This is a specific practice area that law firms are going to want to be in, and a few are starting – board and executive risk management, audit committees, compliance, and how they tie to other practice areas.
The attached link is to a NACD seminar on risk – I’m not saying you should attend the seminar, I’m just using it as an example that these issues are recognized and aren’t going away: s2843.t.en25.com
Dave Tate, Esq.
I have been evaluating Glass Lewis’ Proxy Paper Guidelines, 2015 Proxy Season, An Overview of the Glass Lewis Approach to Proxy Advice, United States – there are many provisions pertaining to audit committees, audit committee members, and under what circumstances Glass Lewis will recommend voting for or against audit committee members and/or the entire committee. Audit committee members should read the Guidelines, to be informed. Some of the provisions are reasonable, others I believe are not or are overstated. This post discusses Standards for Assessing the Audit Committee #14 (restatements). Although we all agree that in most circumstances restatements should not occur and should be prevented, as far as deciding whether or not to vote for or against an audit committee member or the entire committee when a restatement has occurred isn’t necessarily cut and dry.
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The STANDARDS FOR ASSESSING THE AUDIT COMMITTEE are at pages 9-11 of the Glass Lewis Proxy Paper Guidelines.
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In pertinent part Glass Lewis advises: “When assessing the decisions and actions of the audit committee, we typically defer to its judgment and generally recommend voting in favor of its members. However, we will consider recommending that shareholders vote against the following: . . . .
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14. All members of an audit committee at a time when annual and/or multiple quarterly financial statements had to be restated, and any of the following factors apply:
•The restatement involves fraud or manipulation by insiders;
•The restatement is accompanied by an SEC inquiry or investigation;
•The restatement involves revenue recognition;
•The restatement results in a greater than 5% adjustment to costs of goods sold, operating expense, or operating cash flows; or
•The restatement results in a greater than 5% adjustment to net income, 10% adjustment to assets or shareholders equity, or cash flows from financing or investing activities.
My thoughts. Footnote 19 of the Paper, also states “Research indicates that revenue fraud now accounts for over 60% of SEC fraud cases . . . .” Provision #14 seems overstated and too bright line – (1) the audit committee members are significantly dependent on information provided by others including the CEO, CFO, internal audit, the independent outside auditor, foreign operations, etc. – (2) the audit committee only has oversight responsibilities – (3) what if the accounting treatment was a judgment call [i.e., see the new upcoming changes to “principles” based accounting for revenue]? – (4) why the entire audit committee as a group – each member has only one vote – really the entire committee out? – (5) what is “fraud”? – (6) fraud is often very difficult to prevent and detect – (7) what if the director is good for the company except perhaps in this instance of oversight? – (8) what if the audit committee was diligent and the restatement occurred anyway – (9) maybe recommend keeping the director, but not as an audit committee member? – (10) why is one of the criteria whether or not there was an SEC inquiry or investigation? – (11) more?
Comment if you would like. Please also tell others if you like this blog and my posts. Thanks.
Dave Tate, Esq., San Francisco / California, http://directorofficernews.com
After much deliberation, the FASB and IASB are set to release a final global revenue recognition standard in the coming months that will do away with current industry-specific accounting and instead apply a single set of principles to all revenue transactions. Changes to practices, processes and systems could ripple through your business. 10Minutes on revenue recognition provides information about the standard as well as insight into ways in which some companies are preparing for the br
Click on the following link for the article: www.pwc.com
Good stuff from PWC. Click on the Download: 10 Minutes on revenue recognition – the paper will come up automatically.
Enjoy. Dave Tate, Esq.
I have been evaluating Glass Lewis’ Proxy Paper Guidelines, 2015 Proxy Season, An Overview of the Glass Lewis Approach to Proxy Advice, United States – there are many provisions pertaining to audit committees, audit committee members, and under what circumstances Glass Lewis will recommend voting for or against audit committee members and/or the entire committee. Audit committee members should read the Guidelines, to be informed. Some of the provisions are reasonable, others I believe are not or are overstated. This post discusses Standards for Assessing the Audit Committee #13 (material accounting fraud). Later blog posts will discuss other Standards. Although we all agree that material accounting fraud should not occur and should be prevented, as far as deciding whether or not to vote for or against an audit committee member or the entire committee when fraud has occurred isn’t or isn’t necessarily cut and dry.
* * * * * * *
The STANDARDS FOR ASSESSING THE AUDIT COMMITTEE are at pages 9-11 of the Proxy Paper Guidelines.
* * * * * * *
In pertinent part Glass Lewis advises: “When assessing the decisions and actions of the audit committee, we typically defer to its judgment and generally recommend voting in favor of its members. However, we will consider recommending that shareholders vote against the following: . . . .
* * * * * *
13. All members of an audit committee at a time when material accounting fraud occurred at the company.” (bold added)
My thoughts. Footnote 19 of the Paper, also states “Research indicates that revenue fraud now accounts for over 60% of SEC fraud cases . . . .” Provision #13 seems overstated and too bright line – (1) the audit committee members are significantly dependent on information provided by others including the CEO, CFO, internal audit, the independent outside auditor, foreign operations, etc. – (2) the audit committee only has oversight responsibilities – (3) what is “material,” quantitatively and qualitatively? – (4) what if the accounting treatment was a judgment call [i.e., see the new upcoming changes to “principles” based accounting for revenue]? – (5) why the entire audit committee as a group – each member has only one vote – really the entire committee out? – (6) what is “fraud”? – (7) fraud is often very difficult to prevent and detect – (8) what if the director is good for the company except perhaps in this instance of oversight? – (9) what if the audit committee was diligent and the fraud occurred anyway – (10) maybe recommend keeping the director, but not as an audit committee member? – (11) more?
Comment if you would like. Please also tell others if you like this blog and my posts. Thanks.
Dave Tate, Esq., San Francisco / California, http://directorofficernews.com
Updated audit committee self-evaluation form, click on the following link, use the form and enjoy,
Audit Committee Self-Evaluation Form David Tate Esq 10302014
Dave Tate, Esq. (San Francisco/California)
Auditors are required to tell management when control failures are exposing them to risk. Still, many managers at some point disagree with their auditor’s assessment. Can companies make auditors revise their assessment? And if not, what’s the best way to find common ground in those disparate views?
Source: Click on the following link for the entire article www.t2pa.com
An interesting, brief discussion.
Dave Tate, Esq.
From my 2-page overview of director responsibilities:
8. Rely on other people including information provided by other people only if (1) you believe those people are reliable and competent in the areas that they are addressing, (2) your reliance is in good faith, after reasonable inquiry as warranted by the circumstances, and (3) you do not have knowledge that would cause reliance to be unwarranted.
This is a requirement of a director for the business judgment rule defense to be available. A director has to significantly reply on other people for the director to perform his or her function – reliance on outside auditors, on internal auditors, on other directors, on executive officers, etc. As a director goes about performing his or her function, the director will want to evaluate whether it is appropriate to rely on other people. That’s not a negative statement – if there is a question of or uncertainty about reliance, work to improve and justify the reliance.
Dave Tate, CPA, Esq.
A very interesting discussion. Again involving the UK, which has moved much more than the US toward evaluation or audit, and board responsibility for oversight of culture, ethics and governance. Will the US follow? I believe so, but these topics have already been discussed and acknowledged as being important for so many years in the US, but without movement. My view, develop criteria to be evaluated, but disclose that criteria so that businesses can work to pass the test without hide-the-ball. After all, the intent is for the business to meet or improve and meet these qualitative standards, isn’t it? Source: Click here for the discussion – iaonline.theiia.org
Dave Tate, Esq. (San Francisco)
The steady stream of high-profile data breach incidents we’ve seen over the last few years makes one thing clear—cyber risk is a serious concern for virtually any enterprise.
Click on the following for the article: www.corporatecomplianceinsights.com
Cybersecurity. All that can be said at this point is that companies, executives, boards, management, employees, and third-parties simply have to get in front of all aspects of cybersecurity. And hacking doesn’t go home at night or on the weekend – this is a 24/7 need. Dave Tate, CPA, Esq. (San Francisco / California)
On September 29, Institutional Shareholder Services (ISS), a leading proxy advisory firm, published the results of its 2014–2015 global voting policy survey. The survey, which, according to ISS, received more than 370 responses from a combination of institutional investors, corporate issuers and other corporate governance stakeholders, is an important component in ISS’ voting policy formulation process.
Click on the following link for the article: www.natlawreview.com
In part, the article states:
“Risk Oversight/Audit: While a majority of investor respondents indicated that, when evaluating the board’s role in risk oversight, the role of the relevant risk oversight committee, the board’s risk oversight policies and procedures, board oversight action prior to incidents and board oversight after an incident were all “very” or “somewhat” important, the highest percentage (85 percent of investors) indicated that action subsequent to an incident was “very” important.”
Interesting. Post-incident action rated more important than pre-incident risk management? I don’t think so. Important? Yes. Very important? Yes. More important? No.
Dave Tate, CPA, Esq. (San Francisco / California)
AUDIT COMMITTEES, D&O, BUSINESS, COMPLIANCE, RISK, AUDITING, INVESTIGATIONS & LITIGATION 