Legal Liability for Your Financial Reporting?
Levinsohn, Alan, Strategic Finance
IT ISN'T ONLY CEOS AND CFOS who are legally exposed to Sarbanes-Oxley rules for certification of financial statements' accuracy and completeness. So are treasurers, financial managers, controllers, and any other financial professionals within a company who contribute to public and private company reports filed with the Securities & Exchange Commission, if they're asked to and do sign a "subcertification" affidavit.
Since Sections 302 and 906 of the legislation went into effect one year ago, 37% of these executives who work for public companies and 20% with private companies were asked to sign affidavits certifying the accuracy of the financial information they provided, and nearly all who were asked to signed. That's according to a survey the Association for Financial Professionals (AFP) conducted in June 2003 and released in late July 2003. AFP specifically sought to measure the prevalence of subcertification activity and the issues it raised for financial professionals, 555 of whom--AFP members and nonmembers--responded to the 13-question survey.
Financial professionals certifying their work signed affidavits for a median of three items in their company's financial reports, according to the survey results. Two-thirds who work for public companies said they certify disclosures in Management's Discussion and Analysis or footnotes, 60% on specific account balances, 60% on compliance with company practices, and 58% on adequacy of internal controls. The types of information financial professionals at privately held firms certify roughly parallels those at publicly traded companies.
Not surprisingly, 79% of financial professionals who were asked to sign an affidavit expressed a "high" or "moderate" level of concern about their liability. But only 21% sought counsel from a company attorney and 2% from a personal attorney. Even financial professionals who haven't been asked to sign an affidavit are concerned about the personal liability implications of their providing financial information. Sixty-one percent of them expressed at least moderate concern about the personal liability implications of providing financial information.
Among all financial professionals who contribute to public financial reports--that's 60% of everyone AFP polled--only 12% received legal advice from their employers. That may be because there isn't much legal advice to give at this point. Sarbanes-Oxley is new legal terrain. No legal precedents exist to demonstrate the scope and impact of the new law and resultant rules from the SEC. …