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Taxing Overseas
Firms for SOX Compliance |
by:
Neil More |
The Sarbanes-Oxley
Act, also called the Public Company Accounting Reform and Investor
Protection Act of 2002 was signed into law on July 30, 2002 by
President Bush. In the aftermath of Enron, Arthur Andersen, Global
Crossing, and WorldCom, SOX promises greater corporate accountability
and transparency. Named after Senator Paul Sarbanes and Representative
Michael G. Oxley, SOX focuses on the importance of ethical behavior
in corporate governance-across the United States and now…overseas.
All countries have government-required laws like Sarbanes Oxley.
In the UK, it’s the "Combined Code on Corporate Governance," in
The Netherlands it’s the "Code Tabaksblatt," Germany has a "Bilanz
Reform" and a "Bilanz Kontroll Gesetz." But then, why do we need
SOX overseas since we already have the required laws? It’s because
companies with U.S. headquarters must ensure that all foreign
outposts meet federal standards. This is the major cause of concern
in the management and accounting circles. According to some experts,
the Sarbanes Oxley Act might have dictated convoluted rules and
regulations on the U.S. businesses. While the rules are concrete
ideologies that prevent accounting scandals, the constant flux
in the policies confuses businesses around the globe.
SOX compliance by vendors and business partners outside the U.S.
is a frightening task. The risks and complications involved in
enforcing the regulations for multiple firms around the world
are enormous. The U.S. firms should keep themselves abreast of
the data operations and data management followed by overseas vendors.
This complicates the case further as the data should be integrated
in financials or entered in balance sheets. Cumbersome processing
of data would step up IT-related expenses.
The global impact of SOX is tremendous. At the moment, the UK
Big Four firms are feeling SOX repercussions in their consulting
sectors. http://www.big4.com -a website for global Big4 alumni
- receives periodic updates on the latest news and trends at the
Big Four firms. The Big Four in UK reportedly lost GBP250 million
in consulting fees since 2002-a direct outcome of Sarbanes-Oxley
Act. Among the Big Four firms, PricewaterhouseCoopers faced a
huge decline in their consulting fees. Causes for this decline
can be attributed to:
·The increased cost of compliance that usurped consulting budgets.
·Independence restrictions in Sarbanes-Oxley have restrained companies
from utilizing their auditors for many consulting services.
There is an apparent role reversal in consulting fees and audit
services. If consulting fees have declined, audit fees have considerably
increased. A whopping 30% increase in Big Four audit fees has
been observed over a period of two years. This spike does not
compensate for the revenues lost for consulting. Consulting was
the major strength of the Big Four in the UK. But, in the present
conditions, the significant decline in consulting fees clearly
demarcates the performance of the Big Four in the UK.
According to a survey by an European firm, many overseas firms
with their shares listed in the U.S. were not ready to meet the
deadlines of Sarbanes-Oxley. Since European firms already have
specific regulations, SOX compliance is extremely difficult. Some
overseas firms have been attempting to get delisted from the U.S.
stock markets since SOX’s inception. Foreign firms about to get
listed on overseas exchanges are also resisting to get listed
in the U.S. These problems would take toll on the U.S. market
performance and economy. But, the exit of foreign firms from the
U.S. exchanges is not that easy. As per SEC guidelines, foreign
firms holding 300 or more shareholders in the U.S. cannot delist
from the U.S. exchange where they trade.
In the light of these problems, the Securities and Exchange Commission-in
its bid to offer sustained flexibility-started modifying rules
for overseas firms listed in the U.S. The SEC would facilitate
foreign firms to delist their securities that are traded on the
U.S. exchanges. Modifying SEC rules to accommodate European firms
would create a state of unrest among the American managements.
The SOX compliance should be an “all-encompassing” formula-that
which enables governments and managements worldwide to function
efficiently and in rhythm. A level headed approach to weed out
this disconcert would improve the situation.
About the author:
Neil More webmaster@big4.com is an Alumni Member and Staff Writer
with Big4. He writes articles on issues pertaining to the
global Big4 firms - Deloitte, Ernst & Young, KPMG, PricewaterhouseCoopers.
Neil's articles focus on latest news and happenings in Big4 Accounting,
Big4 Management Consulting, Big4 Information
Technology, Big4 Tax and Big4 Legal domains.
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