Three hours a week may not sound like much. But assuming a typical CFO works from 8 a.m. to 6 p.m., that's another 15 days of work per year. Shoe-horning three additional business weeks into an already cramped schedule means CFOs may need to show some ID to get into their own homes.
In This Corner
Of course, spending long hours at the office is nothing new for finance chiefs. What is new: trying to cope with accounting requirements that seem more concept than concrete. According to the Parson Consulting survey, fully a quarter of the finance managers polled said that the Sarbox is "very confusing."
Some of the uncertainty comes from lack of SEC guidance, argues BMC's Cox. He notes that the legislation was passed in rapid fashion as politicians pushed policy through to restore investor confidence quickly. "It's unfathomable that all the Sec. 404 rules will be finalized by September -- and companies will be in compliance by the end of the year -- without SEC guidance," says Cox.
Deloitte & Touche's Wagner, who is also co-leader of the firm's Sarbanes-Oxley Sec. 404 steering committee, figures that the SEC will weigh-in on some Sec. 404 issues by the end of May. So far, though, he says final rules are a moving target.
That's not good news for the folks doing the shooting. What's more, attempts to comply with Sarbox are triggering some unexpected problems. For one thing, the new regulatory regimen is changing trusted business partnerships, asserts Robert Williamson, chairman and CFO of CityMerch Corp. in Miami Beach. Says Willliamson: "The relationship between CFOs and external auditors has become more adversarial."
By Williamson's lights, this tilting of the auditor/client relationship is the most dramatic corporate event for finance chiefs since the Enron fiasco.
You don't have to tell that to Keith Gorman. Gorman, former CFO of Universal Health Services Inc., was fired in February over a row with company auditor KPMG about certification of the auditor's management representation letter.
Gorman, a 16-year company veteran, reportedly wrote a candid letter to KPMG explaining that, while he was willing to sign the management rep letter (attesting that the financial statements he submitted for audit were, to the best of his knowledge, accurate), he was relying on the Big Four firm to ensure that the accounting treatment was in accordance with GAAP. Turns out that Gorman, who has a reputation on Wall Street for being "brutally honest about coming forward with the good and bad news," was a bit too straightforward this time.
By admitting that he was leaning on KPMG for accounting treatment advice, Gorman lived up to the spirit of Sarbanes-Oxley -- if not the letter of the law. But his candor cost the Universal Health CFO his job. "Gorman was fired for his temerity," asserts Williamson, adding that the finance chief "said publicly, what other CFOs say and think privately."
But Universal Health is not the only example of the souring of the auditor/client relationship. In April, Amerco Inc. sued its former auditor, PricewaterhouseCoopers, for seven years of alleged bad advice on how to properly account for special purpose entities.
Swimming Upstream
Clearly, a retooling of internal finance processes -- not to mention external relationships -- will take time.
Everett Gibbs, managing director of financial consulting specialist Protiviti Inc., says that most companies have a certification process in place. But he claims the maturity of the programs vary. In fact, Gibbs predicts it will take many companies up to two years to bring their compliance procedures in line with Sarbanes-Oxley.
At Pall Corp., CFO Adamavich is taking a three-prong approach to Sarbox compliance. First, he's working on improving the reporting from the financial and operations side of the business. Second, he's encouraging thorough disclosure committee discussions (the Sarbanes-Oxley Act requires the formation of such groups). And finally, Adamavich says he's requring upstream certification of financial data.
That's not uncommon. In an attempt to create a paper trail, most CFOs appear to be insisting on certification of financial and operating data from other managers and department heads.
While upstream certification doesn't guarantee that CEOs and CFOs won't be hearing from the SEC, experts say the process does show a good faith effort to ensure correctness.
But even upstream certification has its limitations. Rubin of Jenkens & Gilchrist points out that a sign-off has to be properly targeted so the manager certifying reports is privy to the work being performed. In addition, Rubin says controls must ensure that the reports are actually being read and reviewed, and not just rubber-stamped. Rubin believes upstream certifications should be designed to force employees to think about the materiality of entries.
Even then, senior executives are still required to address exceptions that managers list on the lower-level certifications. What's more, Rubin says they're still obliged to resolve any conflicts that might mislead investors or omit material information.
Stratego?
Not surprisingly, all this certifying and addressing and resolving has many CFOs flat-out worried. The fact is, nobody in finance land is exactly sure what Sarbox landmines await, or where -- or whether the SEC will aggressively enforce the law's provisions.
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