The Sarbanes-Oxley Act, also called the Public Company
Accounting Reform and Investor Protection Act of 2002 was signed
into law on July 30, 2002 by President Bush. In the aftermath of
Enron, Arthur Andersen, Global Crossing, and WorldCom, SOX
promises greater corporate accountability and transparency.
Named after Senator Paul Sarbanes and Representative Michael G.
Oxley, SOX focuses on the importance of ethical behavior
in corporate governance-across the United States and
now...overseas.
All countries have government-required laws like Sarbanes
Oxley. In the UK, it's the "Combined Code on Corporate
Governance," in The Netherlands it's the "Code Tabaksblatt,"
Germany has a "Bilanz Reform" and a "Bilanz Kontroll Gesetz."
But then, why do we need SOX overseas since we already
have the required laws? It's because companies with U.S.
headquarters must ensure that all foreign outposts meet federal
standards. This is the major cause of concern in the management
and accounting circles. According to some experts, the
Sarbanes Oxley Act might have dictated convoluted rules
and regulations on the U.S. businesses. While the rules are
concrete ideologies that prevent accounting scandals, the
constant flux in the policies confuses businesses around the
globe.
SOX compliance by vendors and business partners outside
the U.S. is a frightening task. The risks and complications
involved in enforcing the regulations for multiple firms around
the world are enormous. The U.S. firms should keep themselves
abreast of the data operations and data management followed by
overseas vendors. This complicates the case further as the data
should be integrated in financials or entered in balance sheets.
Cumbersome processing of data would step up IT-related expenses.
The global impact of SOX is tremendous. At the moment,
the UK Big Four firms are feeling SOX
repercussions in their consulting sectors.
http://www.big4.com - a website for global Big4 Alumni - receives periodic
updates on the latest news and trends at the Big Four
firms. The Big Four in UK reportedly lost GBP250 million
in consulting fees since 2002-a direct outcome of
Sarbanes-Oxley Act. Among the Big Four firms,
PricewaterhouseCoopers faced a huge decline in their consulting
fees. Causes for this decline can be attributed to: ?The
increased cost of compliance that usurped consulting budgets.
?Independence restrictions in Sarbanes-Oxley have
restrained companies from utilizing their auditors for many
consulting services.
There is an apparent role reversal in consulting fees and audit
services. If consulting fees have declined, audit fees have
considerably increased. A whopping 30% increase in Big
Four audit fees has been observed over a period of two
years. This spike does not compensate for the revenues lost for
consulting. Consulting was the major strength of the Big
Four in the UK. But, in the present conditions, the
significant decline in consulting fees clearly demarcates the
performance of the Big Four in the UK.
According to a survey by an European firm, many overseas firms
with their shares listed in the U.S. were not ready to meet the
deadlines of Sarbanes-Oxley. Since European firms already
have specific regulations, SOX compliance is extremely
difficult. Some overseas firms have been attempting to get
delisted from the U.S. stock markets since SOX's inception.
Foreign firms about to get listed on overseas exchanges are also
resisting to get listed in the U.S. These problems would take
toll on the U.S. market performance and economy. But, the exit
of foreign firms from the U.S. exchanges is not that easy. As
per SEC guidelines, foreign firms holding 300 or more
shareholders in the U.S. cannot delist from the U.S. exchange
where they trade.
In the light of these problems, the Securities and Exchange
Commission-in its bid to offer sustained flexibility-started
modifying rules for overseas firms listed in the U.S. The SEC
would facilitate foreign firms to delist their securities that
are traded on the U.S. exchanges. Modifying SEC rules to
accommodate European firms would create a state of unrest among
the American managements.
The SOX compliance should be an "all-encompassing"
formula-that which enables governments and managements worldwide
to function efficiently and in rhythm. A level headed approach
to weed out this disconcert would improve the situation.
About the author:
Neil More webmaster@big4.com is an Alumni Member and Staff
Writer with http://www.big4.com He writes articles on issues
pertaining to the global Big4 firms - Deloitte, Ernst & Young,
KPMG, PricewaterhouseCoopers. Neil's articles focus on latest
news and happenings in Big4 Accounting, Big4 Management
Consulting, Big4 Information Technology, Big4 Tax and Big4 Legal
domains.
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