U.S. Securities &
Exchange Commission
(SEC) Compliance
Sarbanes-Oxley & FASB Rulings
Overview
July 2004
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Securities & Exchange Commission
SEC
“The primary mission of the U.S. Securities and
Exchange Commission (SEC) is to protect investors
and maintain the integrity of the securities
markets.”
ƒ Financial Accounting Standards Board
(FASB):
“Dotted line” to SEC, the designated organization in
the private sector for establishing standards of
financial accounting and reporting.
ƒ Sarbanes-Oxley Act:
Requires internal control report in companies’
annual reports.
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What are internal controls?
According to the SEC…
…internal controls are a process designed
by…management and other personnel, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with GAAP.
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What are internal controls?
“Internal controls” include those policies and
procedures that:
y Pertain to the maintenance of records
y Provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with GAAP
y Provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or
disposition of the issuer’s assets that could have a material
affect on the financial statements.
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Sarbanes-Oxley Act (SOX)
Key SOX Requirements – Overview of Sections
302, 404, 409 & 906
y Sec 302
Corporate responsibility for financial reporting
y Sec 404
Internal controls assessed
y Sec 409
Public disclosure
y Sec 906
Certification of financial reports on periodic basis
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Sarbanes-Oxley Act (SOX)
Key SOX Requirements:
y Sec 302
Represents fairness of financial reporting, establishes and
maintains disclosure controls and procedures and evaluates
those controls and procedures within 90 days of filing.
y Sec 404
Perform an annual assessment of the effectiveness of internal
controls over financial reporting, obtain attestation addressing
such assessment from external auditors. Evaluate internal
controls over financial reporting quarterly.
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Sarbanes-Oxley Act (SOX)
Key SOX Requirements:
y Sec 409
Disclose to public on a “rapid and current basis” information
concerning material changes to financial condition or results of
operations.
y Sec 906
The period report containing financial information complies with
the Exchange Act and fairly presents financial conditions and
results of operations.
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Sarbanes-Oxley Act (SOX)
Section 302 lays the foundation by requiring certifying
officers to:
State that the principal officers (CEO, CFO or the like) have
reviewed the reports;
State that, based on their knowledge, the information is presented
fairly and does not contain misleading information or material
omissions;
Assert that officers’ responsibility for establishing, maintaining and
evaluating disclosure controls and procedures;
Identify any significant deficiencies & material weaknesses in
internal controls or instances of employee fraud disclosed to
auditors and the audit committee; and,
Disclose any significant changes in internal controls.
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Sarbanes-Oxley Act (SOX)
Section 404 takes it a step further by requiring management
to file an internal control report with their annual report
stating:
Management’s responsibilities to establish and maintain adequate
internal controls and procedures for financial reporting;
Management’s conclusion on the effectiveness of these internal
controls at year end;
The company’s public accountant has attested to and reported on
management’s evaluation of internal controls over financial reporting;
Management must evaluate design and operational effectiveness of
internal controls for financial reporting (as well as its disclosure
controls and procedures) on a quarterly basis.
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Sarbanes-Oxley Act (SOX)
y Sec 302 – represents fairness of
financial reporting, establish and
maintain disclosure controls and
procedures and evaluate those
controls and procedures within 90
days of filing.
y Sec 404 – perform an annual
assessment of the effectiveness of
internal controls over financial
reporting, obtain attestation
addressing such assessment from
external auditors.
Evaluate internal controls over
financial reporting quarterly.
y Sec 409 – Disclose to public on a
“rapid and current basis” information
concerning material changes to
financial condition or results of
operations.
y Sec 906 – The period report
containing financial information
complies with the Exchange Act and
fairly presents financial conditions
and results of operations.
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Overall Control Objectives
9 All reporting is accurate
and free of material
omission.
9 All matters that should be
considered for disclosure
are communicated to
corporate executives in a
complete and timely
fashion.
9 All transactions are
captured, recorded,
summarized and reported
in accordance with GAAP
and SEC rules.
9 Assets are compared to
accounting records.
9 All assets are safeguarded.
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FASB Ruling 01-9
Financial Accounting Standards Board’s (FASB) Emerging
Issues Task Force ruling on trade promotion payments.
Ruling 01-9, issued in October 2001 and in effect with
December 2001 reporting periods, clearly states that unless
trade promotion payments meet four tests, they are all to be
considered “revenue reversal” rather than the long-standing
practice of coding them as marketing expenses.
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1)
The payment covers a service by the partner that
offers a clear benefit to the manufacturer;
2)
The benefit is clearly separable from the sale of
the product;
3)
The benefit could be purchased by the manufacturer
from a source other than the partner; and,
4)
The manufacturer has obtained proof of
performance and is able to reasonably estimate
true costs.
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How CCI Can Help
CCI web-based software and CCI professional services allow
companies to plan, implement, manage, and measure
successful, revenue-generating programs across all channels
and geographies.
CCI’s software is customizable to meet the needs of a diverse
client base, while sitting on our proven, stable
ProgramsPro® platform.
All CCI Solutions are built with Generally Accepted
Accounting Practices (GAAP) and standards, allowing
companies to remain compliant with SOX, FASB, etc.
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CCI’s Process Overview
Accruals
Applications
Claims
• Accrual-based
or budget
• Submit on
Web site
• Submit on Web
site or hardcopy
• Electronic or
manual
• Route to
stakeholders
for review and
authorization
• Match with
application to
insure compliance
• Load and
validate
• Exception
reports
• Validate
• 2 business
days
• Review for
program
compliance
• Notify partner
via e-mail or
hardcopy
• 24 hours
Claim
Status
• Approved
claims are
processed for
reimbursement
Payment
Or Credits
• Run payment
verification
report
• Submit request
to credit or A/P
• Pending claims
are placed on • Check or credit
hold with an
memos are sent
e-mail sent to
to partner
• Audit for proof-ofthe partner
performance
• Payment/credit
information
• Denied claims
• Notify partner via
updated on
are closed and
e-mail or
website
an e-mail is
hardcopy
sent to the
partner
• Reconciliation
• 5 business days
of bank
accounts
• Audit for program
compliance
Reports
• Partner
statements
• Spending by
partner
• Spending by
media/product
• Spending by
region/market
• Pending claims
(liabilities)
• Outstanding
applications
(liabilities)
• Others. . .
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Sample Audit & Review Flowchart
Dealer develops comarketing piece
CCI routes application to
program stakeholders:
• Field Sales
• Channel Marketing
• Program supervisor
Dealer review and
proofread
Dealer submits application
for authorization
All comments
aggregated and
forwarded to Dealer
for modification or
changes
Dealer makes
changes and
resubmits for
approval
CCI review against
compliance brief
Final review by
Brand and Legal
Approved
Approved with
revisions
CCI returns to
dealer for changes
Changes required
CCI to discuss
revisions and
changes required to
comply
Disallowed – major
changes
Dealer submits claim
request for
reimbursement
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CCI receives claim
(electronically or
hardcopy)
CCI
review
against
requested
changes
Claim audit:
• funding
• application
• guidelines
Dealer
executes
job or
produces
activity
Dealer
gather
required
documentation and
proof-ofperformance
Approved
Payment
Pending
Status
notification
Denied
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CCI’s Typical Audit Checklist
‰ Third-party positioning (ex: logo size and
placement – clear separation)
‰ Positioning (ex:hardware and service)
‰ Offer(s) positioning (who’s offering what?)
‰ Dealer offer requirements:
9
9
9
9
9
New customers only
Any commitments required
Hardware and services sold separately
Exact product and model number
Offer and date
‰ Client offer requirements:
9 Clarity of offer and date
9 Correct use of trademarks
‰ Correct legal block for offer(s) shown
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CCI's Control Environment
œ Elements of the Control Environment
y Authorization
- Formal and detailed budgeting process for co-op spending
- “Standard” program templates and forms
- Business rules defined and document reviews and
approvals of co-op spending
- Formal, proven process for verification of claims
- Financial reporting for management review and approval
y Access to Assets
-
Online, real time access (24X7)
Access controlled (restricted) by authorization levels
Ability to control payment methods
Business rules to establish reasonable limits on dollar
amount of payments that can be approved/issued without
management approval
- Controls to prevent duplicate payments to partners (track
payments and deductions)
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CCI's Control Environment
y Evaluation of Balances
- Detailed sub-ledger support of co-op accruals
- Online, real time access to review balances
y Completeness and Accuracy
- Ability and flexibility to manage and account for the
complexity of programs
- Regular reconciliation of accounts
- Frequent communication and information-sharing
between finance, sales and marketing regarding the
co-op program
y Segregation of Duties
- Outsource to third party, CCI
- Reporting of co-op spending by partner
- Follow up (automatic, electronic and regular) with
partner regarding co-op activities and audits
- CCI staff has separate, distinct roles in process
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In Conclusion
For more information, please contact:
CCI
Bill Kelly
bill.kelly@CCIonline.biz
415.526.3210
www.CCIonline.biz
SEC: www.sec.gov
SOX: www.sarbanes-oxley.com
FASB: www.fasb.org
FTC: www.ftc.gov
Note: CCI is not an accounting or legal firm. These statements do not endorse or recommend any financial or
legal actions but are offered as general information. To obtain complete details on these regulations and how
they pertain to your business, please speak with a qualified financial and/or legal professional.
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