Here are the survey results on audit committees and earnings releases (compare to 2008 results):

1.Does your Audit Committee review your company’s earnings releases prior to their release to the media?
– Yes – 96.2%
– No – 3.9%

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 – 20.0%
– Two days – 22.0%
– Three days – 36.0%
– Four days or more – 22.0%

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 – 73.6%
– Yes, and mostly (or all) by face-to-face meetings – 18.9%
– No – 7.6%

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 – 30.0%
– Yes, at a meeting – 50.0%
– No – 20.0%

5. Does your Audit Committee hold a single meeting to review both the earnings release and draft Forms 10-Q and 10-K?
– Yes – 45.3%
– No – 54.7%

Please take a moment to participate in this “Quick Survey on Insider Trading Policies: Pledges & Margin Accounts” – and this “Quick Survey on Rule 10b-18 & Buybacks.”

Insider Trading for Dummies: Don’t Google “How to Avoid Getting Caught”

Yesterday, the SEC issued this press release charging a guy in Bristol-Myers Squibb’s Treasury department with insider trading on confidential information about companies being targeted for potential acquisitions.. Who googles how not to get caught when insider trading?!

Study: Whistleblowers Don’t Do It For The $$$

This Cooley alert – entitled “Are Most Whistleblowers Just Rogue Employees Out For a Buck?” – delves into a study that found only 2% report observing misconduct externally and that whistleblowers are not necessarily motivated by money. The alert refers to a Compliance Week piece entitled “SEC’s Whistleblower Bounties Will be Awarded Subjectively” also worth reading. Finally, check out this Forbes article entitled “Whistleblower Case Against GE, New Report Show Real Motives For Attacks on SEC Program”.” This study seems significant because it debunks one of the main arguments against the SEC’s whistleblower program – that it would eviscerate internal compliance systems.

– Broc Romanek

This is the only match of the final round – a winner will be decided! The Black Jack Table vs. the Toolbox (which squeaked out a victory over the Pink Clear Pig). Voting ends at COB next Wednesday. As noted in these rules (and keep sending more pics for the next tourney), please vote for one of the following two cubes below:

Inspection Reports: PCAOB Addresses Audit Committees Directly (A Rarity)

For as long as I can remember (or at least back to this blog in ’05), I have been recommending that companies demand that their independent auditors inform audit committees when the PCAOB is reviewing a company’s file during a PCAOB inspection of the auditor (the PCAOB doesn’t require that auditors share inspection reports with their clients, but also doesn’t prohibit them either – the reports are confidential merely in the hands of the PCAOB and SEC). Yesterday, the PCAOB issued an 26-page informational release that deals with this topic (here is the related press release).

As noted in FEI’s “Financial Reporting Blog,” it is rare for the PCAOB to issue guidance in the form of an “informational release.” And at least equally as rare that the PCAOB issues guidance that pertains to audit committees directly.

In addition to listing 4 questions that audit committees should ask their auditors in its executive summary, the informational release goes on to explain its inspection process in depth and the possible implications for audit committees of those inspections. It is definitely a must-read document and something that should be shared with all directors, not just audit committee members…

Our New “10-K and 10-Q Exhibits Handbook”

Spanking brand new. Posted in our “Form 10-K” Practice Area, this comprehensive “10-K and 10-Q Exhibits Handbook” provides a heap of practical guidance about how to navigate under Item 601 of Regulation S-K. This one is a real gem – 58 pages of practical guidance…

– Broc Romanek

On CompensationStandards.com’s “The Advisors’ Blog,” I’ve blogged a few times about these NY proposals that are a sleeper for many more companies than you would think. One of our members found it a bit challenging to try to explain in simple terms why this Executive Order and the promulgating agency regs are so problematic from the viewpoint of the corporate community – so she put together the Q&As below:

Q1. My company is incorporated in Delaware, and this is a New York Executive Order — so this does NOT apply to my company, right?

A1. Wrong. The Executive Order applies to service providers that receive NY state funds or NY state-authorized payments — regardless of where the companies are incorporated or headquartered.

Q2. But my company is public, and it does not provide health care or similar services — so this does NOT impact my company, right?

A2. Wrong. The problem with the Executive Order and the proposed regulations is that many terms are either undefined or ill-defined, and the scope is potentially broad enough to cover any entity — including public companies — that receive NY state funds to provide any services. For example, companies that provide technology services, energy services, consulting services or financial services to New York State could be impacted.

Q3. If this applies to my company, what does it mean?

A3. There are three major items that companies reviewing the Executive Order and proposed regulations are concerned about:

1. Limits on Executive Compensation: A service provider cannot use more than $199K of state funds or state-authorized payments to pay any employee in the company;

2. Limits on Administrative Expenses: A service provider must use at least 75% (increasing to 85% in 2015) of the state funds or state-authorized payments to provide program services — as opposed to administrative expenses such as compensation to staff that does not directly provide program services (including a CEO, CFO and controller), overhead expenses and office operating expenses; and

3. Disclosure Obligations: A service provider will be required to file certain reports but no specific information has been released yet about the contents of these disclosures.

Q4. You keep mentioning state funds and state-authorized payments – what do those terms mean?

A4. Wish we knew for sure. Like many of the provisions in the regulations, these terms are defined in a very convoluted manner. The definition of state funds refers to funds appropriated in the annual state budget – but excludes a limited subset of procurement contracts. State-authorized payments is very broadly defined, referring to any payments distributed upon approval by a NY state agency or a NY governmental unit (also excluding a limited subset of procurement contracts). As a practical matter, this would appear to pick up contract payments made by New York as a service customer to public companies for ordinary course business.

Q5. There must be some sort of an exemption for companies like mine, right?

A5. The rule applies to covered providers, and this definition has certain thresholds; if they are not met, then the company would be exempt from these provisions. An entity is a covered provider if it (1) receives state funds or state-authorized payments (as mentioned, not clearly defined) in an amount greater than $500K for at least 2 years and (2) at least 30 percent of the entity’s total annual in-state revenues (undefined) for the most recent calendar year were derived from state funds or state-authorized funds. Therefore, given these broad terms and ambiguities, it is difficult to conclude definitively that a company is not a covered provider.

Q6. Where can I learn more about this – and what can I do about it?

A6. Here is the (i) January 2012 Executive Order issued by Gov. Cuomo, (ii) draft regulation implementing the executive order (there were over a dozen nearly identical proposed regulations by the various NY state agencies) and (iii) a helpful Proskauer memo.

We are hoping that companies, as well as legal and business organizations, will share their concerns about these issues in Albany. Specifically, they should consider contacting Gov. Cuomo’s office to ask that the Executive Order be appropriately amended to clarify impacted entities (for e.g., it should not apply to public companies that are subject to SEC obligations, including Say on Pay votes). In addition, they should consider submitting a comment letter to the state agencies that have proposed these regulations. Even though over dozen state agencies have proposed implementing regulations, the proposals are virtually identical and therefore the same comment letter could be submitted to all the agencies. Also, even though the official comment period ends shortly, the Governor’s Office has indicated that the agencies will consider comments submitted after that time.

Surprise! US OTC Companies Could Become Subject to Canadian Reporting Obligations

As noted in this Stikeman Elliott blog, the Canadian Securities Administrators recently adopted “Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets.” Here is an excerpt from the blog:

The stated purpose of the Instrument is to discourage the manufacture and sale in the adopting jurisdictions of OTC quoted shell companies that can be used to facilitate abusive market practices. However, the Instrument will have the unintended but significant effect of subjecting major well-established issuers who have securities listed on exchanges outside of North America and that only trade OTC in the United States to Canadian public company reporting obligations. Significantly, these issuers may unknowingly become subject to Canadian public company reporting obligations, as it is common market practice for U.S. broker-dealers to apply to have a FINRA ticker symbol assigned to an issuer’s securities without the knowledge or involvement of the issuer.

Our August Eminders is Posted!

We have posted the August issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

– Broc Romanek