Is SOX only for companies in America? 2370



  • I don’t want to go into the case of financial mistatement(2001-2005) in the books of Cadbury Nigeria but what I want to highlight is the role played by the auditing firm invoived.
    The auditing firm, Akintola Williams Deliotte, audited the accounts of the above company and also serves as its reporting accountant. This is surely against Tiltle II of SOX( Auditors Independence on Non-Audit duties).
    MY QUESTIONS: I know SOX is an American law but does it only apply to companies in America? Does it apply to the Big 4 outside America? Does the Big 4, as a matter of principle, abide with the provisions of SOX?
    Thanks for your responses.



  • SOX only applies to companies that are required to file public statements with the US Securities Exchange Commission (SEC). Auditors of those companies must be listed with the US PCAOB and comply with their auditing requirements.
    Since Cadbury Nigeria is not listed as a filer with the SEC, they are not subject to the US SOX requirements. They are listed on the Nigerian Stock Exchange. Nigeria likely has different corporate governance rules than the USA.
    If the local audit firm audits any US-listed companies or subsidiaries of those companies, they must comply with the US rules for those audits. They would not need to comply for audits of non-US listed companies.



  • Thanks, Kymike.
    I’m well informed now.



  • SOX only applies to companies that are required to file public statements with the US Securities Exchange Commission (SEC). Auditors of those companies must be listed with the US PCAOB and comply with their auditing requirements.
    Since Cadbury Nigeria is not listed as a filer with the SEC, they are not subject to the US SOX requirements. They are listed on the Nigerian Stock Exchange. Nigeria likely has different corporate governance rules than the USA.
    If the local audit firm audits any US-listed companies or subsidiaries of those companies, they must comply with the US rules for those audits. They would not need to comply for audits of non-US listed companies.
    Now there’s an understatement if ever I saw one :lol:



  • While SOX only applies to companies that are publicly-traded in the US and are current filers with the SEC, SOX extends to foreign companies if they are owned by a US company subject to SOX or their stock is traded on a US stock exchange.
    Furthermore, we now have SOX equivalents in Canada, Japan and the EU. Their legislation extends to US-based companies that are owned by companies that are subject to these SOX equivalent requirements in their home country.



  • Hi Naijapikin,%0AYou should read Cadbury Schweppes annual report for the financial year ended 31 December 2006. Specifically, look at item 15, which deals with disclosure controls and procedures and changes in internal control over financial reporting. There is a description of the problems in Cadbury Nigeria.%0Asec.gov/Archives/edgar/data/744473/000115697307000624/u52204e20vf.htm As far as I know Cadbury Schweppes Plc initially did not own 100% of Cadbury Schweppes (but it is described in the annual report mentioned above).%0ABasically, the Sarbanes-Oxley Act and the Securities and Exchange Act also apply to foreign companies (i.e. non-U.S. companies) whose%0A1) securities listed on a national securities exchange in the U.S.%0A2) equity securities are traded over-the-counter in the U.S. (with some exceptions)%0A3) securities have been publicly offered in the U.S. (and are therefore registered with the SEC)%0APeriod reporting to the SEC is with consolidated financial statements. The internal accounting control provisions in the Securities Exchange Act also extend to subsidiaries, joint-ventures and associates (i.e. minority stakes accounted for under the equity method). In the case where there is no majority stake (i.e. control) the parent company has to use its reasonable best efforts to get the joint-venture or associate to implement internal accounting controls. I would say the same analogy applies to preventing subisidaries, etc. from obtaining prohibited non-audit services from the auditor.%0ABest regads%0AGeorg



  • I’ve heard of J-SOX and I am aware of the Canadian SOX (although I understand that was a very watered down version of the US-SOX).
    I have not heard of the EU - SOX. What is that?



  • There is no such thing as EU SOX. That is actually a misnomer. However, the European Union issued directives concerning mandatory audit committees for companies with a listing on a stock exchange in a member state of the EU and a mandatory narrative summary disclosure about the company’s internal control system. The audit committee is in charge of monitoring internal control and internal audit (external audit and the accounting process as well) based on the directive. However, as far as I remember there is requirement that management provides its opinion on the effectiveness of internal control over financial reporting or that the external auditor provides such an opinion.
    In addition, the EU made a directive on the public oversight of auditors that audit companies with a listing on a stock exchange in a member state of the EU. The directive leaves some flexibility to the member states and the national laws and audit oversight bodies vary.
    If you need a description where to find the English version of those directives let me know (it’s on the webiste of the European Commission, Directorate General Internal Market, Unit for Financial Reporting and Audit).



  • There are more than one European directives that have sections similar to the US SOX. The most important are the 8th Company Law, the Market Abuse and the Transparency Directives.
    In Europe, when they speak about the ‘European Sarbanes-Oxley’, they usually mean the 8th Company Law Directive on Statutory Audit (Directive 2006/43/EC).
    After the passage of the US Sarbanes-Oxley Act in 2002, US and non-US companies listed in a US stock exchange have the difficult task to comply with the Sarbanes-Oxley Act.

    After the passage of the European Union’s 8th Company Law Directive on Statutory Audit (Directive 2006/43/EC), European and non-European companies listed in any country of the EU have to comply with the 8th company law directive.

    EU Member States must comply with this Directive before 29 June 2008. US firms listed in Europe after the end of 2010.

    The 8th directive is considered the European post Sarbanes-Oxley regulatory retaliation. And, like in the US SOX, there are extremely important extraterritorial consequences. The Offshore Financial Centers (OFCs) for example must immediately enact legislation to prove that they have an equivalent level of regulation, to protect their auditors that audit offshore companies with EU listings from being subject to a tough European oversight regime. Otherwise, auditors and audit firms from Ëœthird countries’ have to be registered in the EU and to be subject to oversight, quality assurance and sanctions.

    Companies listed in EU are directly affected. From the changes in the audit committee and the role of the board of directors to the new internal controls requirements, professionals in EU listed companies will face the same or similar challenges with their American colleagues that have to comply with the US SOX.



  • But perhaps the most fundamental difference is that the controversial 404 element of SOX is not a requirement under EU law? From what I can see this EU requirement is similar to the Combined Code requirements, etc we follow in the UK and the ‘comply or explain’ principle?



  • I agree.
    Of course things are much more complex.
    Although there is no 404, there are external auditors that audit internal controls, audit committees of the board with SOX-like responsibilities etc.



  • Well there is no requirement for listed companies to assess the effectiveness of their internal control over financial reporting and to have the effectiveness of their internal control over financial reporting audited by a certified public accountant, but a company whose securities are admitted to trading on a regulated market in a member state of the European Union shall include a corporate governance statement in its annual report. The corporate governance statement needs to include a description of the main features of the company’s internal control and risk management systems in relation to the financial reporting process. This is a rather lame internal control requirement and will probably result in standard boilerplate blabla disclosure (well it actually already does, because France has already implemented this disclosure through the loi de s©curit© financire).
    For further information check the Directive 2006/46/EC at
    eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32006L0046:EN:HTML


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