By Dave Tate, CPA, Esq. - ISS Governance Services (“ISS”) has issued it current proxy voting position for 2008 regarding corporate governance and accounting practices. ISS indicates that it will continue to focus on what it perceives to be “poor” accounting practices, fraud, and misapplication of GAAP. With respect to internal control, ISS policy will recommend that votes be withheld or made against members of audit committees where a material weakness identified under section 404 of the Sarbanes-Oxley Act rises to a level of serious concern, or where there is “an absence of effective internal control.” ISS also states that it recommends a vote against ratification of the independent auditor if “there is reason to believe” that the auditor has issued an opinion which is not accurate or representative of the company’s financial position. You can read more at http://www.issproxy.com/pdf/2008ISS_USPolicyUpdates.pdf
Of course, an occurrence of fraud, a “misapplication” of GAAP, an auditor opinion that is not accurate or representative of the company’s true financial position (e.g., in the case of a restatement), and even a material weakness in internal control do not necessarily indicate that an audit committee or that all of the audit committee members have failed to exercise diligent oversight. Additionally, an inaccurate audit opinion also does not necessarily indicate that the auditor should be replaced. Deciding what to do and how to vote in circumstances in which these issues are present require a much more detailed investigation and evaluation process.