IMA begins Finance GRC practice

Strategic Finance, Feb, 2008 by Linda Devonish-Mills

Finance Governance, Risk, and Compliance (FGRC[TM]) was one of the strategic initiatives the IMA[R] Board of Directors approved at its June 2007 Board meeting. Finance Governance, Risk, and Compliance is a unique complement to the growing and evolving area of GRC. FGRC is meant to provide resources, research, and professional development (including a certificate/diploma program) to help finance function personnel inside organizations produce correct, reliable, and relevant financial information for stakeholders. Ultimately, investor protections, a firm's cost of capital and valuation, and U.S. global competitiveness are impacted. While the label FGRC is new, it really is an extension of IMA's work over the past three years in producing primary research, thought-leader pieces, comment letters, webcasts, Congressional testimony, Securities & Exchange Commission (SEC) panel input, Statements on Management Accounting (SMAs) on topics such as Enterprise Risk Management, and major media interviews, such as with The Wall Street Journal.

Jeff Thomson, IMA's VP of research and applications development, and Tim Leech, consultant and managing director of the practice, are the thought leaders of FGRC. During January, they prepared a draft discussion paper titled "Accounting Control Assessment Standards: The Missing Piece in the Restatement Puzzle," which will be issued this month. The paper shouldn't be viewed as a research study but as a thought-leader piece to discuss, debate, and research what we believe is at the heart of the high number of financial restatements (more than one in 10 publicly traded companies issue material financial restatements): suboptimal internal control systems, the "missing piece in the restatement puzzle."

In remarks to the SEC panel on complexity in financial reporting last December, IMA President and CEO Paul Sharman explained: "In our opinion, the quality of financial information as measured by the number of restatements is impacted by two primary drivers. The first driver is the accounting standards themselves that prescribe how the accounting should be done, and the second driver is the underlying system of controls that ensure that the accounting is done right." Our assessment of various data sources so far (with more research required) leads us to be very concerned about the large number of cases where management, as mentioned in Section 404(a) of the Sarbanes-Oxley Act (SOX), and external auditors, as mentioned in SOX Section 404(b), attest to having an effective system of internal controls but subsequently issue a material restatement. In summary, the thought leaders of IMA's FGRC practice believe that there needs to be an intense, integrated focus on identifying, measuring, and regularly reporting "prediction error rates" of this type.

Again, the discussion paper draft will be issued for comment this month. Please contact Linda Devonish-Mills, IMA's director of professional advocacy, at lmills@imanet.org to obtain more information about IMA's FGRC.

RELATED ARTICLE: Larry White Appointed to IFAC Accounting Board

Former IMA Chair Larry White, CMA, CFM, CPA, CGFM, has been appointed to serve on the International Public Sector Accounting Standards Board (IPSASB) of the International Federation of Accoun tants (IFAC). A Captain in the U.S. Coast Guard, Larry is the Commanding Officer of the U.S. Coast Guard Finance Cen ter, where he leads 525 employees and contractors who operate the financial system and provide accounting support and financial reporting for the Coast Guard and Transportation Security Administration, as well as some agency-wide services to all departments of Homeland Security bureaus. An active long-time IMA member, Larry serves on IMA's Board of Directors. He was IMA Chair in 2004-05.

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The IPSASB focuses on the accounting and financial reporting needs of national, regional, and local governments; related governmental agencies; and the constituencies they serve. It addresses these needs by issuing and promoting benchmark guidance and facilitating the exchange of information among accountants and those who work in the public sector or rely on its work. The objectives, scope of activities, and members of the Board can be found on IFAC's website at www.ifac.org/publicsector.> IMA's IFAC Advisory Committee helped identify IMA members to recommend for service on IFAC's various boards and committees. The search for IMA members to serve in this capacity is one of the Advisory Committee's strategies to help IMA maximize its membership in IFAC.

Please contact Linda Devonish-Mills for more information about Capt. Larry White's appointment or about IMA's IFAC Advisory Committee.

BY LINDA DEVONISH-MILLS, CPA

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