Sarbanes-Oxley Benefits without Cost

Many have debated the cost of Sarbanes-Oxley (SOX) versus its benefits, given the recent accounting scandals that continue to “pile on”. However, according to Harvard Business School professor, Francois Brochet, the little discussed 2002 provision known as Section 403 is actually making a difference for investors and small companies (and with little cost, unlike some costly Section 404 provisions regarding internal controls).   

Questions:

1. What is Section 403 of SOX?

2.  In Brochet’s review of more than 50,000 filings of insider trades, what was the benefit of Section 403? Why is this important?

3. What is a Form 4 filing?

4. What measures did the article say that some companies are taking to prohibit executives from making trades based on material nonpublic information?

Source: Johnson, Sarah. (2010). Something to Like about Sarbox, CFO.com, April 14. (Retrievable online at http://www.cfo.com/blogs/index.cfm/l_detail/14491100?f=blog_mostrecentpost)

What’s the Diagnosis – Accounting Fatigue Syndrome (AFS)?

At a recent conference in Orlando, financial executives discussed one of the top reasons for employee fatigue – a continuous stream of regulatory and accounting standard-setting guidance that has been issued in recent years and the promise of more to come over the foreseeable future.

Questions:

1. Although the article provides little detail, what accounting standard-setters and regulators do you think CFO’s are referring to?
2. What areas will be affected by the six major projects currently under way, which are expected to be revealed next June?
3. Explain why Jay Hanson of McGladrey & Pullen says that “more principles-based rules will require seasoned professionals, not recent graduates.”
4. What particular area of accounting is one that will demand “an army of people”?

Source: Johnson, Sarah. (2010). “A Growing Contagion: Accounting Fatigue Syndrome,” CFO.com, March 9. (Retrievable online at http://www.cfo.com/blogs/index.cfm/l_detail/14482207?f=blog_mostrecentpost)

The Effects of Converting to IFRS

The Effects of Converting to IFRS

The primary question raised in this article is:  “What effects would switching to IFRS have for companies, if forced to switch by the SEC?” Based on a panel of four executives from four major companies, most agreed that there will be almost no material effects in areas that investors care about. 

Questions:

1.  Based on the opinion of Jack Klinger, director of accounting research at Alcoa, what would be the greatest impact of IFRS for his company?

2.  What did Aaron Anderson, director of IFRS policy at IBM see as the benefit of converting to IFRS?

3.  Based on comments by HSBC’s chief accountant, John McGinnis, what was a benefit to the bank of reporting U.S. results in IFRS?

 Source:

Leone, M. (2010). Unfazed by IFRS. CFO.com, Today in Finance, April 30. (Retrievable online at http://www.cfo.com/article.cfm/14495043/c_14494842?f=TodayInFinance_Inside)

New Accounting Rules for Off-Balance Sheet Assets

New accounting rules governing off-balance-sheet transactions went into effect for most companies in January 2010. The rules force companies to put assets, like mortgage servicing rights, back on their balance sheets.

Questions:

1. What financial accounting standards (FASs) are forcing companies to put such assets back on their balance sheets?
2. What are some of the reasons that these assets are returning to the balance sheet?
3. Since their enactment, which industry is most impacted by the new accounting rules?
4. Can you speculate why companies, like Harley Davidson and Marriott International, showed big jumps in assets, due to these new rules?

Source: Leone, Marie. (2010). Balance Sheets Are Busting Out All Over, CFO.com, April 23.
(Retrievable online at http://www.cfo.com/article.cfm/14492562?f=most_read)

What Will the Future Bring for Lease Accounting?

CEOs and CFOs are cautiously eyeing the limitations that convergence of FASB and IFRS standards may bring to lease accounting. Predictions are that a new global lease standard, anticipated in 2011, will require many traditionally classified operating leases into the capital lease status.

QUESTIONS:

1. What are the current FASB criteria for classifying leases as either operating or capital leases?
2. What is the general concept that the FASB and IASB are considering as the way to distinguish between capital and operating leases?
3. Explain how this new reclassification would cause “balance sheet blues” and companies that lease to “appear more highly leveraged?”

SOURCES:

Johnson, S. (2009). “Balance-Sheet Blues,” CFO (Retrievable online at http://www.cfo.com/article.cfm/14457794/c_2984368/?f=archives)

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