Public companies face accounting reforms [pg. 17]

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January 2, 2007 23:45
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The Knesset Finance Committee has approved reforms requiring public companies to give full disclosure on the activities of their internal auditors, critical accounting estimates and asset purchases. The reforms came at the recommendation of the Israel Securities Authority, which made the announcement Tuesday, and follow a trial period of approximately two years for each. They will now be presented to the Knesset to be passed into law. "The reforms are aimed at increasing the transparency of companies in these areas," a spokesman for the ISA said. The regulatory agency said it had decided some three years ago to examine renewing the way internal auditors operate in Israel and subsequently institute changes after incidents of fraud and managerial profiteering influenced the capital markets in the US and other markets around the world. The new law aims to make the nature of the "gatekeepers" work more transparent by ensuring that directors' reports include a full accounting of the nature of their work at the company and the extent of related work outside the organization, the ISA said. Referring to the second reform, the ISA explained that the business operations of companies create different circumstances in which they are required to give financial estimates to be applied to its accounting practices. The current system, it said, allows for these estimates to be presented separately from the financial reports, which makes it possible for companies to present news concerning its accounting principles but not supply information about certain reporting risks in the framework of the financial report. "The reform strengthens the transparency of financial reporting by increasing the awareness of investors about the accounting estimates and will give awareness to investors about any changes made in the estimates which would influence its financial reports," the ISA said. The third reform expands the disclosures required relating to companies' asset purchasing activities to covering all stages of the transaction from the negotiation to execution of the purchase, including all stages of closure. The reform applies to purchases of property, shares or operations of another company, non-tangible assets and machinery or manufacturing lines.

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