AS AUSTRALIAN companies required to comply with the US Sarbanes-Oxley Act (SOX) begin compliance, it has emerged that European companies are least happy globally with the governance law.
While Sarbanes-Oxley, passed in the wake of the Enron collapse and designed to shore up reporting and controls, is a domestic US law, any foreign firm listed in the US, planning to list, or subsidiary of a US listed firm, must comply with the governance legislation.
A global study from European accountants Mazars, found that close to 20 per cent of European companies are planning to de-list from the US markets to avoid complying and more than half feel the costs outweigh the benefits. The UK-based bank HSBC, for example, spent $38 million in its most recent financial year just complying with one section of the Act.
However, beyond Europe, views on SOX moderated significantly. Among Asian firms, there was a much more upbeat view of SOX. Every Chinese firm surveyed felt the benefits of SOX outweighed the costs, while 83 per cent of Indian companies agreed. Moreover, more than 80 per cent of companies in Asia had no intention of de-listing from the US in any circumstance. Australian companies registered with the US Securities and Exchange Commission (SEC) began compliance on 15 July.
Australian retail giant Coles Myer announced its intention to de-list from the New York Stock Exchange (NYSE) in January of this year, but is so far the biggest Australian firm to make the move. While it did not specifically blame SOX, the company said that the cost of listing on the NYSE, the London Stock Exchange and the New Zealand Stock Exchange, coupled with relatively low trading volumes, had prompted the move back to the Australian Stock Exchange. The first major Australian filers will be ANZ, Westpac and NAB on 30 September.
Despite the Coles de-list, observers said Australian companies filing with the SEC are relatively well-placed to avoid some of the expensive mistakes made by their US counterparts in the initial year of US compliance. Studies suggest that US firms are set to spend $8.4 billion on SOX compliance this year.
However, Australian registrants should avoid such costs. “If we compare SOX 404 to a marathon, US companies have entered for the last two years,” said Geoff Wilson, national managing partner of audit and risk advisory services at KPMG. “Even though Australian companies have observed the race with great optimism, it’s impossible to say how we’ll fare until we’ve actually raced.”
Brian Bogardus, a KPMG partner, added that firms are increasingly looking for business benefits from SOX, rather than just regulatory compliance. “SOX appears to be with us for some time to come, so it makes sense to translate the initial investment into real performance improvement initiatives. We are seeing companies move from ‘how do we comply with 404? [the most expensive section to comply with]’ to ‘how do we use the improved controls to gain competitive advantage?’. The cost of SOX will drop and stabilise as companies, their auditors and the regulators become more comfortable with the requirements of compliance, however, it is important that we walk before we run,” Bogardus said.