The deadline for foreign companies to be compliant with
the US Sarbanes-Oxley law is up this week.
From 15 July all foreign companies capitalised at more than £75m
and dealing with the US will have to report on internal accounting
controls and highlight any potential flaws.
Sarbanes-Oxley (SOX) was brought into force in the US during
2002 in response to high profile financial scandals such as Enron
and Worldcom.
The legislation was imposed to protect shareholders and the
general public from accounting errors and fraudulent practices in
the enterprise.
The reach of the US law is global, and it affects all European
enterprises with transatlantic operations or partners.
As part of the act, section 404 requires a management assessment
of internal controls within a company's annual reporting, providing
a statement on the responsibility for internal controls, and
demonstrating that these controls are adequate for accurate
complete financial reporting.
A large part of internal control is concerned with documenting
details about the use and investment in assets. Assets are usually
misrepresented in accounting audits but have a significant impact
on revenue and operational expenditure, which can seriously affect
both the balance sheet and income statement.
The FT recently reported that many British companies are
struggling to meet the 15 July deadline and many are looking for
"quick fix" solutions to make them compliant, especially with
regard to the disliked section 404.
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