PCAOB Puts a Price on Oversight

Accounting oversight board set to dun public companies; large companies could get hit up for $1 million. Plus: terror threat forcing businesses to pay more to overseas workers. And: Qwest defendants want to go separate ways.

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Over the past few months, members of the newly created Public Company Accounting Oversight Board (PCAOB) have been busy examining accounting practices, contemplating industry standards, and generally overseeing the companies that oversee corporate accounting. During the next few months, however, it appears the PCAOB will be busy billing for its services.

Since the Securities and Exchange Commission (SEC) approved the 2003 budget ($68 million) last Friday, the accounting oversight body has reportedly begun notifying publicly traded companies, investment companies, and other equity issuers, of the support fees they will be required to pay to help fund the board’s operations.

About 5,200 publicly traded companies and about 3,300 investment companies will receive invoices for the accounting support fees due the PCAOB.

Under the Sarbanes-Oxley Act — and the PCAOB’s own rules — the annual accounting support fees are based on the average monthly U.S. equity market capitalization of publicly traded companies, investment companies and other equity issuers.

As a result, the 10 largest companies are expected to shell out about $1 million each, according to the Financial Times.

The PCAOB figures about 62 percent of the issuers will pay $1,000 or less in accounting support fees, however.

In fact, the largest 1,000 issuers will pay about 87 percent of the total fees due, the board reckons.

“The bulk of our accounting support fees are assessed against the largest equity issuers,” said PCAOB Chairman William J. McDonough, in a statement. “Small companies need not be concerned about increased costs while they and their shareholders benefit from the PCAOB’s attention to the quality of audits.”

Indeed, the PCAOB fees will be paid by publicly traded companies with an average monthly U.S. equity market capitalization of more than $25 million each. In addition, investment companies with an average monthly net asset value or U.S. equity market capitalization of more than $250 million each will be required to pay the fees.

Publicly traded companies will together pay about 96 percent of the total fees due.

About 3.5 percent will be collected from open-end mutual funds, and the remainder will be collected from other investment companies.

Multinationals Unprepared for Terror

Nearly two years after the September 11 terrorist attacks — and despite recent attacks on U.S. interests abroad — many multinational employers still have not adopted a formal policy to evacuate employees in cases of security threats or health-related issues. This, according to a Watson Wyatt Worldwide survey of 37 multinationals representing more than 11 million employees.

Respondents at a large number of the companies say their boards are committed to maintaining a presence overseas — and know they must provide additional compensation to offset this heightened risk.

“The threats of war, terrorism, political and social unrest, and even disease outbreaks have forced multinationals to take a series of measures to protect their employees assigned to high-risk areas,” said Robert Wesselkamper, practice director of international consulting at Watson Wyatt. “While companies recognize the potential dangers their workers face, they realize they can only do so much to minimize the risks to their employees. Therefore, more employers are offering increased rewards to employees who work in high-risk locations.”

According to the survey, 70 percent of respondents have employees in locations they consider to be dangerous, with Asia and the Middle East having the highest degree of risk exposure.

Only 40 percent of the surveyed companies have adopted a formal evacuation policy, however.

That’s surprising, given that nearly half (43 percent) of the respondents say their companies have evacuated workers during the past two years.

Even so, most are committed to maintaining a presence in high-risk areas, according to Watson Wyatt. As a result, many companies are providing additional financial incentives and insurance coverage to compensate workers in risky locales.

For example: slightly more than half of the respondents either provide or plan to provide a financial incentive for employees in high-risk areas. Another 40 percent either provide or plan to provide employees with supplemental insurance to reimburse workers for any losses not covered by private insurance.

And while more than 80 percent of the respondents have no plans to reduce the number of employees working in affected areas in the long term, some businesses may rely more heavily on business trips as opposed to permanent residence in affected regions, at least in the short term, Watson Wyatt says.

But as Tuesday’s deadly car bombing in Jakarta shows, even business travelers face serious risks when they visit unstable regions of the world. The bomb, which went off outside the five-star JW Marriott Hotel, killed at least fourteen people, including the president of PT Radobank Duta Indonesia, a subsidiary of the Dutch cooperative bank Radobank.

Qwest Accused: Every Man for Himself

Four former Qwest Communications International Inc. executives who were indicted earlier this year for cooking the telecom company’s books now want separate trials.

One of the defendants even wants his trial moved to a different venue, according to Reuters, citing court filings made public on Monday.

The accused — Grant Graham, former chief financial officer for Qwest’s global business unit; Bryan Treadway, a former assistant controller; Thomas Hall, a former senior vice president, and John Walker, a former vice president — have all pleaded not guilty to the federal charges.

The SEC alleges that the four planned and carried out an elaborate scheme to inflate revenues in connection with the sale of Internet equipment and service to the Arizona School Facilities Board (ASFB).

Altogether, the SEC has filed civil fraud charges against eight current and former officers and employees of Qwest. The commission alleges they inflated the company’s revenues by about $144 million in 2000 and 2001 to help meet earnings projections and revenue expectations.

In Hall’s court filing, the ex-Qwest vice president reportedly said federal prosecutors may try to introduce a statement made by Walker, which, if believed, could incriminate Hall.

If a defendant makes incriminating statements against a co-defendant, it is often grounds for seeking a separate trial.

Treadway is seeking a change of venue to Kansas City, which is within the same circuit as Colorado, but outside Qwest’s 14-state region.

Graham reportedly said he gave information to Qwest about certain transactions but was not told the information would be passed on to federal investigators.

Short Takes

  • Seventy-six percent of 208 public company executives and employees polled think that when an executive receives company stock (either from the vesting of restricted stock, or upon exercise of stock options), they should be required to retain a portion of the shares to create a link with shareholders interests. This, according to Clark Consulting, a public executive compensation and benefits firm. Said Tom Wamberg, chairman and CEO of Clark Consulting, “Corporations are under tremendous pressure to justify executive pay levels, and also to demonstrate that executives’ interests are aligned with shareholders’ interests.”
  • Nearly two-thirds (62 percent) of U.S. International Bar Association members feel that the Sarbanes-Oxley Act will affect their organizations in some way, according to a recent poll developed jointly by LexisNexis and the IBA. The most significant effect of the legislation — “increased legal costs” and a “tighter definition of responsibilities” — were equally cited most often.
  • About 45 percent of chief audit executives (CAEs) said they report administratively to the finance department, with the balance reporting outside of finance, according to a Flash Survey on Chief Audit Executive reporting relationships. On a direct reporting basis, 74 percent now report functionally to the audit committee.
  • The National Association of Credit Management Credit Manager’s Index fell in July for the third straight month. It still indicates growth in the economy, although slower growth on a month-over-month basis.
  • Amgen Inc. filed a shelf registration to periodically sell up to $1 billion worth of debt securities and stock. The company plans to use the proceeds for general corporate purposes.
  • The Clorox Co. said controller Daniel J. Heinrich has been named chief financial officer, succeeding Karen M. Rose, who is retiring. Prior to joining Clorox, Heinrich was senior vice president-treasurer of Transamerica Finance Corp. As CFO, Heinrich will be responsible for Clorox’s financial activities, including all controllership, treasury, tax, and investor relations functions, as well as information systems and corporate communications. Thomas D. Johnson has been named corporate controller, reporting to Heinrich.
  • Coldwater Creek Inc. said its board of directors has declared a 50 percent stock dividend on its common stock, having the effect of a three-for-two stock split.
  • Hershey Foods Corp. said it raised its dividend more than 21 percent, in part due to the recent changes in the tax law regarding dividends.

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