Audit Integrity Cites Pension Practices as a Developing Area of Corporate Risk.

Identifies 61 At-risk Companies

NEW YORK & LOS ANGELES -- Audit Integrity, LLC, a financial research firm specializing in corporate accounting and governance issues, is warning investors and other corporate stakeholders that pension reforms adopted this year are generating a new set of risks that could surpass, at least in the financials involved, the recent highly publicized options backdating scandals.

The firm has identified 61 corporations as fitting a "high-risk profile" characterized by aggressive approaches both in their accounting and corporate governance practices, and in the actuarial assumptions underlying their pension valuations.

"We acknowledge the widely hailed economic benefits of the new pension rules," said Audit Integrity CEO Jack Zwingli. "But we also find that two key requirements--fully funding pension plans, and recognizing projected pension liabilities on current balance sheets--are creating burdens that may drive many companies to engage in aggressive actuarial and accounting methods and other high-risk corporate behavior."

He added, "The possibility that companies may solve short-term problems at the expense of long-term prudence is an additional risk that corporate stakeholders need to be aware of and monitor."

Audit Integrity conducts in-depth forensic analysis of hundreds of accounting and governance metrics, including pension policies, for more than 9,000 public corporations. The firm's proprietary Accounting and Governance Risk (AGR([R])) rating system quantifies each company's risk related to accounting and governance, and related adverse events such as class action litigation, regulatory actions and equity loss.

Chairman James A. Kaplan noted, "By combining a company's AGR([R]) rating with a close examination of management's actuarial assumptions for pensions, we are able to provide stakeholders with a strong, reliable indicator of pension-driven accounting risk and related problems." The list of 61 high-risk companies identified to date is available online at www.auditintegrity.com

New Reforms Bring Benefits, Challenges

While the new requirements on pension plan funding levels and full disclosure of pension liabilities benefit employees and shareholders, they are sparking deep concerns in many boardrooms across the country, according to the company. The new rules are found in The Pension Protection Act of 2006, enacted on August 17th, and the Financial Accounting Standards Board's (FASB) Accounting Standard Number 158, issued on September 29th.

The legislative measure requires corporations to meet stringent new minimum pension funding standards by the end of 2008. Meanwhile, the new financial accounting standard tightens the rules for reporting pension plan expenses, bringing them, as the company puts it, "out of the footnotes and on to the balance sheet." A key provision forces companies to expense their Pension Benefit Obligation (PBO), a statistical projection based on actuarial assumptions, rather than their existing pension liabilities, as represented by the Accumulated Benefit Obligation (ABO).

Audit Integrity has identified three major pension accounting metrics subject to management discretion and, potentially, abuse. These actuarial "assumptions" are actually powerful levers that can have a major impact on reported pension liabilities, asset valuations and funding levels-- and ultimately on the corporate bottom line. These discretionary parameters include:

* The Discount Rate, which is used to discount projected pension liability figures back to present dollar values.

* The Expected Rate of Return, which is used to estimate the future value of pension assets.

* The Compensation Increase Rate, which is used to project future pension liabilities based on estimated employee salaries.

It is believed that by forcing corporations to recognize more conservative valuations for pension liabilities, the new standards give will managements a strong motive to compensate by using discretionary actuarial rates that may be advantageous in the short run, but are ultimately unrealistic.

Mr. Zwingli commented, "In our extensive research into these three key actuarial assumptions, which are presently relegated to financial statement footnotes, Audit Integrity is finding an unusually wide disparity in the values used for them. Changes to these assumptions, and others, must be questioned as to the motivation and timing behind them."

He continued, "With stringent new pension requirements placing downward pressure on earnings and cash flow, company managements will increasingly be tempted to engage in practices that misrepresent the financial strength of the business. Audit Integrity's AGR([R]) ratings and ongoing research into accounting and governance risks provide useful tools to spot problems in advance."

About Audit Integrity

Audit Integrity is an independent research and rating service that evaluates the risks associated with the accounting and governance practices of over 9,000 public corporations. Its industry-leading methodology, based on comprehensive data collection and proprietary analytics, produces statistically reliable measurements of the integrity of reported financial results and corporate governance practices.

Audit Integrity's flagship Accounting and Governance Risk (AGR([R])) rating system grades companies on a scale of 1 to 100, from Very Aggressive to Conservative. The company has established a direct correlation between its accounting and governance risk assessments and actual stock price performance, as well as the likelihood of such adverse events as class action litigation, financial restatements and SEC enforcement actions.

The company was founded in 2001 and serves the financial and investment communities from offices in New York and Los Angeles.