Sarbanes-Oxley Act extends its tentacles across globe

Its mandate extends beyond the US, encompassing any auditor that works for companies traded on the US stock market, including several UK accountancy firms. The Financial Times reports that those firms held the latest in a series of closed-door meetings in London to discuss how they dealt with the process. The big four firms have accepted inspections as the price – established in the 2002 Sarbanes-Oxley Act – of being able to serve US-listed blue-chip clients. Peter Wyman, UK head of professional affairs at PwC, said: ‘When we signed up to be registered . . . we knew the inspections were part of the deal. We couldn\'t stop them if we wanted to.’ The inspections are the latest example of Sarbanes-Oxley\'s extra-territorial reach and have prompted grumbling in some quarters about perceived infringements of sovereignty. The Financial Reporting Council, the UK regulator, already carries out inspections and picked through the audit files of the big four for the first time in 2004-05. But US law does not allow the board to rely exclusively on the work of another regulator, creating the likelihood of duplication between the two sets of inspections. Full Financial Times report

One aspect of Sarbanes that seems to be constantly under the spotlight is internal controls, writes Bert Chanetsa in Business Report. He says executives face heavy criminal sanctions where, among other things, their internal controls are found to be sub-standard. The CE and the CFO are required to certify that they have taken all reasonable efforts to ensure that their numbers are accurate and that there is no fraud. Chanetsa quotes an article in The Washington Post, where Sarbanes\' focus on internal controls was described as leading ‘to an environment of second-guessing by auditors, where even a minor accounting error can mushroom into a wholesale investigation of a company\'s accounting procedures.’ Full report in Business Report