PCAOB Enforcement Summary

Lexicology, a legal website, has published an interesting paper in which attorneys David B. Hardison and Paul H. Pashkoff analyze the first ten years of the PCAOB’s enforcement actions (registration required, and worth it).

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Chinese Official Rejects American Regulation of Auditing

The battle-of-words between US auditing regulators – still in their infancy after being hurriedly invented by Congress just ten years ago – got hotter this week with a Chinese economic official’s harsh words. He indirectly accused the PCAOB of “politicizing the matter.”

Senior Shanghai Stock Exchange official Zhou Qinye made the startling statement in this Reuters news story, suggesting companies unhappy with the growing expense of US regulation of capital markets are welcome to relocate their business activity to China. Will any actually do it?

Additional coverage from Accountancy Age…

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SEC Guidance on Reverse Merger reporting

The SEC’s Corporate Finance department has issued guidance on Super 8-K filings that must follow a merger. The guidance is online here.

Some companies who acquire an asset, or combination of assets and liabilities, would like to avoid having to file the Super 8-K. They seem more put off by the tight time frame – it’s due within four days of the acquisition – than by the significant volume of information required.

However, ASC 805-10-25 describes GAAP’s answer to “Did what we just do constitute an acquisition?”

The heart of the matter, for accountants, revolves around whether the assets/liabilities assumed constitute a business, defined as “An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants.”

For SEC purposes, the state of the acquirer is just as important. The new guidance includes this:

Item 2.01 of Form 8-K generally requires a company to provide specified disclosure after it has acquired or disposed of a significant amount of assets other than in the ordinary course of business. If that company was a shell company, as defined in Rule 12b-2 under the Exchange Act, immediately before the transaction, it must include the information that would be required if it were filing a Form 10 under the Exchange Act in its Form 8-K. We frequently remind companies that Instruction 2 to Item 2.01 makes clear that the term “acquisition” includes every purchase, acquisition by lease, exchange, merger, consolidation, succession or other acquisition. Where a company’s reverse merger or similar transaction fits within the scope of Instruction 2, we remind it of the Item 2.01 disclosure requirements.

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Interesting Shareholder Litigation

Ross Perot, Jr. – son of Bill Clinton’s election spoiler buddy from the 1992 US Presidential election – owns 5 percent of the stock of the Dallas Mavericks basketball team.

As a minority stockholder, he has sued the team alleging, under the majority ownership of Mark Cuban, “a litany of questionable, business, financial, and personnel” decisions amounting to mismanagement of the team.

Cuban’s lawyer filed a motion asking the court to throw out the case. In support the lawyer submitted just 93 words of argument, and a picture worth at least a thousand words:
“On June 12, 2011, the World Champion Dallas Mavericks defeated the Miami Heat to claim the franchise’s first NBA championship. A true and correct photo of one of the many victory celebrations is incorporated herein.

“Under Hillwood’s [Perot’s] ownership, the team was deemed the ‘worst franchise’ in all of professional sports. Under Cuban’s stewardship the Mavericks have become one of the league’s most successful teams and are now NBA champions. Accordingly, there can be no genuine question that Hillwood’s claims of mismanagement lack merit and Hillwood’s claims should be disposed of on summary judgment.”

We’ll see how it all turns out, but it’s an interesting case study in the ongoing saga of Congress lighting up shareholders with the primary importance of their self-interests.

Story thanks to the blog of Law professor Jonathan Turley, who will doubtless follow and report on this story through its conclusion.

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Manage Your Compliance Better

A Linked-In associate, Joseph Rotman, CPA, learned through the school of hard knocks how to manage the process of filing Qs and Ks. Over time, he developed and documented his system (a project management approach to SEC Reporting). He now offers it as a 4-hour CPE class. Check it out here.

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