The Most Basic of all SOX Questions 1649

  • I need to know if we are required to comply with Sarbanes-Oxley.
    We are a private company partially owned by a public company. This public company is also our main client.
    Any guidance will be appreciated.

  • Hi and welcome 🙂 … As long as your company isn’t directly listed on the stock exchange you should be okay? However, if the parent company includes your company as part of it’s financial picture (e.g., as a member company), there might be some impacts. While the answer might be ‘no’, Audit or your legal dept. should research and develop an accurate answer (based on the corporate relationship with the parent company).
    This is a good question, considering indirect SOX impacts for a private company. Some ideas to answer this specifically for your company:

    1. Several good links found in the following Google search:
      paste in browser and add www on all links private company requirements
    2. Private companies should improve any lax practices or deficient standards
    3. Impact of SOX extends beyond just public companies
      many private companies encounter SOX when they raise capital by offering public debt.
      The Journal Sentinel also reported that several reasons for private companies to adopt Sarbanes-Oxley provisions were presented at a meeting of the National Directors Institute. Some of the reasons are:
      Some banks and insurers are requiring companies to embrace SOX before doing business with the firms.
      If owners of a private company want to sell to a public company, they will have to do extensive work to bring the seller into compliance.
      Private equity funds seem to be more willing to invest in companies following SOX because they think their investment would be safer and that it might be easier to sell to a public company.
      Talented outside directors will be easier to bring on board.

  • The partial owner company’s management and external auditors will decide if your company is to be in scope regarding Sarbanes Oxeley depending on the materiality of financial implications. If your company is determined to be in scope, management will inform you I’m sure.
    Hope this helped.

Log in to reply