The current deadline for companies traded on Canadian public exchanges to begin disclosing their plans for conversion from Canadian GAAP to IFRS is 2008 for December 31 filers. This is a substantial change. Approximately 28 other countries have accomplished this change and lived to talk about it - EU member countries, South Africa, Australia to name a few.



But similar to the SOX 404 feeding frenzy by certain large accounting firms, there has been an attempt to scare Canadian public companies into a large "wealth transfer" from public company coffers to once again those of the large accounting firms.



While yes there is substantial work involved and it is not to be taken lightly, accountants in public companies are intelligent enough to accomplish this task without spending millions with the large firms. They learned GAAP so they can learn IFRS.



Additionally, there is no getting away from learning IFRS because it will be the new standard companies will be using. So do not outsource the chance to get involved and learn the ins and outs and manage your own conversion project.



A common complaint we hear in our work with public companies is that the large firms are just now training their own people so it is the same song second verse folks. SOX 404 all over again. The firms are using pressure to negotiate massive contracts with clients and then train their people on the job. They set out a work plan that guarantees the most tedious approach with the most amount of work possible.



Do not be fooled into thinking your internal team cannot handle this challenge. Yes it is work. Yes you must take it seriously. But is not so massive or difficult that you need to outsource the task, knowledge and train accounting firm personnel rather than your own. This is the new standard, better to take it on and own it early to make the best decisions. No one knows your company's requirements better than your team does.

In a Grant-Thornton poll, chief executives indicated two key areas that shareholders would be pleased with:

• The CFO and CEO positions in the company should be held by different individuals to assure independence.


• Chief executives want shareholders to have great transparency concerning compensation information.

This is an interesting trend post Sarbanes-Oxley. Maybe it turns out that good governance IS good. There is no point in trying to make executive compensation opaque to investors. This just increases unnecessary shareholder activism and assures that investors think the worst.

If you are one of those 3600 Canadian companies who have to comply with NI 51-102F6, then you will be very interested in the new Executive Compensation Disclosure product that we have developed and that is being distributed in Canada by Carswell, a Thomson Reuters business. The product is Compliance PARTNER - Executive Compensation Disclosure edition. You can learn more about the product by going to their Compliance PARTNER website for the Thomson Reuters news release or go directly to www.compliancepartner.ca for more information.

The Canadian Securities Adminstrators (CSA) are in the process of finalizing the expanded requirements for executive compensation disclosure associated with Form 51-102F6 Statement of Executive Compensation. The implementation date should begin with those issuers, excluding investment funds, with fiscal years on or after December 31, 2008.



This means there is lots more disclosure work ahead for about 3600 issuers on the TSX and TSX Venture exchanges.



Companies are going to need to improve their processes, systems and practices to meet the new requirements. Many shareholders feel that it couldn't come at a better time. A news release today highlights the challenges associated with transparency and processes. Click here to read more. Ouch!



If you are one of those 3600 companies then you will be very interested in the new Executive Compensation Disclosure product that we have developed and that is being distribued in Canada by Carswell, a Thomson Reuters business. The product is known as Compliance PARTNER - Executive Compensation Disclosure edition. You can learn more about the product by going to their Compliance PARTNER website at http://www.compliancepartner.ca/ .

With so much concern about the global economy right now, executive pay is a hot topic. What seems to be out of sync, is the high levels of executive pay when earnings or share prices of companies are collapsing. Investors wonder whose interests are being looked after.


2007 was the first year that US companies begin filing new Executive Compensation Disclosure and Related Person Disclosure information in the form a new section to the annual reports called Compensation, Discussion and Analysis (CD&A). The SEC has expressed displeasure at the filings and has requested improved reporting.


Canada has proposed similar legislation for 2008 for Canadian public companies which will put a bright light on this topic "up north".


An article from HR Executive Resource Online " Doubting Executive Pay" released yesterday sheds light on this topic and the investor and employee discord surrounding it. Here is an excerpt:

"Directors and investors say exorbitant executive compensation causes resentment and harms corporate America's image, but the SEC's disclosure rules are not the answer. One expert says the problem stems from short-term thinking, rather than greed. By Kristen B. Frasch
With the nation's attention focusing ever more intently on CEO salaries -- most recently in the form of congressional hearings before the House Committee on Oversight and Government Reform -- two different surveys suggest boards of directors and shareholders remain at odds over just how broken the system is and what they can and should be doing to fix it.
In one study, by Heidrick & Struggles and the University of Southern California's Marshall School of Business, about one in three directors of U.S.-based public companies said CEO pay is "too high in most cases."

The 2007 Corporate Board Survey of 210 respondents also found widespread unhappiness among directors over the latest disclosure rules about executive compensation mandated by the U.S. Securities and Exchange Commission.

Most directors (about 90 percent) said they doubt the rules -- designed to give investors and corporate watchdogs better, timelier information about pay and other compensation for top executives -- are meeting investors' needs.
"Executive compensation and how that information is disclosed have been controversial for some time," says Ed Lawler, distinguished professor of business at USC Marshall and founder and director of the university's Center for Effective Organizations.

"But what this survey unmistakably shows is that the issues are a growing concern, even among the people most responsible for dealing with them: the board members of public companies," he says.

Board members' dissatisfaction in the study centers on the type of information reported in the new SEC-mandated proxy statements.
Only one in 10 said they believed the information did a good job of explaining how compensation decisions are made and fewer than three of 10 agreed the statements provide valuable information about the amount a CEO actually makes.

"A major advantage [of the new rules] is to see the top five salaries, but even these are often obscured with descriptions of things [boards] can't fully understand," Lawler says.
A problem contributing to hard-to-decipher information and continual salary increases, according to respondents, is the role compensation consulting firms play in the creation of new incentive-compensation programs.

"It is interesting that even though it is boards that determine the level of executive compensation, they still point to the important role consulting firms play," says Ted Dysart, managing partner for the Americas with Heidrick & Struggles' global board of directors practice.
In a separate study by Watson Wyatt Worldwide, corporate directors and institutional investors disagree over whether the U.S. executive-pay model is changing for the better, but both groups say the current model has hurt corporate America's image.

The study, 2008 Report on Directors' and Investors' Views on Executive Pay and Corporate Governance, which surveyed 163 directors and 72 investment and pension-fund managers, found 63 percent of directors think the pay system is improving, compared to just 36 percent of investors.

It also found 65 percent of directors believe the current pay model has helped to improve company performance while only 39 percent of investors feel that way.
"While directors believe the system generally works, institutional investors ... feel the model's flaws run deeper and require more substantial changes," says Ira Kay, global director of compensation consulting at Washington-based Watson Wyatt. "Clearly, more work needs to be done."

Most of the respondents (75 percent), however, believe the model has tarnished the nation's image, has led to resentment among the rank-and-file and has resulted in excessive executive pay..."


Clearly this disclosure meets with objections from those who have to report and administer it. But no one can argue that investors should be prevented from transparent information from the companies they invest in. Is the legislation perfect? Probably not, but you have to start somewhere. And starting with some disclosures about an important topic is important.

If your company has to comply with Executive Compensation Disclosure regulations, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information.

Both the Securities and Exchange Commission (SEC) and the Ontario Securities Commission (OSC) have filed charges against Biovail for fraudulent accounting and a host of other items.

It took five years for that little "I missed my revenue forecast because my truck crashed on the way to the warehouse" story to finally cause some really big investigations and charges. I have to admit when I heard that story many years ago, I could not figure out how that had affected revenue but who knew?

It sounds like Eugene Melnyk and fellow Execs are going to have to come up with some pretty good answers for what the two agencies are alleging as fraud and undisclosed errors. Some serious charges of intentionally misleading investors.

Who knows, maybe Eugene will join the hallowed halls of prison in Florida with the likes of Conrad Black. According to an article today in the Globe and Mail, Conrad is quoted in the article, "I am doing fine," Mr. Black said in an e-mail to the Canadian Press from his Florida prison. "This is a safe and civilized place and I don't anticipate any difficulty."

According to a Globe and Mail article today , the Patriot Act may cause many organizations to wonder about using Google's free office productivity software. The issue is that the organization's data is stored on Google's servers. Therefore, they are potentially subject to search and review by US government law enforcement services. This could occur without the knowledge of the end user. This is due to the expanded powers granted to the US government after 9/11 in the law known as the Patriot Act.

The concern becomes that any company who houses another company's data, hosting services for example, may be subject to requests from the US federal government to view confidential data. The organization housing the data may not be able to deny the requests.

An excerpt from the article is here:
"The privacy issue goes far beyond academia. In Toronto, at SickKids Foundation, which has the largest endowment of any Canadian hospital, employees have been keen to use Google tools. But the foundation's IT department blocked access for two reasons.

"Wherever possible, we keep our donor and patient records in Canada, as trying to enforce privacy laws in other jurisdictions is complex and expensive," said Chris Woodill, director of IT and new media at SickKids Foundation. Second, free hosted software offers limited support and no formal legal contract, limiting an organization's ability to demand additional privacy or security measures, he said.

Google says it has a strong track record in regard to protecting customers' data. The firm cites a court case it fought in 2006 against attempts by the U.S. Justice Department to subpoena customer search records. "We will continue to be strong advocates on behalf of protecting our users' data," said Peter Fleischer, Google's global privacy counsel.
But the Mountain View, Calif.-based company will not discuss how often government agencies demand access to its customers' information or whether content on its new Web-based collaborative tools has been the subject of any reviews under the Patriot Act."

Even if data is not housed in the US, if a hosting company for example, does business in the US, there could be such a request made to the hosting company, citing national security. It does bring interesting questions into play about allowing any outside organization to house and safeguard your data.

The SEC is making great strides in taking the vast amount of financial data stored and filed on its website by beginning the conversion and usage of XBRL (eXtensible Business Reporting Language). This is great news for investors who need to compare and evaluate this data in an easy and understandable way. The XBRL in use by the SEC called Financial Explorer.

An excerpt from a recent article is here:


"XBRL is fast becoming the universal language for the exchange of business information and it is the future of financial reporting," said Cox. "With Financial Explorer or another XBRL viewer, investors will be able to quickly make sense of financial statements. In the near future, potentially millions of people will be able to analyze and compare financial statements and make better-informed investment decisions. That's a big benefit to ordinary investors."
The SEC already offered investors two other online viewers: the Executive Compensation viewer and the Interactive Financial Report viewer. The Executive Compensation can compare what 500 of the largest U.S. companies are paying their top executives, while the Interactive Financial Report viewer helps investors gather, analyze, and compare key financial disclosures filed voluntarily by public companies using XBRL. (To date, there have been 307 such filings from 74 companies, the agency said.) "

If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.

You know it has been a bad day when the third government entity is now investigating the subprime mortgage disaster. First it was the SEC, then the Attorney General's office of New York and now the FBI's Economic Crimes unit.

Fraud and insider trading allegations abound. One thing is for sure, some new regulations will come of this one.

Investment Banks and the banks around the world do not look too swift right now. First it was subprime mortgages with no rails and regs and now it is the French bank Societe Generale with the complete failure of controls and key performance indicators.

All I want to know is where were all these regulators before all this happened. There certainly was evidence before the whole thing blew up.

An excerpt from Business Week online: "Fall Guys?
It's not just public company executives who may need to worry about their sales. If, for example, a hedge fund manager pulled his own money out of a fund when he became aware of valuation problems, but left customers in, that, too, could be a problem. "That's not exactly insider trading, but it could involve fraud in connection with the sale of a security," says the investigator.
While there's no way of knowing yet what the probes will turn up, or whether any actions will rise to the level at which criminal intent can be established, Frenkel points out that the involvement of the FBI is not good news for executives at firms where wrongdoing is suspected.
"As we saw in the corporate fraud cases, companies have an incentive to resolve these investigations; that may include the sacrifice of corporate personnel," he says. "People often forget in the early stages of an investigation, their interests and those of a company can diverge. Companies can settle. They don't go to jail, people do."

The PCAOB has released Audit Standard #6 for review. If adopted by the SEC, it will become effective within 60 days - end of March 2008.


An excerpt is here: " The Board also removed the hierarchy of generally accepted accounting principles (GAAP) from its interim auditing standards. The GAAP hierarchy identifies the sources of accounting principles and the framework for selecting principles to be used in preparing financial statements. The Board believes that the GAAP hierarchy is more appropriately located in the accounting standards. Because the FASB intends to incorporate the hierarchy in the accounting standards, it no longer will be needed in the auditing standards. The Board has coordinated with the FASB and understands that the FASB intends to coincide the effective date of its GAAP hierarchy standard with that of the PCAOB."


As the world moves more toward one standard, these incremental moves make one accounting standard more possible. This will change the face of internal controls and their references as accounting standards change.


If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.

With all of the non-stop complaining about SOX 404, smaller public companies have received five years of delays on Section 404.


All during this time, the AICPA (American Institute of Public Accountants) was working on accounting standards regarding internal controls for NON-PUBLIC companies. These standards, SAS 107-112 require auditors to review internal controls over financial reporting for NON-PUBLIC companies. The affects companies with fiscal periods ending on or after December 15, 2006.

With the current deadline for public companies under 404(b) fiscal years on or after December 15, 2008 (possibly delayed to 2009), the public company standards are now lower than private companies. Interesting since internal controls are basic good business.

It is now difficult to make the case that smaller public companies cannot comply with ICFR standards when their private brethren will comply this year and be audited with a top down risk based approach.

Sound familiar? More detail on the unintended consequences of these delays can be reviewed in Lord Benoit's recent study.

If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.

Well, they done it again. The SEC is proposing one more delay for small companies for the auditor attestation portion of SOX 404. That is 404(b). So this gives companies a breather to let the larger brethren to get Audit Standard #5 road tested.



But this means, look out when the Auditor Attestation occurs in 2009. The auditors will be there with full confidence. Time to get those risk control documents in order and test those controls and remediate as necessary.



Here is the detail so far from Market Watch:

"CAMBRIDGE, Mass., Dec 12, 2007 /PRNewswire via COMTEX/ -- The Committee on Capital Markets Regulation applauds SEC Chairman Cox's testimony proposing the delay of an additional year before requiring that small companies get external audits under Sarbanes Oxley Section 404(b), in order to complete what amounts to a cost-benefits analysis of that requirement. As we noted in our Interim Report of November 2006 and in our testimony in June 2007 before the U.S. House Committee on Small Business, Section 404 costs, averaging $4.4 million in the first year, have disproportionate impact on small companies.


Let's wait to see whether these costs are substantially reduced by the SEC's and PCAOB's recent Section 404 reforms before applying them to small companies. Unreasonable 404 costs will either prevent small private companies from going public, or drive them abroad to do so. Indeed, our December 4th report on The Competitive Position of the U.S. Public Equity Market found that through the first three quarters of 2007, a remarkable 9.2% of U.S. companies did their IPOs only abroad. "



If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.

Conrad Black has started his public rantings again against this time the US legal system. In an article in today's Globe and Mail, he claims he is innocent. He has not yet been sentenced but he is speaking out. But hey that is Conrad. He cannot stop talking even when it might cut his jail time.

Conrad played by his own rules, not the ones he was supposed to. Just because he thinks that some of the charges were dropped, does not mean they were not true, the prosecutors may just have had to pick their battles to win the war.

But to me the most interesting item in this article relates not to Conrad Black, who frankly raided the corporate cookie jar and got caught.

A Mr. Frenkel from the British Press is quoted in this article: "There's no question that the conviction of [ex-Enron CEO] Jeffrey Skilling warranted jail, but when drug dealers and murderers are serving fewer than the 24 years he will be serving, there is certainly an inequity."

I beg to differ. Has anyone ever bothered to go back and count the lives that were lost due to suicide from these fraudulent investments? Those who ended it all because they lost their life savings. They believed the fraudulent promises of these white collar criminals such as Jeffrey Skillings, Conrad Black, etc..

How many people did not go to college because savings were lost? How many people ended up homeless because they lost their money? Why are these consequences not counted among the "lives wrecked or lost? It is easier when there is a murder or drugs sold to say these criminals are evil, but that is only because the wreckage is either tracked by government statistics or covered by the media.

The personal economic devastation caused by these criminals, and they are criminals, is real and they should be punished just like other criminals.

There is a good reason to have good governance. It is not just fluff. The truth matters. Investors should be able to trust what officers of companies publish in their financial records and news releases. There has to be accountability.

Those former corporate titans like Jeffrey Skillings and Conrad Black always thought they were the smartest ones in the room. But at least for awhile, their rooms are far away from the public and their ability to commit crimes is diminished.

On November 23, 2007 the Canadian Securities Administrators issued Staff Notice 52-319: STATUS OF PROPOSED REPEAL AND REPLACEMENT OF MULTILATERAL INSTRUMENT 52-109 CERTIFICATION OF DISCLOSURE IN ISSUERS' ANNUAL AND INTERIM FILINGS.

The main intent of the notice as evidenced by the majority of the subject matter was to indicate that the regulators had decided that Venture Issuers could file a basic certificate rather than the Form 52-109F1 form that TSX issuers must file. Further, the Venture issuers could file this certificate for this year if in fact their fiscal year ends after November 23, 2007 - basically either November 30 or December 31.

While some may think this is good news, it is a bit disconcerting when this type of notice comes out almost at the end of fiscal years. So many Venture issuers have done extensive work on their 52-109 documentation and some have made such disclosures in their MD&A.

This provides a very late notice with certificates with terms such as:

• "reasonable diligence" and
• "The issuer's certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate"

No doubt these certifications require a level of documentation of controls in place in order to be able to make these certifications. But how different are the requirements?

The other point in this late breaking news is that for awhile Venture Issuers were closer to same status as TSX issuers, with the same disclosures. No doubt the benefits were there for lowering the perceived investment risk. This is an important factor when considering how difficult it is to get analyst coverage and their higher cost of capital, thus lowering their overall liquidity.

The area that has really caused a lot of discussion and many different interpretations is some other wording in the notice:

"The comment period expired on June 28, 2007. We received 53 comment letters. After extensive review and consideration of the comments received, we have decided to make significant revisions to certain aspects of the proposal. As a result, we will publish an amended version of the Proposed Materials for comment and we will not implement the Proposed Materials in final form on June 30, 2008. When we publish an amended version of the Proposed Materials for comment, we will include information relating to the expected effective date."

With 13 regulators, there have been so many rumours flying all around Canada on what this means. The concern with this type of wording is that is vague and leads everyone to reach their own conclusions. A concern for regulators who have an interest in making sure that issuers move forward with the requirements.

But issuers, on the other hand, need to be careful not to read into this announcement what they "wish to hear". The public information in the CSA staff notice is just saying the final comments will not be in final form on June 30, 2008 NOT that issuers are off the hook for proper ICFR and disclosure controls and the certifications of design/implement and effectiveness.

The PCAOB issued its report on Small Firm Inspections on October 22, 2007. The Center for Audit Quality plans to hold a webcast on Thursday, Nov. 29, from 1:30 to 3:30 p.m. Eastern time that will allow public company auditing firms to hear from the PCAOB about the most common deficiencies they found, and ask questions.


The report details some areas where smaller audit firms were found to be deficient in their audit practices of public companies for Sarbanes-Oxley Section 404. They were specifically in the areas of:

• Revenue Recognition - more specifically that firms often did not go into enough detail surrounding the contracts and industry specific practices to understand whether the revenue was in fact correct. Further, they relied on substantive testing of Accounts Receivable and Inventory too often to justify the revenue. Thresholds for further investigation were often not set leading to suspect conclusions about revenue recognition.



• Related Party Transactions - Lack of understanding of the existence and implications of related party transactions as well as potential improper levels of disclosures of their existence. Further, such transactions can have implications for other indebtedness or other such arrangements that may not be recorded properly on company accounting records.



• Equity Transactions - Since newer companies have more difficulty raising money, they often do not properly record and account for the equity transactions according to GAAP. Audit firms in many situations failed to determine whether firms had properly complied with SFAS No. 123 - Accounting for Stock based compensation. Numerous deficiencies were found in the firms' testing of fair value of such compensation.



• Business Combinations and Impairment of Assets - Where auditors have failed to identify the the accounting acquirer; these transactions were not always properly researched.

If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.

The Canadian Securities Administrators (CSA) is made up of 13 individual securities regulators. Yes, ladies and gentlemen, hard to believe, but a country with 33 million people needs 13 regulators. It is some fun trying to get a committee of 13 to approve regulation changes. No wonder change is slow and erratic. This works out to one regulator for every 2.5 million people. Makes sense!


By logical extension, were the US to follow this model, there would be 120 regulators-Wow, 2.4 for every state. That's amazing. Now, what if China......?


On Friday, November 23, the CSA issued CSA 52-319. This does away with the Internal controls over financial reporting certification and disclosure controls certifications for Venture Issuers. This is disconcerting because, widows and orphans along with unsophisticated investors can still purchase shares in Venture issuers. It will not be too obvious to an unsophisticated investor that Venture issuers will no longer be subjected to the same reporting or scrutiny as TSX companies. The companies look the same to an unsophisticated investor.



Regulators were created to look out for the best interests of the public. In this case, the public would be investors. Unsophisticated investors believe regulators have standards for public companies. With the sweep of the pen, two classes of companies have been created without any real obvious distinction at the retail level where the investor purchase happens.




If the regulators really want to distinguish between Venture issuers and TSX listed companies, they should implement regulations to allow only accredited investors to invest in Venture companies. Then it would be assured that knowledgeable investors would know the difference between companies with transparency in internal and disclosure controls, and those who have none. Then Caveat Emptor makes sense.


If you take public's money then there should be transparency, or the public who is able to invest should be limited to those who understand these opaque matters.




One need only look at the recent fiasco ABCP (Asset Backed Commercial Paper) market which theoretically had only sophisticated finance personnel doing the investing, to understand that much gets lost in the fine points of paperwork and wording. That mess is not over yet.


Fortunes, economies and markets can suffer severe disruption without coherent and consistent securities regulation.


The other interesting point is that the rest of the world is moving toward more transparency in its financial reporting, not less. We wrote in this blog about more countries adopting ICFR regulations last week.

We wrote in this blog November 12, 2007 about Chinese banks listing on US exchanges as a new trend. Now this week, Israeli companies are coming back to US markets.


This is probably due to a few factors:
US Markets are still by far the largest in the world: $18 trillion versus $3.4 trillion for the UK. So size matters.


Additionally, many countries are now putting in SOX-Like or SOX-Lite regulations: Canada, Japan, South Africa to name a few, so the SOX stigma has become the new standard - transparency is good.


The other factor is no doubt the powerful Wall Street marketing machine which apparently is now present in Israel. It is a wonder what sweet siren songs the Wall Streeters are singing into the ears of Israeli public companies.


For the complete article on this topic, click here. An excerpt on this topic can be found here:

"According to James Posnett, MD of European products at Eurolist and Alternext, interviewed by the Jerusalem Post, the trend will change in 2008. While Israeli companies has only eyes for the NASDAQ for more than a decade, their interest stareted dwindling down in 2005 with the the costly Sarbanes-Oxley listing regulations. In 2005, 20 Israeli start-ups went public on the European markets rather than in the U.S., and mainly on London?s Alternative Investment Market (AIM).
In 2006, the number went down to 16 in Europe vs. 8 on Wall Street, and the trend is set to change back in 2008 in the advantage of the US. The presence of several US investment banks in Israel favors a growing interest and experience of the US markets."

If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook? for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner? from Thomson Carswell.

Interesting report from http://www.chasecooper.com/. They put out an article yesterday on a trend in Chinese banking. An excerpt is here:


"China Merchants Bank (CMB), to open a branch in New York, the first Chinese bank to gain such approval in 15 years. This is expected to be a first step to CMB listing on a US exchange."


They go on to say:

"It is expected that CMB will be joined by Industrial and Commercial Bank of China (ICBC), China's largest bank and, by many measures, the world's largest, bank who applied for a US licence to open a NY branch earlier this year. Approval has been given by the NY State Banking Department but ICBC still wait the final approval from the Fed.

No Chinese banks have listed in the US since the onset of the Sarbanes-Oxley Act but this now looks set to change."


This looks good for an SEC who made de-listing easier in January 2007. Interesting turn of events with all of China's power in the financial reserves these days. Good to see US markets accessed by powerful foreign companies.

Openness of US markets is some of the best in the world. This is a testament to this and the market power of the US.


If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.

With the SEC's efforts to keep and attract new foreign listings, the interest in not only allowing foreign filers to use International Financial Reporting Standards (IFRS) to file their financial statements.

October 9, 2007 Christopher Cox, Chairman of the SEC, spoke to the 2007 US-EU Corporate Governance Conference at SEC headquarters.

Excerpts from the speech are here:

"Today, when investors look across the Atlantic, it is possible to see bonds between our markets that are stronger than ever before in history. The combined NYSE and Euronext comprise a transatlantic company that operates six different exchanges catering to many different types of issuers. The International Accounting Standards Board and the U.S. Financial Accounting Standards Board have for years been working on a convergence project to eliminate needless regulatory friction between International Financial Reporting Standards and U.S. Generally Accepted Accounting Principles. And that has made possible the SEC's announcement that we are taking the next steps on our Roadmap to eliminate the reconciliation requirement in the United States, and that we are even considering allowing U.S. issuers to use IFRS."

He goes on to say:
"The European Union itself is a vivid demonstration of why differences in markets can sometimes justify differences in regulation. In the United Kingdom and the Netherlands, for example, ownership of most public companies is widely diffused. There are few, if any, shareholders that own a controlling block of a public company's shares. In Germany, many public companies have controlling shareholders. Traditionally, those have been large banks. In Italy, the controlling shareholders are often entrepreneurial families. Even in markets that seem similar, we often see differences that profoundly affect how our markets work.

For example, like the United States, the United Kingdom has many companies owned by large numbers of shareholders, none of whom owns enough to constitute control. But unlike the United States, the UK market historically has not had a very large retail component. Over the past few decades, the investors that predominate are not retail investors but large financial institutions, all located within a few blocks of each other in the City of London."

Regarding IFRS in particular, Cox notes:

" Speech by SEC Chairman:Keynote Address to the 2007 US-EU Corporate Governance Conference by Chairman Christopher Cox U.S. Securities and Exchange Commission
SEC Headquarters Office Main AuditoriumWashington, DC October 9, 2007

Let's consider a concrete example: the move that's afoot throughout Europe and around the world for a truly global set of high quality accounting standards. The vision behind International Financial Reporting Standards is that a single worldwide set of standards will permit investors around the world to benefit from a high level of comparability and a consistently high level of quality in financial reporting. It would eliminate the need for investors and analysts to try to understand financial statements that are prepared using the different accounting standards of many jurisdictions.

It would eliminate one of the significant barriers to raising capital outside one's borders. And it would provide a globally enforceable check on corporate governance practices, including executive compensation - where lately the SEC has done so much work.
IFRS promises to integrate our markets.

But that promise is jeopardized if IFRS isn't applied faithfully and consistently across jurisdictions. Regulators must beware the impulse to develop nationally-tailored versions of IFRS, and we must cooperate with one another in implementing a set of standards that is faithfully and consistently applied."

It will be interesting to see how much convergence there will be among the current IFRS "flavors" around the world. Public companies want convergence of accounting standards, but what standard is the right one. And if IFRS is the standard to converge with: then what IFRS? UK, Germany, Poland, South Africa, etc.

This will be an interesting journey to say the least. Canada is working toward IFRS conversion by 2011. US registrants will most likely have choices much sooner than that. These are huge changes for public companies, investors and the very educational institutions which must provide graduates for this upcoming challenge. It is a worthy goal but much more formidable than many realize.

According to an article by FEI Canada, today: The following issues are ones where IFRS will cause huge upheaval:
"Key differences exist in:

• insurance contracts,
• financial instruments,
• full cost versus successful efforts,
• de-recognition of financial assets and liabilities,
• consolidation - variable interest entities and special purpose entities,
• stock-based compensation,
• impairment of non-financial assets,
• employee future benefits, and
• income taxes."

This will be an interesting ride. Hold on to your seats.

While many Canadian companies are working hard on their NI 52-109 projects, there are many who have not put the consistent effort into providing investors that they have reasonable assurance over their Internal Control over Financial Reporting. This is especially disconcerting since the legislation has been proposed and/or in place for many years now.


Of special concern is the Venture Exchange where the resources to comply with this complex legislation are just not available. Many of these companies are in natural resources: mining and natural gas. This represents approximately 1600 companies or (of the approximately 3800 public companies) 42% of companies listed on Canadian exchanges.


Next year is an extremely crucial year in the progress of the requirements of this legislation. It is the year where public companies must certify the effectiveness of their internal control over financial reporting. In other words, they must certify that their controls "work as advertised".


Many companies have struggled with the first phase of this legislation: "Design and Implement Internal Controls over Financial Reporting". It will be interesting to see what happens when the really tough stage begins.


A recent article discusses some of these challenges:


Excerpts from the complete article from the National Post:

"Canadian corporate disclosure about internal controls is also inconsistent and regulation here "severely lags" behind the United States, despite a slew of new rules designed to improve reporting, say the authors of the study...


Only 46% of TSX-listed companies surveyed said their internal controls were effective. Among Venture Exchange companies, the figure plummets to 13%. Internal controls are the checks and measures companies have in place to prevent fraud and to make sure the financial information they generate is accurate."

There is much work to be done. Investors will be closely watching the results.

If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook? for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner? from Thomson Carswell.

In our work with small to mid-sized SOX 404 filers, we have long proposed that a risk based approach to scoping and planning projects is key. In the "Dark Ages" of SOX 404 (2002-2005) many external auditors were recommending form over substance and requiring clients to document everything that moved in a company.


Whew! Enter Audit Standard #5. This new shorter and more risk based approach that will be in place for auditors to use to do their attestation for registrants' ICFR directs auditors to review high risk processes and how projects are scoped.


We have long directed smaller clients to do proper scoping with a top down risk based approach. Further, Entity level controls have been a focus for smaller companies to "hang their hats" on. Additionally, in our informal surveys of clients, we have found that the most important process in this endeavor is the financia reporting process. This process is the least documented, the most supported by spreadsheets and the most rushed and therefore subject to error.


Here is an exceprt from an article from Metropolitan Corporate Counsel concerning some key areas for registrants to focus on:


"Conceptually, the financial reporting process is a broad category encompassing such sub-processes as the financial close process; significant estimates; footnotes and disclosures; equity; and intercompany and related party transactions, among others. Management can better focus on high-risk areas by beginning with the financial reporting process and documenting the risks and related controls in place. For example, documenting and testing controls over significant estimates will most certainly overlap other processes - such as Revenue and Accounts Receivable - and it will bring the areas of highest concern and complexity to the forefront of management's assessment process.

A critical mistake many organizations made in the past was in applying a "blanket" approach. Documentation was created and testing of controls was executed at the same level of detail for each process regardless of the comparable risk level. Using this approach, a process involving routine transactions such as payroll, e.g., might receive the same level of time, effort and focus in creating evidential matter as the process relating to significant estimates in financial reporting...


AS5 indicates that certain entity-level controls might be at the right level of precision to adequately prevent or detect a material misstatement of the financial statements. For example, executive management might conduct an analytical review of the monthly financials. Typically, the issue from a SOX 404 perspective is that the review (i) might not occur at an appropriate level of detail, (ii) lacks documentation of anomalies and unexpected results and (iii) the investigation and resolution is conducted through verbal communication.

Management should focus on improving entity-level controls, including increasing their precision level. Management should also emphasize maintaining proper documentation in evidencing such controls to reduce additional work at the process level in documenting and testing the controls to mitigate the risk. Management should voice its plans to increase the precision level and operation evidence of entity-level controls in the first discussion with the external auditor. This allows the auditor to give management feedback on how the evidential matter on the effectiveness of entity-level controls may impact the auditor's assessment process."


If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook? for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner? from Thomson Carswell.

How could so many firms audit public companies without registering? The regulations are clear. It makes one wonder who the companies were that they audited. If the firms did not know enough or care enough to register properly with the SEC, what audit standard did they use to audit their clients.


Somehow I do not think this is a place to cut costs for a public company.


For the complete article, click here. An excerpt is here:
"Washington, D.C., Sept. 13, 2007 - LAWFUEL - The Law Newswire - The Securities and Exchange Commission today charged 69 auditors with issuing audit reports on the financial statements of public companies while they were not registered with the Public Company Accounting Oversight Board. The SEC administrative orders name 37 unregistered audit firms and 32 audit partners who participated in the preparation and issuance of their unregistered firms? audit reports.


These firms and partners did not comply with a fundamental requirement of the Sarbanes-Oxley Act of 2002 ? that accounting firms that prepare and issue audit reports on the financial statements of public companies must be registered with the PCAOB. The SEC issued 29 settled and ten contested orders. The 69 firms and partners named in today?s actions were collectively responsible for issuing 60 audit reports for 53 companies between November 2003 and October 2005.


Linda Chatman Thomsen, Director of the SEC?s Enforcement Division, said, ?The Commission is committed to ensuring compliance with the regulatory framework Congress established for auditors of public companies. When these auditors failed to register with the PCAOB, they violated one of the key requirements of Sarbanes-Oxley and evaded the PCAOB?s oversight authority. The actions we take today protect investors and will deter future violations of Sarbanes-Oxley?s registration provision.?

If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook? for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner? from Thomson Carswell.

With the the potential risk around Asset Backed Commercial Paper (ABDP), you would think there would be more disclosures about who is exposed. Aren't public companies supposed to be doing real time disclosures about real time events? Over investing in ABDP is now a material event.

The interesting thing for some of the mining companies in Canada who have reported tying up 90% plus of their free cash in non-bank ABDP's is: Wow, what were you thinking? Is that little extra bit of return worth the risk?

A billionare from Little Rock, Arkansas, Witt Stephens who founded and ran the largest off-Wall Street brokerage, once told one a customer: "The most important thing in investing your money is protect your principal!" I guess these mining companies and many others never had the opportunity to learn from a master such as Witt Stephens.

Here is an excerpt from an article from Today's Toronto Star:

"The chiefs of Canada's major banks yesterday pledged a concerted effort to ensure the massive market for bank-sponsored asset-backed commercial paper continues to "perform satisfactorily," while some in the investment industry wondered just who is sitting on an estimated $33 billion in non-bank-sponsored paper.

Short-term commercial debt, an erstwhile favourite with institutional investors, has been slammed by a liquidity crisis in recent weeks as turmoil that began with U.S. subprime mortgages spilled into other sectors of the credit market.

The total market for asset-backed commercial paper, known as ABCP, is worth some $120 billion, with the vast majority sold by bank-run trusts. While that segment of the market continues to run smoothly, commercial paper sold by non-bank companies, worth about $35 billion, has been rocked by volatility.

Earlier this week, the National Bank of Canada decided to shield its clients from potential losses by repurchasing about $2 billion worth of the non-bank variety from its money market funds, while raising the question of where the other $33 billion is being held.

Investors got some answers yesterday as companies issued a flurry of releases to clarify their levels of exposure. Among them, the Laurentian Bank of Canada said it has "limited exposure" on the order of about $20 million..."

Michael Oxley is precisely right. The Sarbanes-Oxley Act has been a good thing for US markets. And he is right about the impact on standards in other markets. Examples are Canada with its NI 52-109 which is about 80% the same as SOX 302/404 but excludes the external auditor attestation; other examples are Japan with its JSOX and India is also moving toward more transparency in reporting as well.


Sarbanes-Oxley has now reached the optimal point. Auditors now do not have to opine on a registrant's process for its internal control over financial reporting project. The auditors must opine on the adequacy of a company's internal control over financial reporting. As well, the Public Company Accounting Oversight Board (PCAOB) has revised its audit standard and it now is scaled back and emphasizes a risk based approach to audits.

All these changes have been in response to huge public outcry. But good for the SEC that they have not tried to neuter the legislation. Good work but hard work.


Here is an excerpt from Michael Oxley's podcast:


"In a podcast interview with Gartner Inc. analysts Bruce Bond and Vincent Oliva to mark the fifth anniversary of the introduction of the act, Mr Oxley said that although there is evidence that some European financial markets are becoming increasingly attractive, the US is still regarded as the safest and fairest of international markets with the highest standards.


Mr Oxley, currently vice chairman of the NASDAQ stock exchange, also said that since the introduction of SOX in the US, many countries, bothdeveloped and developing, have moved towards higher standards of cor-porate governance and listing requirements. The predicted 'race towards thebottom' that was widely predicted after the New York Stock Exchange and NASDAQ tightened their listing standards has failed to materialise. "

If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.

Everything is about perspective. This article from the Standard Chinese newspaper speaks about the fifth anniversary of Sarbanes Oxley. This journalist discusses the pros and cons of regulation in markets. It is quite interesting the approach that he takes regarding regulation. He notes that many people find any regulations authoritarian. He indicates that regulations if well done are actually support for business.

This is quite interesting considering the uproar and furor that has gone concerning Sarbanes Oxley over the past five years. This journalist takes a different approach and indicates that China may do well to consider something like a Sarbanes Oxley because there is so much uncertainty about business and ethics in China.


He indicates that many in the West believe that Sarbanes Oxley is in fact authoritarian but he indicates that in China they know where authoritarian is and is something quite different than Sarbanes Oxley. He believes that the struggle to validate business in China while moving towards democracy is a challenge and cannot occur without the proper regulations.


This is quite refreshing and quite instructive for those of us who have done so much review on this legislation. It must be amusing to this reporter level of whining and Chicken Little types of arguments that occurred regarding this legislation.


We on this blog have often indicated our support for Sarbanes Oxley and continue to do so. But must admit of this approach is very unique and it always is interesting to hear from someone with a completely different perspective that is completely valid in a much different way.



For the complete article, click here. Here is an excerpt:



"Truth be known, today's business could not operate without regulations. The introduction of the joint stock company as a structure and the subsequent invention of limited shareholder liability in the early nineteenth century, ensuring shareholders are only liable to lose the amount they have invested in the advent of a company's insolvency, were all regulatory instruments designed not to block the flow of business but to free it up.


Middle-class shareholders in the 18th century - we might call them retail shareholders today - would not have felt enough confidence in investing in, say, steam-driven infrastructure or other industrial revolution advancements without the back-up of governments in the shape of such laws.


It is likely, therefore, that those developments, leading to amassing of great fortunes, an extraordinary distribution of wealth, and the establishment of the modern capitalist model, would not have occurred without government regulation.


In fact, rather than calling it "regulation," we might call it "support."


Every business utilizes what has become known as a "license to operate." This is a license effectively held by the wider society and generally - though not always - entrusted to governments, which allows businesses to function and be accepted in a wider sense...



China, if it is put into action Deng's epithet "Capitalism with Chinese characteristics," needs to balance the power of business with the rights of the people. This is particularly problematic in an authoritarian state run by a government obsessed with holding onto the reins and keeping the largest national population in the world from tilting towards Western-style democracy.


Capital flight is not an issue for China. Civil unrest is more likely and corruption and graft is a major issue driving it. So perhaps it might be the moment to introduce stronger regulations - a la SOx - to enable something like a free market to run effectively and equitably.


But, that pro-business balance has to be maintained. Without a democratic system, feedback loops are tangled or non-existent and this may lead to poorly devised schemes, bad policy and, eventually, bad laws. Bad laws do not help anyone.


Many people see SOx as a form of US authoritarianism, placing obstacles in front of the free market beast that has thrived there for decades.


Those in China know what authoritarianism is, and SOx isn't it.


China needs some strong corporate laws to ensure the economy doesn't eat itself. Beijing could do worse than to look closely at SOx.



James Rose is editor of www.corporategovernance-asia.com"


If your company has to comply with SOX 404 or NI 52-109, and wants to do it in a sensible and cost effective way, contact http://www.issuescentral.com/ for more information on Compliance Playbook® for companies based outside of Canada. For Canadian based companies, see http://www.compliancepartner.ca/ for more information on Compliance Partner™ from Thomson Carswell.