We had the opportunity to meet with a very senior executive from one of the big 5 consulting firms today regarding CEO/CFO certification of disclosure controls and procdures (DCP). Certification of DCP relates to Sarbanes-Oxley 302 and CSA’s MI 52-109 legislation. It was a very insightful meeting and allowed us to gain a further understanding of how our software can help companies in establishing and managing effective DCP. A couple of interesting points:

1. The corporate web site continues to increase in importance

More and more, the first place that shareholders, stakeholders, regulators and analysts search for information on a company is the corporate web site. And the expectation for timely, current information on the web site continues to increase. If a company does not post a press release within 15 to 20mins of it hitting the wire, it creates questions. As well, expectations have increased regarding the depth and volume of information found on the site -  including  presentations, speeches, market information, etc. The challenge that companies face is that although expectations for online disclosure have increased, their internal controls and procedures (as related to the corporate web site) have not. This creates significant risk for the majority of companies - and it’s only increasing.

2. Financials only make up 1/5 of what drives your stock price

Obviously financials drive the stock price. But information contained within the MD&A and press releases have the ability to drive that price even further. In an impromptu study conducted by this consulting firm it was discovered that out of the 5 top drivers of your stock price, 4 of them have nothing to do with the financials and have to deal exclusively with disclosure such as information in your MD&A, information on your web site and finally, press releases.

3. Disclosure controls represent significant risk, but yet have the least amount of attention.

Managing disclosure comes with considerable risk. However, in the US and in Canada the majority of attention is given to ICOFR (internal controls over financial reporting). This includes the extensive coverage of Sarbanes-Oxley 404 and the role auditors play in reviewing these internal controls. With all of this attention on financial controls, companies have been slow to understand that disclosure represents at least equal risk to the corporation as financials.do As the expectations of the market continue to demand comprehensive and near real-time transparent disclosure, companies are waking up to the fact that they require improved systems to manage their disclosure controls and procedures.

4. US legislation (SOX 302) and Canadian legislation (MI 52-109) are identical when it comes to disclosure controls and procedures.

MI 52-109 was modeled directly after SOX 302 and contains all of the same requirements of CEO/CFO certification of disclosure controls and procedures. In the media, the main focus has been on SOX 404 (external auditors) and how Canadian legislation (MI 52-109) does not require external auditors. However, the fact remains that CEO/CFO certification for DCP is identical in both Canada and the US.

So what does this all mean?

Issuers in both the US and Canada are now beginning to understand the risks related to disclosure and are seeking solutions to aide in the certification of their disclosure controls and procedures. Most issuers acknowledge the corporate web site as the hub of all disclosure and as such,  must implement a disclosure control framework to manage and report against activities on the web.

This message is echoed by our experience in the market over the last couple of months. Issuers are beginning to understand disclosure risk and the need for efficent, automated solutions to help manage and strengthen disclosure controls. We have experienced an increase in the number of calls we have received from disclosure committee members.

If you’re interested in learning more about certification here are a couple of links:

How Q4’s Solution aide in CEO/CFO Certifcation:
http://www.q4websystems.com/Solutions/CEO-CFO-Certifcation/default.aspx

Numerous documents on CEO/CFO Certification:
http://www.deloitte.com/dtt/section_node/0,1042,sid%253D68725,00.html

Technorati Tags:  Sarbanes-Oxley, MI 52-109, CEO and CFO Certification, SOX 302, SOX 404, Risk Management, Compliance, Disclosure Risk, Disclosure controls, Disclosure controls and procedures, DCP

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