The Treasurer October 2004

SOX – THE SHAPE OF THINGS TO COME?

How dearly some of us end up paying for the crimes of others. This is the viewpoint shared by many treasurers of US listed companies who have taken the brunt of the recent corporate financial scandals by being forced to comply with the corporate governance requirements of Sarbanes-Oxley (SOX) (see No shelter from the storm, p16).

Section 404, governing internal controls for financial reporting, is proving a bitter pill to swallow. Not only is it inundating treasurers of US listed companies with a range of extra activities, such as the documentation of internal controls, but it has burdened them with an even greater task in the testing and ‘evidencing’ of those controls.

But US companies may not be alone when it comes to tightening the reigns on corporate governance. SOX’s strict rules-based approach suggests similar legislation in other countries may be warranted to create a level playing field for corporates and investors worldwide.

While the EU argues that a “one-size-fits-all approach” to corporate governance would be counter-productive across Europe, it too has taken steps to improve Europe’s regime. Take the European Commission’s proposed directive for an effective system of public oversight for auditors across Europe. This not only draws on the US model to ensure greater convergence with SOX’s audit rule, but was developed in close co-operation with the US Public Company Accounting Oversight Board (PCAOB). Is this the start of things to come?

The UK has also taken measures to protect itself more forcefully against the likes of an Enron, Parmalat or a WorldCom. There are plans to review the Combined Code on Corporate Governance on an ongoing basis, and to revisit Nigel Turnbull’s internal control guidelines for directors. At present, the Companies Bill – a new piece of legislation that places more onus on directors to be accountable for financial reporting – is also making its way through Parliament.

While many of us may continue to question the correctness of the tough and punishing new measures SOX introduces, it is becoming equally apparent that there will be no lightening up anywhere in the world – not when it comes to corporate governance.

On a different note, it is probably with mixed feelings that we anticipate the potential carving-out of the Fair Value Option from IAS 39.While debating the whys and wherefores of this change in direction, it is equally important to question why it took until just four months before the timetabled implementation of the new International Financial Reporting Standards (IFRS) – for this to happen.

This news, so close to adoption deadlines, will be a blow to many corporates who have prepared for fair value accounting in the hope of convergence with US Generally Accepted Accounting Principles. In this month’s edition of The Treasurer, we take a special look at the changes proposed for IAS 39 with an in-depth explanation of the carved-out version on page 46 and the views of leading treasurers on how this will impact their adoption of the standard on page 7.

LIZ SALECKA
Editor

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