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Regulation Focus - Legislation Update - UK companies vulnerable to Sarbanes Oxley.
(From Reinsurance)
Byline: Gary Izatt, a director at Gary Izatt Associates.
The Sarbanes Oxley Act is still not a name that is familiar in the UK, but the US Act will have an impact on all UK companies that trade shares on the NYSE or are subsidiaries of US firms.
Following the collapse of Enron and WorldCom in 2002 the Act was very quickly voted through Congress, laying down laws to reduce the chance of such scandals happening again.
Section 302 of the Act effectively forces Securities and Exchange Commission registered companies, including European companies, to "evaluate the effectiveness of the internal controls over any information they issue to the capital markets and publish their conclusions of their evaluation".
Section 404 adds the requirement: "For an annual assessment of the effectiveness of internal controls and procedures specifically for financial reporting, which must be published and attested to by the company's external auditors."
These provisions directly affect UK companies with US exposure, but many will not know that they are liable under the act. Under the UK's combined code, companies have to describe the procedures they have followed to evaluate their internal controls and external auditors have to confirm what is claimed.
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