July 8, 2008

Will Sarbanes-Oxley Fall? Federal Appellate Decision Expected Soon

With a decision in the Free Enterprise v. PCAOB lawsuit expected soon – and some rumblings that the DC Circuit Judges could strike SOX based on the discussions during an April hearing – it’s probably time to start thinking “what if” the court does indeed kill Sarbanes-Oxley. Here’s an analyst report that goes down that road – and here is a transcript from the hearing. Both are posted in our “Sarbanes-Oxley Reform” Practice Area.

Survey Results: Audit Committees and Earnings Releases

We have posted our survey results on audit committees and earnings releases, repeated below:

1. Does your Audit Committee review your company’s earnings releases prior to their release to the media?
– Yes – 92.1%
– No – 7.9%

2. If the answer to #1 is “Yes,” how many days prior to public issuance of the earnings release is a draft typically sent to the Audit Committee?
– One day or less – 25.9%
– Two days – 31.0%
– Three days – 20.7%
– Four days or more – 22.4%

3. Does the Audit Committee hold a meeting for the purpose of discussing each earnings release prior to their release to the media?
– Yes, and mostly (or all) by telephone meetings – 80.7%
– Yes, and mostly (or all) by face-to-face meetings – 8.1%
– No – 11.3%

4. If the answer to #3 is “No,” is the Audit Committee informed about issues that will be discussed in the related earnings release?
– Yes, in writing – 16.7%
– Yes, at a meeting – 50.0%
– No – 33.3%

5. Does your Audit Committee hold a single meeting to review both the earnings release and draft Forms 10-Q and 10-K?
– Yes – 50%
– No – 50%

It’s interesting to compare these survey results with an identical survey that we conducted three years ago. Don’t forget to take a moment and take our new “Quick Survey on Disclosure Committees“!

UK Regulator Issues Guidance on Auditor Liability Limitation Agreements

With IFRSs making front page news in Saturday’s NY Times (here is the article) and CIFiR’s final reform recommendations due in August, it’s instructive to see how other jurisdictions are handling similar challenges to reforming the audit industry.

One of the biggest concerns is how auditors will survive being sued (see this article, which highlights this CAQ comment letter). A few months back, I blogged about auditor liability caps in the UK. Recently, the United Kingdom’s Financial Reporting Council – the FRC is the UK’s independent regulator for corporate reporting and governance – issued guidance on the use of agreements between companies and their auditors to limit the auditor’s liability, as provided for under the UK’s Companies Act 2006.

The guidance:
– explains what is – and is not – allowed under the 2006 Act
– sets out some of the factors that will be relevant when assessing the case for an agreement
– explains what matters should be covered in an agreement, and provides specimen clauses for inclusion in agreements
– explains the process to be followed for obtaining shareholder approval, and provides specimen wording for inclusion in resolutions and the notice of the general meeting

Anything can happen. As this article notes, regulators are talking about a three-year moratorium on new accounting rules if IFRS is adopted.

– Broc Romanek