This weekend, larger UK companies that are listed on US exchanges will pass the deadline for filing SOX-compliant annual returns. All these companies, those that are capitalised at greater than US$75 million, must comply with the obligations of the Sarbanes-Oxley Act (SOX) on their next set of returns filed after the 15th July, two years later than their US equivalents. Foreign companies with a capitalisation of less than $75M have a year's grace – but the majority of UK firms impacted are those larger and global firms and few are expected to fall below the cut-off point.
One of the major requirements of Sarbanes-Oxley is the imposition of controls on all data of accounting relevance and any material failure "material" being deemed as an issue that would alter a reasonable investor's view of the company – must be reported and companies must disclose how they are addressing them. There is no regulatory penalty for these material weaknesses but their disclosure could impact investor confidence. In the first year of SOX in the USA, about 15% of firms filing declared material weaknesses but this appears to be falling significantly in the second year of implementation.
Implementation costs of SOX have been high, and, following a review of the first year of SOX, the Securities and Exchange Commission (SEC) issued a plan to improve ease of compliance and reduce costs. This week the SEC published the first of the actions of this plan, a Concept Release seeking feedback on internal controls, their evaluation processes and the documentation required. Market comments are due back in 60 days.
| 
