December 5, 2011

Here They Come: Lawsuit Filed Against CFTC for Inadequate Cost-Benefit Analysis

As expected, SIFMA and International Swaps and Derivatives Association filed this complaint on Friday in US District Court for DC to challenge the CFTC’s new rule that seeks to curb excessive speculation (like proxy access, this rule was approved 3-2 by the CFTC Commissioners). The groups have petitioned the higher US Court of Appeals for the DC Circuit to hear the case – which is the court that ruled against the SEC in the proxy access lawsuit filed by the Business Roundtable and US Chamber of Commerce a few months back. And like that lawsuit, this one claims the CFTC didn’t conduct a proper cost-benefit analysis. Here’s a Reuters article – and here’s a NY Times’ DealBook article.

Senate Bill to Encourage Small Company Capital Formation

Catching up to the House activity in this area, Senators Charles Schumer (D-N.Y.) and Pat Toomey (R-Pa.) issued this press release last week about their new bill that would establish a new category of issuers – “emerging growth companies” – that would have less than $1 billion in revenues before the IPO and less than $700 million in public float after the IPO, along with scaled regulatory burdens – egs. freed from say-on-pay and just two years of financials rather than three – as part of a transitional “on-ramp” status that could last as long as 5 years, and more.

Auditor Tenure, Financial Officer Turnover and Financial Reporting Trends

Audit Analytics just wrapped up this study that provides data that should help to facilitate commentary on the PCAOB’s concept release regarding auditor independence and rotation. Highlights from the research include the following:

– Both the Russell 1000 and the Russell 2000 companies with auditor tenure of five years or less paid more in audit fees (per million dollars in revenue) than companies with longer tenure.
– 16.1% of the Russell 1000 companies have engaged the same auditor for 40 or more years. This percentage drops to 4.1% for the Russell 2000.
– About 50% of both the Russell 1000 and Russell 2000 companies experienced a CFO departure during the six-year period from 2005 to 2010.
– Over 96% of both the Russell 1000 and Russell 2000 companies with 40 or more years of auditor tenure experienced a turnover in an audit committee member during the six years under review.
– US accelerated filers were first required to provide SOX 404 certifications in annual reports for fiscal years ending on or after November 15, 2004. Ineffective ICFRs (SOX 404) for the Russell 1000 have significantly declined, from 8.21% in 2005 down to .83% in 2010. Adverse SOX 302 disclosures have declined in a similar fashion.
– During the six years under review, quantitative data concerning restatements and late filings (NT disclosures) reflect a steady and substantial improvement in financial reporting.
– Pursuant to Section 408(c) of Sarbanes-Oxley, the SEC is reviewing a company’s filings every three years; an analysis of SEC comment letters, however, show a more frequent oversight of the larger companies, particularly in the last three years, with over 65% of the Russell 1000 receiving a letter in each calendar years and over 50% of the Russell 2000 receiving a letter.

Last week, the PCAOB approved its 2011-2015 Strategic Plan and 2012 fiscal-year budget of approximately $227.7 million, which is a 11.4% hike from last year. Now the budget must be approved by the SEC…

– Broc Romanek