Governance and Disclosure

Compliance Week reports on a reminder to auditors from the SEC, via the Center for Audit Quality's International Practices Task Force, that Item 17(c) of Form 20-F says, "If the financial statements comply with IFRS as issued by the IASB, such compliance must be unreservedly and explicitly stated in the notes to the financial statements and the auditor's report must include an opinion on whether the financial statements comply with IFRS as issued by the IASB". read more

In a recent speech, Meredith Cross, Director of the SEC's Division of Corporation Finance, discussed uncomlpeted rulemaking mandates under Dodd-Frank. read more

Meredith Cross, Director, Division of Corporation Finance of the SEC, made a speech last week suggesting the SEC may substantially revise the 1934 Act reporting regime for foreign private issuers, or at least those for which the U.S. is the main market:

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The Bank of England may begin pressuring bank groups to use return on assets (ROA) or another asset-based measure, rather than return on equity (ROE), as the measure of profitability for evaluating performance for the purpose of calculating executive incentive compensation. Most banks currently use ROE, targeting returns in the teens, with some targeting returns of 20% or more. However, a Financial Times column notes that "A growing swell of opinion . . . has begun questioning the validity and distortive effects of RoE as a metric." read more

In the coming months, foreign private issuers (FPI) with a U.S. listing will have occasion to consider a new U.S. corporate governance requirement, introduced by the Dodd-Frank Act. Most of the corporate governance provisions of Dodd-Frank will not affect foreign private issuers, even those that have securities listed on a U.S. securities exchange. Section 954 of Dodd-Frank, however, will prohibit the listing of securities of issuers that have not developed and implemented incentive compensation claw-back policies. This provision will apply to foreign private issuers with U.S.-listed securities, even if the primary listing is an exchange outside the United States. read more

My friend Nick Benes has an important initiative to improve corporate governance in Japan, via The Board Training Institute of Japan. He has lined up an impressive group of supporters, and created a really outstanding program. The web site is here:

 

http://bdti.or.jp/english/ read more

The Public Company Accounting Oversight Board (PCAOB) issued a concept release to solicit public comment on ways that auditor independence, objectivity and professional skepticism can be enhanced, including through mandatory rotation of audit firms.

 

The release discusses mandatory audit firm rotation, an idea that has resurfaced periodically since the 1970s. By requiring periodic rotation of auditors would, proponents argue, enhance audit firm independence. However, this independence would come at a cost, as the efficiencies of using the same audit firm from year to year would be lost at each changeover of audit firms. Furthermore, some research cited in the release supports the proposition that audit quality is lower in the earlier years of a series of audit engagements. read more