Compliance Bricks and Mortar for March 3

These are some of the compliance-related stories that recently caught my attention.


Detecting Managed Earnings With CEO Profiles by Tri Nguyen, Chau Duong and Sunitha Narendran in the CLS Blue Sky Blog

We offer the PSCORE, a composite grouping of individual characteristics linked with a higher likelihood of earnings management by prior research. We identified nine individual variables or signals from existing research to develop the PSCORE. These signals or variables can be sorted into four categories: financial expertise, personal reputation, internal power, and age. We used finance-related working experience and qualifications as the signals for financial expertise. The length and performance of a CEO’s tenure as well as how often the media mentioned the CEO were used as signals for personal reputation. The signals for internal power included information about other significant positions a CEO held in a company (e.g. chairman, founder). Age was captured from curricula vitae in the public domain disclosing the actual age and distance from retirement of a CEO. [More…]


SEC Opinions Underused by Enforcement Targets, Official Says by Rob Tricchinelli in Bloomberg BNA

Parties accused of wrongdoing by the SEC don’t take full advantage of the commission’s opinions in guiding their defense, a top agency enforcement official said Feb. 24.

As it handles enforcement cases, the Securities and Exchange Commission often issues legal opinions, which cover many areas of securities laws that federal-court cases don’t reach as frequently.

“It’s really a missed opportunity to not be aware of what they are,” Joseph K. Brenner, chief counsel in the SEC’s Enforcement Division, said at a panel during the Practising Law Institute’s “SEC Speaks” event in Washington. [More…]


Will Blockchain Transform Compliance? by Tom Fox in the FCPA Compliance Report

This is made even more powerful in the area of financial reporting. Typically, a search is “horizontal (across the web) and vertical (within particular websites). What you find can be out-of-date or inaccurate in other ways. On a blockchain, though, there’s a third dimension: sequence. In addition to being able to obtain a historical picture of the company since it was incorporated, you can see what has occurred in the last few minutes.” The authors correctly note, “The opportunity to search a company’s complete record of value will have profound implications for transparency as it brings to light off-book transactions and hidden accounts. People responsible for records and reports will be able to create filters that allow stakeholders to find what they are searching for at the press of a button. Companies will be able to create transaction ticker tapes and dashboards, some for internal use”. This would be extremely helpful in the difficult vetting of third parties around financial information. [More…]


And the Oscar for Control Failures Goes to… by Matt Kelly in Radical Compliance

If a company has multiple versions of a report floating around (which, in abstract terms, is what happened here), that tells me to look more at the risk assessment and control activities. Someone handing an announcer the wrong envelope is not a far-fetched risk to imagine; when you include the sky-high reputation consequences for PwC, it seems like a singularly easy risk to identify and anticipate. (COSO Principle 7: “Identify and analyze risks.”)[More…]

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