The whole question of corporate governance was
dominated by the financial scandals of the early part of the twenty-first
century in the USA surrounding, in particular, Enron and the lesser, but no
less shocking, scandals involving WorldCom, Tyco international, Global crossing
and many other. all of the major
dominated by the financial scandals of the early part of the twenty-first
century in the USA surrounding, in particular, Enron and the lesser, but no
less shocking, scandals involving WorldCom, Tyco international, Global crossing
and many other. all of the major
accounting firms had clients who were caught
up in these scandals, the apotheosis being the destruction of the worldwide
accounting firm of Arthur Andresen.
In 2002 this resulted in the USA publishing
legislation known as the Sarbanes Oxley act often shortened to’sarbox’)
legislation known as the Sarbanes Oxley act often shortened to’sarbox’)
It does not affect UK companies unless they are
subsidiaries of US firms or are listed on US stock exchanges.
subsidiaries of US firms or are listed on US stock exchanges.
The act is designed to enforce corporate
accountability through new requirements, backed by stiff penalties. Under the
act, chief executives and chif financial offices must personally certify the
accuracy of financial statements, with a maximum penalty of 20 years in jail
and a $5m fine for false statements. In addition, and of great significance to
auditors, under 404 of the act, executives have to certify and demonstrate that
they have established and are maintaining an adequate internal control
structure and procedures for financial reporting. This requires them to ensure
that all the financial reporting systems, including the ancillary systems such
as procurement and HR, are functioning in such a way as to prevent material
misstatements appearing in the financial accounts-and it is a personal
liability.
accountability through new requirements, backed by stiff penalties. Under the
act, chief executives and chif financial offices must personally certify the
accuracy of financial statements, with a maximum penalty of 20 years in jail
and a $5m fine for false statements. In addition, and of great significance to
auditors, under 404 of the act, executives have to certify and demonstrate that
they have established and are maintaining an adequate internal control
structure and procedures for financial reporting. This requires them to ensure
that all the financial reporting systems, including the ancillary systems such
as procurement and HR, are functioning in such a way as to prevent material
misstatements appearing in the financial accounts-and it is a personal
liability.
It should be pointed out that this legislation,
passed in haste is, in the current climate, slowly being reassessed as being
too prescriptive and too inhaling of US business freedoms, so there may be
further changes to come!
passed in haste is, in the current climate, slowly being reassessed as being
too prescriptive and too inhaling of US business freedoms, so there may be
further changes to come!