a new mandate, nor a superfluous one. All parties engaged in this process have previously ignored the mandate, and must now accept reality, and get past the complaining. A little history'back in 1977, the Congress of the United States passed a piece of legislation commonly known as the Foreign Corrupt Practices Act (FCPA).....  A seldom-remembered aspect of that legislation was that corporations were mandated to 'devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that'transactions are recorded as necessary to'permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and'to maintain accountability for assets' This requirement got a great deal of press when the law was first passed......but business world slipped back into its previous lack of concern for controls, and the public accounting firms conveniently allowed that slippage. ...... All of the sanctions imposed were focused on punishing illegal payments, not for a failure to comply with the internal controls mandate. For 25 years, Congress, the SEC, public companies and public accounting firms essentially ignored a mandate in large measure because there was little or no enforcement action for a failure to comply...... Now 25 years of neglect and sloppiness have caught up with the public and private sectors. read the entire article

Editors Note: We have provided summary excerpts from this article but it is worth taking the time to read the entire article. The article provides an excellent summary of recent developments in Internal Control.
Corporate Governance: Don't Rush Reforms

Economy December 8, 2009
Bloomberg BusinessWeek columnist Frank Aquila tells why new efforts to change corporate-governance practices may be doomed to fail

 
The last decade has been an economic perfect storm. Things got off to an unpleasant start with the bursting of the dot-com bubble. The Enron/WorldCom/Tyco scandals followed close behind. The past few years have featured the subprime mortgage crisis and the credit crunch precipitated by the Lehman Brothers bankruptcy. For equity investors pummeled by losses, this has been a decade to forget.When bad things happen, human nature yearns to identify and punish whoever is responsible. Seeking protection, we also want to fix things so that such problems never occur again. However, this can be a bit like generals fighting the last war: Legislating a "one-size fits all" solution in response to a particular economic situation is rarely effective at preventing future, largely unpredictable problems. If it were otherwise, the Sarbanes-Oxley legislation enacted in 2002 would have eliminated all problems in corporate governance, financial controls, and disclosure.That hasn't happened. Sarbanes-Oxley has not, as many predicted when it was enacted, eliminated all corporate ills. While the legislation certainly did not create the subprime mortgage crisis, it unfortunately did not prevent it. In fact the subprime meltdown and its aftereffects may well be the best testimony that even the most comprehensive revision to American corporate governance in more than a generation could not repeal the economic cycle or pop the next "bubble" before it burst.The reality is that no set of corporate-governance mechanisms could have forestalled a crisis of the magnitude or complexity of the one we have experienced.What is corporate governance and why should we care about it? In modern capitalism there often is a distinct separation of ownership (the shareholders) from control (the board of directors and senior management) of the business enterprise. Corporate governance defines the relationship between the shareholders and the managers. The willingness of investors to purchase a corporation's shares is based not only on the performance of the business, but also on the trust in that corporation created by effective corporate governance.In the U.S., the cornerstone of corporate governance has long been reliance on the board of directors to act on the shareholders' behalves to supervise and direct the management of the corporation.Corporate governance is not designed just to avoid the next financial disaster. Effective corporate governance is also good for business. 
read the entire article

Adler Small Business Amendment Survives Floor Vote

Dec 14, 2009 (Congressional Documents and Publications/ContentWorks via COMTEX) -- SBCOE | Quote | Chart | News | PowerRating -- Washington, D.C. - Today, the House defeated an effort to strip Congressman John Adler's bi-partisan, small business amendment from the Wall Street Reform and Consumer Protection Act by a vote of 153 to 271. Congressman Adler's amendment, which passed the House Financial Services Committee in November, will maintain the exemption for certain small businesses from cost prohibitive regulations by amending section 404(b) of the Sarbanes Oxley Act.
"Burdensome regulations on small businesses hurt our economy ," said Congressman John Adler, a member of the House Financial Services Committee. "As our economy begins to rebound, allowing small businesses to grow is crucial. This reform will help keep and create jobs for hard-working Americans." Under direction from the Securities and Exchange Commission (SEC), small businesses have been exempt from section 404(b) for the past seven years. The exemption expires early next year and Adler's amendment will provide stability and predictability for these businesses by permanently exempting them from these costly regulations. read more....


HOW A COMPANY CAN KEEP THEIR BEST INTERNAL CONTROL EXPERTS
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When the World economy picks up the demand for internal control experts will accelerate. How then can a company keep these experts from moving to another organization? An article in the October 26, 2009 Wall Street Journal suggests retention will increase by keeping those internal control experts marketable . The Journal article states that neglecting skill building during a downturn may result in a nasty surprise when the economy recovers. History shows that companies that neglect training in a downturn experience a much higher turnover when the economy picks up.
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The Internal Control Institute™ (ICI) a worldwide organization  devoted exclusively to internal control and corporate governance. The Institute is dedicated to the developement world-class educational programs and best practice guidelines on internal control and corporate governance based on the Sarbanes-Oxley Act and the COSO internal control framework.  Visit us on the web at the Internal Control Institute
Control Chatter is a monthly news summary of the top stories concerning internal control and corporate governance.  Control Chatter is prepared by the staff of Internal Control Institute for the benefit of their members and associates. Please consider it for your personal use or pass it on to associates who may have an interest in one or more of the topics by clicking on the Forward email button below.