Non-US Firms Struggling With Sarbanes Oxley Compliance

by Leroy Baker, for LawAndTax-News.com, New York

11 May 2006

Non-US companies will struggle to maintain compliance with Section 404 of the Sarbanes Oxley legislation in the long term because they are too focused on meeting the year one deadline, according to PricewaterhouseCoopers, the accounting firm.

The survey ‘Looking forward: evaluating early experiences with Sarbanes-Oxley’ of some 36 Sarbanes-Oxley project leaders from large foreign private issuers (FPIs) suggests that the experiences of companies in the US, which struggled to embed compliance in year one, risk being repeated by FPIs.

According to PwC, there is a danger that the excessive costs of compliance in year one will recur in following years unless companies review the robustness of their controls and compliance structures.

The survey found that well over a third (44%) of respondents view their Section 404 compliance efforts as unconnected to other compliance activities and processes happening within the business. Although creating ‘controls consciousness’ is considered to be a medium-to-high priority for 86% of those surveyed, 31% state that this has not to date been gauged within the company. Only 19% of respondents say that a formal mechanism exists for knowledge transfer from their Section 404 project team to management.

Two thirds of respondents identify an excessive number of key controls within their organisation while they were split down the middle on the question of whether they felt their processes for identifying and addressing control deficiencies were well established and working effectively. PwC warns that these factors will have a very real impact on the cost of compliance in the future.

“In the race to reach the year one compliance finishing post, businesses are not paying sufficient attention to successive years. This could mean some companies are lining-up major costs and added complexity for the future, which could be minimised or even avoided all together if they took a more structured and strategic approach from the outset," commented Helen Nixseaman, risk assurance services partner at PwC.

“Their goal now should not simply be compliance but cutting costs, improving controls and achieving tangible business benefits through a process of controls optimisation, which will result in the right controls at the right cost for their organisation. Only then will they create a sustainable and long-term approach to Sarbanes-Oxley compliance," she added.

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