New Acquisition _and_amp; SOX Tasks 2103

  • Hello,%0AI read the questions and the answers posted on the forum for a while now, but I did not find the answer to my issue.%0AMy company, SOX compliant, has just acquired 5.0% stake in another company, not listed on the US Market. Do we have any special actions to undertake regarding SOX??%0AI understood that we must include in the SOX scope all the companies which are included in the financial consolidation.%0AMany thanks in advance for all responses

  • Acquisitions are not normally deemed in scope in the year of acquisition, but you will probably need to confirm for the purposes of your consolidated accounts that transactions and valuations for acquisitions have been accounted correctly (and therefore what controls are in place), and that appropriate due diligence and approvals were obtained prior to acquisition.

  • You need to understand how the investment in the acquired company will impact your financial statements.
    If accounted for on an equity basis (investment is one line on each of balance sheet and income statement), then the acquired company does not need to be SOX compliant. You will need to have controls in place to ensure that your share of the acquired company’s income is properly stated and that the carrying value of the investment is fairly stated (if material to your financials).
    If you are doing a complete consolidation of the balance sheet and income statement and if the acquired company is material to your financial statements, you will need to include them in your SOX scope no later than the second year that they are part of your financials.

  • Yep, likely that the only requirement is that you have adequate control over the reported value of your investment - assuming that it is material to the financial statements.%0AIt would be pretty unusual to have to consolidate the acquisition of a 5% stake as this is pretty far from any sort of real control in most cases (it is possible, for example, where there are additional shareholdings from directors, etc.) so you would not, ordinarily, have to implement the full suite of SOX activities inthe investee company.

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