While 404 may be the three most dreaded numbers that publicly traded companies in the U.S. can imagine, investors and analysts outside the country remained uniformed about the Sarbanes-Oxley rule on internal controls, and are concerned about the impact of negative disclosures. According to a PricewaterhouseCoopers survey of investors and analysts in North America, Europe and Asia who cover U.S.-listed companies, just 60 percent of analysts and investors in Europe, and a scant 40 percent in Japan, admit to some knowledge of SOX 404. Section 404 of SOX requires that the annual reports of all Securities and Exchange Commission-registered companies include a statement by management and the external auditors on the effectiveness of the company's internal controls over financial reporting. Big Four firm PwC polled 55 analysts, 45 investors and 5 credit rating agency analysts between January and February 2005. Some 39 percent of respondents were from the U.S., Mexico and Canada, 38 percent from Europe, and 23 percent from the Asia-Pacific region. Other findings include: o Only about one in four respondents claimed to have a good grasp of how Section 404 will affect mergers and acquisitions. o Nine out of 10 analysts and investors in Asia, where awareness is lowest, said that they would be very likely to sell or mark down shares in a company that was the subject of a negative disclosure, compared to seven in 10 respondents in Europe and the U.S.

Not surprisingly, opponents of expensing stock options have issued responses to the March 29 release of options expensing guidance by the Securities and Exchange Commission. With the release of SAB No. 107, the regulator reaffirmed its support of December's rule by the Financial Accounting Standards Board, which mandates treating employee stock options as an expense. "While the SEC has provided clarity on some issues surrounding the FASB rule, its decision not to further delay implementation is a significant blow to companies that provide broad-based stock option plans, especially those in the high-tech industry," said William T. Archey, president and chief executive of the high-tech trade group AeA. Archey urged Congress to pass H.R. 913, the Broad-Based Stock Option Plan Transparency Act, a measure that would delay implementation long enough to conduct studies on the impact of stock options. Meanwhile, Rick White, president of the International Employee Stock Options Coalition said, "The coalition's mission has been to preserve broad-based employee stock options from draconian accounting rules, because stock options represent a vital economic tool for our nation." The recently issued SEC guidelines however, offer some leeway to companies, with several models from which to choose when estimating the fair value of employee options. The options expensing rule is slated to take effect this summer.

The American Institute of CPAs released an exposure draft of proposed business valuation standards that would be applicable to institute members performing valuation standards in tax, mergers and acquisitions, litigation, and financial reporting. Once the standards become finalized, members would be required to comply with them when performing valuation engagements that reach a conclusion of value or an indication of value. Roughly 25,000 institute members currently provide business valuation and forensic and litigation services. For further information, go to www.aicpa.org/bvfls.

As expected, the Securities and Exchange Commission issued guidelines employee stock option expensing. The guidance, Staff Accounting Bulletin No. 107, "Share-Based Payment," supports the option-expensing rule released in December by the Financial Accounting Standards Board. The guidelines offer companies several models from which to choose when estimating the fair value of employee options. The rule, which requires SEC issuers to treat employee stock options as a business expense, will take effect in July. Currently, publicly held companies can either treat options as an expense, or record the costs in footnotes. "The views expressed by the staff are guidance and do not alter any conclusions reached by FASB in Statement 123R. We will continue to monitor implementation of Statement 123R and will consider the need for additional guidance as necessary," SEC chief accountant Don Nicolaisen said in a statement.

The President's Advisory Panel on Federal Tax Reform has compiled the witness list for the sixth meeting of the group, scheduled for March 31, here. On the first panel, titled "Overview of International Tax Systems," the speakers will be Willard Taylor, a partner at Sullivan & Cromwell LLP; Mihir Desai, an associate professor at the Rock Center for Entrepreneurship of Harvard Business School; Jeffrey Owens, director of the OECD Center on Tax Policy and Administration; Larry Langdon, a partner at Mayer, Brown, Rowe & Maw LLP and former commissioner of the Internal Revenue Service's Large and Mid-Size Business Division. The second panel, "How Taxes Affect Business Decisions," will hear testimony from Paul Otellini, president and chief operating officer of Intel Corp.; and Robert Grady, managing director of The Carlyle Group. The final panel, "Impact of Taxes on Savings, Investment, and Economic Growth," will hear from Michael Boskin, the Tully M. Friedman Professor of Economics and senior fellow at Stanford University and the Hoover Institute; Alan Auerbach, the Robert D. Burch Professor of Economics and Law at the University of California, Berkeley. Also, renowned economist Milton Friedman will speak to the reform panel on "Perspectives on Tax Reform."

Accounting errors tucked away in footnotes may be less likely to draw the attention of auditors, says a new report authored by accounting professors from Cornell University and Bentley College. According to The Wall Street Journal, the report said that auditors are more likely to demand that clients correct errors and misstatements when the numbers in question for such things as stock options appear in the books, as opposed to footnotes. The study said that "information location influences reliability." As part of the research project, auditors were questioned as to how they how they would handle a client's underestimation of employee stock options with the client objecting to making an adjustment. One group was told that the client included the cost of stock options on its income statement; others were told that the cost was shown only in a footnote -- with the error being of identical size. The percentage of auditors demanding a correction when the mistake was on the books was far greater than when the error was recorded in a footnote.

The Governmental Accounting Standards Board has released Accounting and Financial Reporting for Pollution Remediation Obligations, a preliminary views document highlighting the board's position on reporting standards for pollution remediation obligations. The obligations address the current or future effects of existing pollution by participating in site assessments and clean-ups. The GASB PV proposed that, once any one of five specified obligating events occurs, governments would be required to estimate the components of expected clean-up costs using an "expected cash flow" measurement, and subsequently to determine whether they should be accrued as a liability or, in some instances, capitalized when goods and services are acquired. GASB said that the deadline for the comment period is June 24, 2005. That will be followed by a public hearing in San Antonio, on June 29.