Successfully Leading the Finance Function through Upcoming IFRS and SEC Changes

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Successfully Leading the Finance Function through Upcoming IFRS and SEC Changes



#CFOD13IFRS Adoption: Current SEC ActivitiesMark Cheffers, CEO, Ives Group, Inc.



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Roadblocks to IFRS Adoption

SEC abdication of legislative mandate

Public interest – IASB vs. FASB/SEC

Wholesale discarding of 75 years of deliberation

Comparability vs. most truthful translation

Greater comparability is an undeliverable promise



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Current IFRS-related SEC Activities

RIAs

Broker Dealers

Ratings Agencies

Financial Institutions

Other



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SEC Corporate Finance – Comment Letters

FV measurement, estimates, use (incl. VSOE)Fin. statement segment reporting ((FAS 131) subcategory) Tax expense/benefit/deferral/other (FAS 109)Revenue recognition (incl. deferred revenue)Contingencies & Commit., legal, (FAS 5 or IAS 37) accountingAcquisitions, mergers, & business combinationsForeign (affiliate or subsidiary)Debt, quasi-debt, warrants & equity (BCF) securityPPE issues - Intangible assets & goodwillInventory, vendor and/or cost of sales

Tax rate disclosureAccounts receivable & cash reportingDeferred, stock-based and/or executive compConsolidation (Fin 46, variable interest, SIV, SPE & off-B/S)EPS, ratio & classification of income statementInvestments (SFAS 115) & cash/cash equivalentsCash flow statement (FAS 95 or IAS 7) classification errorsLiabilities, payables, & accrual estimatePPE fixed asset (value/diminution)Percentage of completion

Top 20 Accounting Rule/Disclosure Issues (1/12-Present)

Source: Audit Analytics database download from July 8, 2013 for US based entities with SEC Division of Corporation Finance Assistant Director's office number 10. Office number 10 reviews comment letters for the Electronics & Machinery office.



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SEC Corporate Finance – Comment Letters(Cont.’d)

Results of Operations

Liquidity

Business overview

Executive compensation plan disclosure

Critical Accounting Policies & Estimates

Proforma financial information reporting

Confidentiality in filing content sought

Family/related party transaction disclosure

Non-GAAP measures (incl. EBIT, EBITDA)

Materiality - questions about disclosure decisions

Disclosure Control reporting

Internal Control (404) Over Financial Reporting

Terrorist Nation Sponsor Reporting

Third party expert input/consulting/advice

Intellectual Property risk & disclosure

Trade Restrictions - TSRA & OFAC financial disclosure

Valuation of assets, liabilities or equity

Website of registrant/website review by SEC

Director compensation & options incentives--Benchmark

Contractual obligations

Top 20 Non-Accounting Rule/Disclosure Issues (1/12-Present)

Source: Audit Analytics database download from July 8, 2013 for US based entities with SEC Division of Corporation Finance Assistant Director's office number 10. Office number 10 reviews comment letters for the Electronics & Machinery office.



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Quality of Financial Reporting – Total Restatements

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

584 641737

852

1389

1550

1091

827

668

765 742 713620

692794

931

1539

1771

1213

922

715803 820

768

Unique filers

Restatements

2012 Restatements

713 Unique Filers

768 Restatements

Source: 2012 Financial Restatements; A Twelve Year Comparison published March 2012 by Audit Analytics.



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Quantity of Restatements – U.S. Accelerated Filers has Increased for the Third Straight Year


2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

209

304

510453

283

219

153 158202

245

434465

692

865

622

468

397

459

396 386

US Accelerated filers

US Non-accelerated filers

Restatement Count

From 2009 to 2012

• U.S Accelerated Filers Increased from 153 to 245

• U.S Non-Accelerated Filers Decreased from 397 to 386



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Restatements – Breakdown by Market


Restatement Breakdown by Market(Unique Registrants Restating)

Disclosure Year

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Amex 9 7 10 25 35 42 28 30 24 22 33 23

NASDAQ 61 67 80 115 194 224 145 138 113 112 125 153

NYSE 32 59 82 104 176 155 116 70 62 90 111 138

OTC 11 9 13 21 24 49 40 41 54 71 85 74

Not listed 471 499 552 587 960 1080 762 548 415 470 388 325

Total 584 641 737 852 1389 1550 1091 827 668 765 742 713



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Restatement Analysis – Largest Negative Restatement by Year


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$4,513

$3,465

$6,335

$5,193

$2,377

$341

$671

$357

$717

$1,557

$459

(U.S. $ in Millions)Largest Negative Restatements



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Restatement Analysis – Largest Negative Restatement by Year (Cont.’d)


Largest Negative Restatements by YearDisclosure

YearCompany Market

Impact on Net Income (U.S. Dollars)

2002 Tyco International Ltd. NYSE -4,512,700,000

2003 HealthSouth Corp. NYSE -3,465,294,000

2004 Federal National Mortgage Association NYSE -6,335,000,000

2005 American International Group Inc. NYSE -5,193,000,000

2006 Navistar International Corp. NYSE -2,377,000,000

2007 General Electric Co. NYSE -341,000,000

2008 TMST, Inc. NYSE -670,730,000

2009 UBS AG NYSE -357,210,000

2010 Telecom Italia S.p.A NYSE -716,971,200

2011 China Unicom (Hong Kong) Ltd. NYSE -1,556,743,500

2012 JPMorgan Chase NYSE -459,000,000



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Restatement Analysis – Top Issues by Year



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Reissuance Restatements


2005 2006 2007 2008 2009 2010 2011 2012

32.80%

42.15% 41.52%

50.18%48.10%

53.65%57.30%

64.69%Percentage Revision

Note: A registrant is required, within four business days, to disclose in an 8-K, Item 4.02 when it is determined that a past financial statement should no longer be relied upon.



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Going Concerns – Percentage of Auditor Opinions Qualified with a Going Concern Assumption

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

14.1%

15.9% 16.4%

14.4%15.2%

16.2%17.4%

19.9%21.1%

19.9%19.0%

17.7% 17.5%

% of Auditor Opinions with Going Concern Uncertainty

Note: The value for 2012 is estimated, based on audit opinions filed with the SEC on or before July 8, 2013 (about 98.5% of the opinions expected and 93.2% of the GCs expected).

Source: Going Concern Review published September 2013 by Audit Analytics.



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Going Concerns – Number of Auditor Opinions Uncertain of its Going Concern Assumption



2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

28272998

2817

2552 25542712

2878

3309 33523103

2978

26442517

Number of Going Concern Uncertainty Auditor Opinions



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Going Concerns – Number of Auditor Opinions Uncertain of its Going Concern Assumption (Cont.’d)



Going Concern Twelve Year Review (Fiscal Year 2012 Estimated)

Fiscal Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Going Concerns 2,827 2,998 2,817 2,552 2,554 2,712 2,878 3,309 3,352 3,103 2,978 2,644 2,517

Total Auditor Opinions 20,009 18,907 17,194 17,765 16,795 16,788 16,548 16,631 15,885 15,592 15,668 14,958 14,404

% of All Opinions 14.13% 15.86% 16.38% 14.37% 15.21% 16.15% 17.39% 19.90% 21.10% 19.90% 19.01% 17.68% 17.47%



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Going Concerns – Percentage Breakdown by Market Status

Note: The market designation is based on the company’s status as of 7/8/13. As compared to last year's slide, a number of going concerns shifted from OTCBB to Non-Tickered. This shift, in part, was due to the efforts of the SEC's Microcap Fraud Working Group to suspend the trading of registered shell companies. For example, this working group suspended 379 shells in May 2012 and an additional 61 in June 2013. Not all suspended shells filed a going concern, but this effort would also discourage the creation of new shells.


Fiscal Year

TotalGoing

Concerns

NYSE NASDAQ AMEX OTCBB Non-Tickered

GoingConcerns

%Going

Concerns%

GoingConcerns

%Going

Concerns%

GoingConcerns

%

12 (Partial) 2345 11 0.47% 99 4.22% 24 1.02% 620 26.44% 1591 67.85%

2011 2644 8 0.30% 78 2.95% 21 0.79% 595 22.50% 1942 73.45%

2010 2978 12 0.40% 78 2.62% 28 0.94% 510 17.13% 2350 78.91%

2009 3103 21 0.68% 108 3.48% 31 1.00% 390 12.57% 2553 82.28%

2008 3352 27 0.81% 101 3.01% 41 1.22% 330 9.84% 2853 85.11%

2007 3309 9 0.27% 60 1.81% 29 0.88% 271 8.19% 2940 88.85%



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Going Concerns – New Going Concerns by Year



2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*0

200

400

600

800

1000

1200

1400

1182

938

663726

824902

1169

1040

711 705

518 543

Number of New Going Concern Auditor Opinions



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Going Concerns – New GCs and Repeated GCs



2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*0

500

1000

1500

2000

2500

3000

3500

4000

1816 1879 1889 1828 1888 1976 2140 2312 2392 2273 2126 1974

1182 938663 726

824902

11691040 711

705

518543

New GC

Repeated GC from Year Prior



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Going Concerns – Subsequent Improvement Or Disappearance

Note: The values for 2011 (GCs in 2011 that were not repeated in 2012) is based on audit opinions filed with the SEC on or before July 8, 2013 (about 98.5% of the opinions expected and 93.2 of the GCs expected). Therefore, the 729 figure is inflated slightly because other opinions will come in for 2012.


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*0

200

400

600

800

1000

1200

760854

554

378 378 405485

797694

553645 624

251

265

374

346 288331

253

200266

277207

140

Those that Disappeared Those that Improved



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SOX 404 – Adverse Mgmt-Only Assessments & Number of Material Weaknesses Noted

Note: Year 7 is defined as annual reports for fiscal years ending Nov. 15, 2010 to Nov. 14,2011, inclusive, to be consistent with the SEC requirement that accelerated filers comply with Section 404 annual reports for fiscal years ending on or after Nov. 15, 2014.

Source: Audit Opinions of Financial Controls: Ten Years after Sarbanes-Oxley Act of 2002, A Section 404(b) Review, published June 2013 by Mark Cheffers

Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7

629

431 387 355

218153 141

1607

1030954

700

465

332 286

Total # of Adverse Disclosures

Total # of MWs



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SOX 404 – Adverse Mgmt-Only Assessments & Number of Material Weaknesses Noted (Cont.’d)



SOX 404Year

SOX 404 Auditor Attestations

TotalAuditor

Attestations

Material Weaknesses (MWs)Noted in Adverse Disclosures

Total # ofAdverse

Disclosures

Total #of MWs

Yr. 1 3,789 629 1,607

Yr. 2 3,916 431 1,030

Yr. 3 4,316 387 954

Yr. 4 4,576 355 700

Yr. 5 4,430 218 465

Yr. 6 4,275 153 332

Yr. 7 4,019 141 286



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Yr. 4 Yr. 5 Yr. 6 Yr. 7

1402 1474 1521 1519

2999

3536 35493361

Total # of Adverse Assessments

Total # of MWs



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Notes: 1) Year 7 is defined as annual reports for fiscal years ending Nov. 15, 2010 to Nov. 14,2011, inclusive, to be consistent with the SEC requirement that accelerated filers comply with Section 404 annual reports for fiscal years ending on or after Nov. 15, 2014.2) Non-accelerated filers were required to provide a management assessment (but not an auditor attestation) in their annual reports for the fiscal years ending on or after December 15, 2007. Year 4 is from Nov. 15, 2007 to Nov. 14, 2008, so Year 4 above is shortened by one month.Source: Audit Opinions of Financial Controls: Ten Years after Sarbanes-Oxley Act of 2002, A Section 404(b) Review, published June 2013 by Mark Cheffers



#CFOD13Thank You!IFRS Adoption: Current SEC Activities



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