For his part, Parson's Fumo believes many of the best practices for handling the new risks will emerge from peer group discussions facilitated by auditors and other financial consulting firms. That's particularly true for small and mid-size companies which don't have accounting staffs big enough to juggle accounts payable, new GAAP guidance, and internal controls design.
In fact, CityMerch's Williamson suggests that such companies should consider hiring a third-party accounting firm to mitigate certification risks. "During the audit season last year, it seemed like the SEC changed rules once a week," explains Williamson, who was at the time CFO of Vfinance Inc., a small public financial services company. "8-Ks were flying out the door because the SEC was asking companies to resubmit filings based on the new rules."
According to Williamson, there was no way he could physically keep up with the changes, plus tend to his CFO duties, without the help of outside accounting counsel.
So Williamson brought in Ahearn, Jasco + Co., an accounting firm that also did Vfinance's tax work. Interestingly, Frank Jaumont, a partner at the audit and financial services firm, says that Sarbox compliance is really hurting companies in the $30-million-and less revenue range. Why? Because CFOs at those companies focus on operations and raising funds, rather than non-revenue producing activities such as tax accrual schedules or MD&A drafts to explain new events.
Since the passage of Sarbox, the 25-person Florida-based accounting firm has taken on the role of accounting advisers for four new clients. The price tag for hiring a second accounting firm is not cheap, however -- about $150,000 annually, says Jaumont. For the fee, a company generally gets an SEC audit partner, a tax attorney, and an audit staff with internal audit expertise.
I Believe You Know My Attorney
Ultimately, however, it's the CFO's signature -- and not a consultant's -- that goes on the quarterly and annual certification forms sent to the SEC. And consultants aren't likely to go to jail or lose their homes if they proffer bad advice to CFOs. A finance chief who signs off on a moderately inaccurate 10-K...well...who knows? /p>
Ironically, Tom Malone, CEO of Portland-based SRC Software, thinks the added risks now shouldered by CFOs will eventually lead to higher salaries for CFOs. "No one is ignoring the fact that risk exists," he notes. "And executives expect different compensation because of it." Malone thinks compensation negotiations will focus more on severance triggers and parameters than salary, however.
Others say it's too soon to tell whether CFOs will command larger salaries because of Sarbox risk. But John Wilson, president and CEO of J.C. Wilson Associates LLC, a recruitment firm that specialize in CFO searches, confirms that finance chiefs are looking for "either protection, reward, or both," since Sarbox became law. "A CFO knows that his net worth can be wiped out by one bad scenario," says Wilson. "So he wants assurance."
An exaggeration? Possibly. But consider this: Wilson notes that an increasing number of CFO candidates are bringing in lawyers to scrutinize employment contracts. "[CFOs] are more serious and more on guard then ever before," he claims. "They are pouring over details about employment terms and conditions, severance, causes for dismissal, and offer letters."
And backing off if they don't like what they find. Wilson says finance executives appear reluctant to snatch up coveted CFO positions these days, even with the lousy job market. In part, he believes the hesitance comes from newfound concerns about accountability. Says the recruiter: "Personal liability always trumps a bad market."
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