[gnso-vi-feb10] On audits and other tools

[Eric Brunner-Williams <ebw@xxxxxxxxxxxxxxxxxxxx>]

This working group can, in addition to any other recommendation it
makes concerning vertical integration, if any, may recommend what
information is reported, by whom, and to whom.

The current wording ICANN is using is "audited or certified financial
statements".

Switzerland revised its law regarding audits, motivated in part by the
experience with US audit practice, e.g., the use of audits as a tool
for regulatory evasion by Enron and its auditors. The new law became
applicable to financial statements for 2008 and thereafter.

The new Swiss requirements increase both the cost of the internal
controls and those of the audit. A company must institute an internal
control system and the auditors must verify that the internal control
system is functional and adhered to.

This has a disproportionate effect on smaller firms, and there is an
exception, requiring only a "limited review" instead of an "audit" for
companies with turnover below a certain threshold.
ust verify that is functional and adhered to.

Another change came from IFRS (International Financial Reporting
Standards), formerly known as IAS (International Accounting
Standards), which have been codified extensively.

For a typical non-profit new TLD applicant, the cost of an IFRS audit
would not be justifiable.

Switzerland is not the only jurisdiction which has revised its laws
regarding audits in the same time period.

Both word "audit" and the word "IFRS" (replacing IAS) have been
redefined in recent years. Their meaning is much more precise, with
the meaning of "audit" being redefined independently in several
jurisdictions, and the cost of both much higher than previously.

The term "certified financial statement" is not defined in IFRS, and
may or may not have a defined meaning in any particular jurisdiction.

Turning to the concrete cases I think likely, if there is any
"vertical integration", that is, if this working group actually makes
one, or more policy recommendations and the Council and Board respond
affirmatively, there will be applications which propose to collect,
and report, information related to vertical integration in
Switzerland, China, Syria, South Africa, the United Kingdom, Germany,
Japan, and the United States.

Of these, some may use International Public Sector Accounting
Standards (IPSAS), such as municipal governments or recipients of
"development" funding, some may use International Financial Reporting
Standards (IFRS), such as listed corporations submitting applications
within the European Union.

The choices available to applications brought by non-profit
corporations, non-governmental, aka "“civil society organization”
organizations, is not limited to these.

Eric