Some CEOs Make Certifying Financial Data a Joint Effort
Daniel Amos has a strategy for when he signs a letter to the Securities and Exchange Commission assuring his company’s most recent financial statements are accurate.
The chief executive of Aflac Inc., the No. 1 U.S. supplemental health insurance provider, is requiring each division head in his accounting and legal departments--a total of eight people--to sign a document similar to the one he must sign.
“That means if one of us is wrong, all of us is wrong,” Amos said.
Columbus, Ga.-based Aflac is one of nearly 1,000 companies with annual revenues of more than $1.2 billion whose CEOs and chief financial officers must soon file personal attestations with the SEC after accounting scandals at WorldCom Inc., Enron Corp. and other companies. Amos, like executives at other companies, has been poring over his company’s finances in recent days.
The filings are due starting Aug. 14, and failure to submit them may bring civil or criminal penalties, lawyers said. A few companies already have turned in the certifications to assure investors their books are clean. They include General Electric Co., FedEx Corp., Corning Inc., PepsiCo Inc., Qualcomm Inc. and AMR Corp., the parent of American Airlines.
“Executives at some companies are spending a significant amount of time, hundreds of hours, on this,” said Dean Krogman, a vice president at Financial Executives International Inc., an association of corporate executives.
Delphi Corp., the first filer, said top officers of the world’s largest auto parts maker always have studied filings before submitting them to the SEC. Attesting to their accuracy required no extra effort, spokesman Brad Jackson said.
CEO Paul Stebbins of World Fuel Services Corp. had to certify his company’s financial statements his first week on the job. The Miami Springs, Fla., company sells fuel at airports and seaports worldwide.
“Is it possible to know everything? No,” Stebbins said. “But you have to take that leap of faith, and if I am not prepared to do that, then I don’t deserve to run the company.”
The SEC has said it will scrutinize companies unable to certify their reports. The implication is that such companies will be referred to the SEC’s enforcement division, said Paul Maco, a lawyer at Vinson & Elkins in Washington and a former SEC official.
Maco said executives have three alternatives: submit the statement using the precise language prescribed by the SEC, submit a sworn explanation if they can’t, or don’t submit anything and suffer the consequences.
“If you’re late, it could be a referral to enforcement to compel you to comply with the rule,” said Stephen Crimmins, a partner at Pepper Hamilton and former deputy chief litigation counsel in the SEC’s enforcement division.
Attesters must say that “to the best of my knowledge,” the most recent annual and quarterly reports and other statements have no “untrue statement of material fact.” They also must attest that the company’s audit committee or independent board members reviewed the certification.
“If you submit a false certification, you submit yourself to personal, civil and criminal liability for lying to a government agency,” said SEC spokesman John Nester.
Executives also may be liable for perjury, Crimmins and Maco said. The new corporate-governance law signed by President Bush carries other penalties: Any executive who attests to financial statements that he or she knows to be wrong faces a fine of as much as $5 million and 20 years in prison, Crimmins said.
Executives who deviate from the SEC’s language or attempt to qualify their certification in a separate letter will be viewed as failing to comply, the SEC said. The SEC is posting the submissions on its Web site in two categories: submissions that follow the SEC’s prescribed format and “all others.”
Christian Mixter, a former SEC chief litigation counsel, said the “all others” category unfairly lumps companies with minor problems with those that have significant accounting improprieties.
The SEC expects that the fear of being listed with delinquents will force disclosure of even minute accounting issues.
“If that results in some companies offering investors greater clarity, that is not an unanticipated consequence,” Nester said.
Bear, Stearns & Co. accounting analyst Pat McConnell said confusion about the Aug. 14 deadline may cause unnecessary investor concern.
That date is for companies whose second quarter ended June 30. Companies whose quarter ends at another time--about 21% of the 947--have later deadlines, McConnell said.
The second quarter for Goldman Sachs Group Inc., for example, ended May 31. The company’s attestation is due in October, 45 days after the third quarter ends Aug. 31.
People shouldn’t conclude that a company not reporting by Aug. 14 has an accounting deficiency, she said, when, “in reality, there may be no problem at all.”
That’s one reason the American Assn. of Individual Investors is counseling investors not to automatically dump stock in a company that files later.
“You want to look deeper and find out first why management hasn’t signed the attestation,” said Maria Scott, editor of the AAII Journal.
