Q1 2009

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Welcome to The Pentad Group

Dear Kate,

In every business meeting since September, at least a few minutes of the discussion is regarding the economy.  Our constituents ask, when do you think we'll come out of it?  How do you for see the next three quarters?  What do you think is the long-term impact of this recession?, among other questions.  If we had a crystal ball and could answer all of these questions, we would be in another business!  What we do know is that companies can either decide to sit-back and wait for the market to re-bound before they take action on any priorities, or they can try to make the most of our current situation.  At The Pentad Group, we are doing the latter.  We try to live by the words of Benjamin Franklin, "Drive your business, let not your business drive you."  Read-on to learn more about the service offerings where we are focused, because they are priorities to us and our clients, even in a down economy. 

Project spotlight; Sarbanes-Oxley compliance at a $20M biotechnology company, a non-accelerated filer 

The Pentad Group was engaged to lead both sections 302 and 404 Sarbanes-Oxley compliance efforts at $20M biotechnology company.  Our team of two, a project leader and a hands-on consultant, started the engagement with a 2-hour training and overview session for the board of directors, senior management team and the process-owners.  In the first three days of the project, our team worked with internal management to develop the project strategy and worked with the external audit firm to include their requirements. This lead to designing the client's internal control framework, then assisting with the documentation of framework, policy and procedures.The next phase of the project included performing a scoping and materiality assessment to determine which locations and cycles were included.   

The second week of the project involved creating the following documents by interviewing the process owners:

• Process lead sheet documents to define the scope of activities within a cycle
• Process flow charts and narratives
• Risk matrix
• Segregation of duty matrix
• Test plans

Before the team started the documentation process, they reviewed the strategy with external audit firm.  Then they assessed the process design and developed a plan with management and internal process owners, to remediate any design control deficiencies.   It took the team approximately one month to interview process owners, then document the processes. 

The final week of the engagement, the team developed, executed, reviewed and summarized testing plans, then   presented  to the external audit firm.  In addition, they prepared a project summary and presentations for internal management.

In summary, the client appreciated The Pentad Group's effort because their staff was able to focus on their day-to-day jobs.  Note, the audit firm was very pleased with both the 302 and 404 effort, and used this documentation as an example for other clients.  For more information, contact Joel Adler at jadler@thepentadgroup.com or at (617) 901-6186. 
 

December 15, 2009 - Compliance date for  Auditor Attestation for non-accelerated Sarbanes-Oxley filers   

In June 2008, the Securities and Exchange Commission ("SEC") extended the deadline to December 15, 2009 for non-accelerated filers to include in their annual reports an attestation report from an independent auditor on internal control over financial reporting.  Most non-accelerated filers breathed a sigh of relief, because they needed the extra time to prepare.  Yet, the deadline is rapidly approaching, therefore it is time for non-accelerated filers to start the process, if they have not done so already. 

 Taking a step back, the background is that Section 404 of the Sarbanes-Oxley Act of 2002 requires public companies to comply with certain internal control over financial reporting ("ICFR") requirements, including the auditor attestation report ("Auditor Attestation") requirement. In 2006, as part of a series of SEC actions intended to improve implementation of the ICFR requirements, the SEC postponed the Auditor Attestation compliance date for non-accelerated filers to fiscal years ending on or after December 15, 2008. The SEC approved the delay to allow the SEC to 1) conduct a study to determine whether the Auditor Attestation requirement is being implemented in a manner that will be cost-effective for smaller reporting companies, and 2) consider forthcoming interpretive guidelines from the Public Company Accounting Oversight Board (PCAOB) regarding ICFR audits of smaller public companies. The SEC believed that the delay is appropriate to prevent non-accelerated filers from incurring unnecessary compliance costs before the SEC is able to further analyze the effectiveness of the ICFR requirements.

Fast forward to March 2009, and for those who haven't thought about Sarbanes-Oxley since last quarter, how will you know you are ready?  The "best practices" guidance we can give any company, small or large,  is based on the following two principles:

 
First, management should evaluate the design of their existing controls to determine whether there is a reasonable possibility that a material mis-statement in the financial statements would not be prevented or detected in a timely manner. This principle promotes efficiency by allowing management to focus on those controls that are needed to prevent or detect material mis-statements in the financial statements.

Second, management should gather and analyze evidence about the operation of the controls being evaluated based on its assessment of the risk associated with those controls. The principle allows management to focus evaluation procedures on the areas of financial reporting that pose the greatest risks to reliable financial reporting.

By following these two principles, we believe companies will be able to become compliant effectively and efficiently. As smaller public companies often have less complex internal control systems than larger public companies, this proposed approach would enable smaller public companies to scale and tailor their evaluation methods and procedures to fit their own circumstances.

By now, most of us know once the approach is defined, the next step is to proceed with the project plan, then start the initiative.  Read the Project Spotlight above, to learn more about the scope and deliverables of a project where The Pentad Group was engaged to lead the compliance effort for a non-accelerated filer.  For more information on our Sarbanes-Oxley practice, contact Mary-Margaret Tormey at mtormey@thepentadgroup.com or at (508) 269-7669.