Create Accurate Disclosure Process Records Easily

Improving Disclosure Controls and Procedures
In our discussions with North American issuers over the past 12 months, we have noticed a consistent and increasing trend in their desire to improve their disclosure controls and procedures. In addition to streamlining processes, a key objective is improving the results of CEO/CFO certification under SOX 302 or in Canada, MI 52-109.

Disclosure controls and procedures (DC&P) include, but are not limited to the information processes designed by companies to ensure that material information is accumulated and communicated to management, including certifying officers, as appropriate to allow timely decisions regarding disclosure.

Documentation Important in Certification
In our experience, some companies have certified based primarily on interviews, checklists and questionnaires. Although this approach provides some degree of visibility into how controls and procedures are being executed, it relies heavily on individuals answering questions regarding their own performance in the process. This leaves cause for concern regarding the accuracy of the submission.

Consistent and accurate documentation of disclosure processes (created in a timely fashion, as processes are being followed) is the only way that companies can know if their DC&P are actually adhered to and are working effectively.

Design Vs. Execution
A challenge that has been expressed to us many times, is that although companies are currently certifying, they have a limited view into how their controls and procedures are actually executed vs. how they were designed. This is largely because of inconsistencies in disclosure process documentation and partly because of the difficulty in organizing and reporting on this information.

In an attempt to improve this, many companies are trying to capture and maintain more detailed records of their disclosure process.

In many cases, Investor Relations is at the center of this requirement and are being asked to provide detailed records on how the process is being conducted. The challenge of course, is that in order for these records to be accurate, they really should be created in real time – as processes are being followed.

In the heat of a time-sensitive situation, such as the preparation of an earnings release, documenting processes can seem in conflict to the greater objective of getting the information out on time. Reconstructing processes after the fact often falls to relying on memory, if deadlines have taken priority over tracking.

Often the task of filing this information falls to the coordinator of the disclosure process (again, usually within the IR department). Filing, archiving, search and retrieval are all challenges associated to this task.

Areas of Interest in DC&P Improvement
Many of the companies we’re spoken with, who are looking to improve their DC&P, feel that processes and systems surrounding their internal controls over financial reporting are firmly in place and working. Consequently, attention has returned to refining their existing DC&P. Interests include:

  1. Expanding the disclosure universe to include other forms of communication
  2. Streamlining disclosure processes through automation and by eliminating redundancies
  3. Identifying and filling gaps in process
  4. Optimizing risk reduction (this is the halo covering all initiatives)

How Companies are Documenting Information
Based on our experience in the market, we’ve found that most companies use a patch-work approach to documenting disclosure processes, which includes:

  1. Check lists – documenting exposures to specific information throughout disclosure process
  2. Meeting minutes – documenting discussions regarding disclosure with review/disclosure committee, board, management
  3. Email and Word documents – print-outs or digital files of emails with corresponding Word/Excel documents

Although workable for some, most of the organizations that we have spoken with expressed problems in this scenario, either in terms of the effort required to maintain the data, the reliance on specific people in the company or the cost and time needed to provide this information during an audit or regulatory enquiry.

Streamlining DC&P Through Technology
During our numerous interviews with issuers we learned that a number of key concerns are driving the need for improved software solutions:

  1. Tracking internal exposures to information – who, what, when
  2. Organizing versions, comments, edits and approvals
  3. Ensuring that key people provide input in a timely manner
  4. Ensuring transparency throughout the process to facilitate informed decision making
  5. Information archival, search, reporting

We also learned that the ideal solution should allow a company to follow their unique processes while providing a disclosure control framework. The right system should:

  1. govern and monitor how information is shared internally
  2. facilitate the drafting and approval of the actual disclosure content
  3. capture records of content along with records of the actual disclosure process
  4. enable easy archiving, instant retrieval and simple search
  5. permit flexible reporting to view information in a multitude of ways

These considerations have formed the basis for the design of our products. To find out more about the research and development that has gone into our software, please contact us. We’ll be happy to discuss this in more detail, as well as walk you through real world examples of how software can increase efficiency and reduce risk.

[tags] Bill 198, Sarbanes Oxley, MI 52-109, CEO and CFO Certification, SOX 302, SOX 404, Risk Management, Compliance, Disclosure controls, Disclosure, SEC, OSC [/tags] 


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