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Welcome to The Pentad
Group
Dear Kate
Happy 2008! Many business
people are excited about the new year and view it as a fresh
start, while many others experience anxiety
concerning what 2008 will bring. How will the
economy impact my business? Am I doing what is necessary to
stay ahead of the curve? Is my department in compliance with
the ever-changing accounting and finance regulations?
We at the Pentad Group ask
ourselves many of these same questions, therefore our
newsletter is designed to share some of our insight on
these topics. Also included is not only our insight, but we
attempt to share our clients' and partners' perspectives and
approaches to these same questions.
We hope you enjoy our
newsletter, and as always, your comments and suggestions are
welcome. Please send your feedback to me at kmclellan@thepentadgroup.com
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Project
in the Spotlight - Post divestiture accounting
systemcutover; SAP to Oracle
A $300M division of a
multi-billion dollar technology design and manufacturing firm was
recently divested, for acquisition by an international
entity, and The Pentad Group (Pentad) was engaged to assist with
the integration into the systems and processes of the
acquirer. As in most integration efforts, systems and related
processes present the greatest challenge, and this situation was no
different.
Pentad's
team helped transition the systems and processes,
with assistance for the client's IT team. Specifically,
Pentad project managed the transition from SAP to Oracle 11i
for the procure-to-pay cycle. In addition, existing business
processes within SAP had to be re-defined and aligned with the Oracle
11i application. As the project progressed, Pentad managed
the transition for the payroll cycle as well. Both
initiatives included documentation and end-user training.
At this stage of the
engagement, the basic day-to-day processing is underway, therefore
Pentad focus is on identifying ways to utilize Oracle 11i
at a higher level of functionality. This will allow greater control
over processes and a higher level of efficiency, as manual tasks
are processed automatically by the system.
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Complying with
Audit Standard No. 5 - what does it mean for your company?
For the past few years, all
accelerated filers, i.e., public companies with market
capitalizations greater than $75 million, have been required to
comply with Section 404 of the Sarbanes-Oxley Act (SOX), while
non-accelerated files have been given more time to comply.
Regardless, all companies have asked if there is a way to
streamline the process, decrease the amount of testing, reduce the
number of people involved, and overall, spend
less money on the effort. To this end, the SEC
approved the Public Company Accounting Oversight Board's (PCAOB)
release of Accounting Standard No. 5 (AS5) on July 25, 2007.
AS5 is expected to increase the efficiency of complying with
the Act by several factors noted below, which should lead to
overall savings on this monumental compliance
effort. Note, AS5 is effective for all
publicly-traded companies with fiscal years ending on or after
November 15, 2007.
What is AS5?
AS5, as defined by the PCAOB
is an audit of internal controlsover financial reporting that is
integrated with an audit of financial statements. This
standard establishes requirements for management and
gives them direction to rely upon the entity-level financial
reporting, versus testing the transaction-level details that
support the entity-level reporting.
Therefore, management may ensure compliance from a top-down
approach, versus the more labor intensive, bottoms-up
approach. A top-down approach starts with the financial statements
and the auditors' understanding of the overall control environment,
as well as any risks or potential material weaknesses. This
allows the auditors to focus on the important potential issues,
versus the detailed transactions, of many which could be
inconsequential. Therefore, testing of the entity-level
controls will still occur, but only where the auditors view high
risk or potential material weaknesses. Lastly, the audit for
internal controls is the same as the audit of the financial
statements, thereby reducing the need for two audits.
How is AS5 different from
Accounting Standard No. 2 (AS2)?
AS2 is an audit of internal
controls over financial reporting, in conjunction with an audit of
financial statements, by testing and reviewing accounting at the
transaction-level. Overall, AS2 required management to take a
bottoms-up approach to ensuring compliance. The opinion in
AS2 required assessing managements' detailed processes, which is no
longer the case with AS5. Another benefit of A5 is that the
auditor can rely now upon prior year's opinions in order to conduct
the current year's review. This was not the case under AS2,
which is why AS5 supersedes AS2
How will companies gain
efficiencies under AS5's guidelines?
As stated above, AS5 allows
for less transaction-level testing, in conjunction
with increased reliance upon entity-level
reporting. Fewer processes to be documented, leads to
fewer resources involved, which leads to savings.
Also, AS5 allows for savings to be realized by
companies with locations and subsidiaries deemed material under AS2
guidelines, because under AS5, there may be potentially fewer
material subsidiaries and locations to include within the scope of
the opinion.
Therefore, the task of
complying with Sarbanes-Oxley 404, which seemed so daunting and
insurmountable in 2002, is achievable at a lower cost, as a result
of AS5. For many companies the adoption of AS5 may require a new
approach to the SOX compliance effort, but this new approach should
save time, effort and money. For more information on AS5, please
contact Mary-Margaret Tormey at mtormey@thepentadgroup.com
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Diamond
Compliance, LLC : a practical technology solution to risk-based
compliance planning
Diamond Compliance, LLC founded by Brian Coutu
in 2007, offers a unique compliance software tool that enables
streamlined risk-based planning, leading to cost savings for both
large and small companies. By associating risks and controls,
Diamond Compliance promotes the identification of "true"
key controls based on levels of risk mitigation. This approach
allows companies to focus on the controls that present the
greatest level of risk, rationalizing their compliance plans and
reducing costs.
Diamond Comliance's application has been most
beneficial to companies complying with Sarbanes-Oxley (SOX) Section
404, especially with the introduction of Accounting Standard No. 5
(AS No. 5) in July, 2007. "AS No. 5 promotes a top-down,
risk-based approach.. Defining the 10-K as the 'top', Diamond
Compliance logically records and ranks SOX-relevant risks and uses
these risks to drive optimal compliance plans ," explains
Coutu. As companies are now required to comply with AS No. 5,
it is an optimal time to utilize a new tool like Diamond Compliance
in order to streamline the process.
The Pentad Group (Pentad), a partner of Diamond
Compliance, recently implemented the tool at a Fortune 1000 company
in New Jersey. Senior Consultant, Gena Perry, of Pentad led the
effort and said, "the tool takes a unique approach to SOX risk
assessment and controls. It gives a fresh, thorough and unique
approach to internal controls analysis and assignment of
risks." The implementation for this client took less than
four weeks and is expected to reduce their SOX compliance effort by
50% annually.
Diamond Compliance follows the software-as-a-service
model and is available 'on demand',"As a subscription service
traditional hardware and software costs do not apply," according
to Coutu. Perry adds, "the learning curve for the tool is
very short."
Before starting Diamond Compliance, Coutu, a Certified
Public Accountant, held various financial and operational management
roles at The Gillette Company and Fisher Scientific International,
and he served as the Controller and Treasurer for Onecore Financial
Network. Coutu started his career at KPMG. For more
information, please contact Diamond Compliance at info@diamondcompliance.com
or visit their website at www.diamondcompliance.com
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