July 27, 2005
PCAOB Adopts New Material Weakness Standard
Yesterday, the PCAOB adopted Auditing Standard No. 4 (the Standard and Briefing Paper are here) regarding reporting on whether a previously reported material weakness continues to exist. This standard establishes requirements and provides direction that applies when an auditor is engaged to report on whether a previously reported material weakness in internal controls continues to exist as of a date specified by management.
The PCAOB also adopted certain ethics and independence rules addressing tax services, contingent fees, and certain related general ethics and independence standards. The SEC still has to bless both before they are effective.
Meeting the New Compliance Standards
We have posted the transcript of our recent webcast: “Meeting the New Compliance Standards.”
Memo to Board: No More Board Meetings!
Check out this recent Form 8-K filed by Torvec, which discloses that the Torvec Board formed an Executive Committee that decided to cancel all future board meetings “in order to provide greater efficiency and streamline the corporate decision making process.” As a result of this action, the 8-K discloses that one director decided to resign – a guy who just joined the Board in April.
In this subsequent Form 8-K, the resigning director further explains his reasons for resigning in a letter – and the Torvec President rebuts some of the director’s statements, including an explanation that the cancellation of future board meetings is temporary (and a few personal attacks on the director to boot).
As I read both 8-Ks, the practical effect of creating the Executive Committee and cancelling board meetings was to freeze out two members of management who serve on the Board – who also happen to be the Chair, CEO and CFO – out of board participation and relieve them of all management authority. Seems like a coup by controlling shareholders. As Kramer once said, “Ca-Ca-Ca-Catfight!” I won’t even get into the governance aspects of this mess; it’s pure comic relief (unless you are a Torvec shareholder).