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The former SEC chairman says advocates of deregulation in financial reporting hold too much sway in the post-Sarbox era.
David M. Katz, CFO.com | US
February 7, 2008
Mr. Donaldson misses the point. The SEC is regulating the same way it did in 1932 when it was formed and has not kept pace with changes in investing and business. Individuals no longer invest in individual companies, they invest in mutual funds and other pooled entities. The SEC continues to regulate as if individuals owned shares in single companies. They should be more focused on watching the "pooled money" investors who own a company for less than a year. The issue is managment control, not internal control. Managment control stops somethiong before it happens while internal controls only let you know it happened. The problem has still happened. Managment control is about culture. If the pooled "money investors" don't like the management control or culture they can sell the shares. These investor's can regulate the performance of compnies if they do thier job. The SEC should focus on insuring that the "pooled money" invesotrs are doing thier job. Let's bring the SEC into this century. Dave Guenthner CEO BSM Executive Advisor
Posted by Dave Guenthner | February 08, 2008 05:13 pm
Why is it that we again revisit the lessons of yesteryear - the definition of cash equivalents, Enron, option back-dating, the thrifts, of the conglomerates' calculated calculations, to name a very few? Why repeat the same grade over and over and over again? Is there a pathway out of the jungle of regulation? In this reader's judgment, there is a place to start to address these questions. To quote (SEC Staff Bulletin: No.99 - Materiality): "The omission or misstatement of an item in a financial report is material if, in the light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction...." Let reasonable people disagree. Go to court if necessary, to settle the matter. For the less than forthright, well,.... The firm adoption of the above definition - and principle - would likely put all managements on notice and directors more demanding of that which would influence their collective judgment as to what is material, as in, "Why did "Other Income" swing so abruptly?", "Why did we lose two key managers?", and so on. It is useful to note that corporate earnings grow at a seemingly modest 5% annually. We well know than a one percentage point "miss" can send a stock to the stockade, with a violent reaction in the open square. Why? One percentage point is a 20% variance from this long-term trendline. Is this material? Do we even have to ask this question? The long-term payoff - this observer strongly believes that corporate governance would be much enhanced. Additionally, we could move away from the obsessive focus on quarterly earnings, to allow managements to work toward sustainable advantages. Interestingly, this is the manner in which the truly successful firms around the globe operate. The material is much more than material.
Posted by Robert Boyd | February 08, 2008 11:49 am
Does it bother you that they talk about standards of reporting as if we are controlling the economy? The substance that impowers a free and fair economy is a open free market with protected property and protected opportunity to compete. One critical ingredient is reliable market data and this requires standards. These standards will in the end be a amelioration of Principle and rule based forming a compound that will be the defining charter for all to be critique by. Standards should not be thought of as controlling. They are the bench mark for performance and measuring the dispersal of compliance from that bench mark. The standards will become more demanding of performance as auditors along with financial managers are charged with reporting this global economy.
Posted by Milton Bulloch | February 07, 2008 04:06 pm
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