The Sarbanes-Oxley Act is often interpreted as applying to American organisations exclusively. In fact its impact may be more far reaching, affecting businesses globally, including those in the UK.
Against a whole wave of financial scandals driven by fraudulent accounting practices that involved major US corporations such as Worldcom and Enron and Tyco, the US Senate and House of Representatives passed the Sarbanes-Oxley Act on 30th July 2002 to restore investor confidence and underwrite the integrity of financial information.
One of the key sections lays out the requirement for the management of a US public company to report annually on the operational effectiveness of the company’s internal controls over financial reporting.
Additionally, the company’s auditors must attest to and report on the management’s assertion over the effectiveness of internal financial controls. Consequently, the legislation has the potential to have a profound impact on the governance and behaviour of any business with a US listing.
The following key facts outline the effect that Sarbanes-Oxley may have upon British industry:
- There are 113 UK companies listed on the NYSE and NASDAQ, each facing ongoing compliance costs of tens of millions of pounds.
- SOA has a far reaching jurisdiction, making it necessary for all foreign companies with a dual listing on a US exchange with 500 or more US-based shareholders to make themselves compliant.
- Corporate governance in the UK is moving towards a Sarbanes-Oxley type regime already, if a new white paper is any guide. The Company Law Reform White Paper has tougher penalties for accounting offences. Liability for breaches in legislation would be extended beyond directors and company secretaries.
- There is also speculation that the strict data protection laws in Europe may make compliance with Sarbanes-Oxley actually in breach of the Data Protection Act of 1998. UK companies that complete item 8.1 of the registration form for Sarbanes-Oxley – agreeing to provide information at any time in the future – are abusing data protection rights.
- In November 2004, Accountancy Age reported that between 10 and 20 major UK companies were considering delisting from either the NYSE or NASDAQ as a result of the rapidly increasing costs for compliance with Sarbanes-Oxley.
- The emergence of Sarbanes-Oxley and other regulations such as HIPAA, the Gramm-Leach-Bliley Act and the US Patriot Act has moved governance, risk and compliance to the forefront for businesses both in the US and worldwide. This new regularity environment is onerous to all businesses regardless of geography, as many do not have the infrastructure in place to handle the costs of complying.
- UK banking and capital markets are facing similar levels of regulation with Sarbanes-Oxley style compliance with the emerging presence of the Basel II accord and Solvency II in Europe.
Thus, it is more important than ever that companies have access to specialist services which can help them to achieve legal compliance where data processing and retention are concerned.
Article produced by Mitech Systems, document management specialists based in Northamptonshire.