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On 18 March 2021, BEIS published its consultation paper on restoring trust in audit and corporate governance. The paper contains a wide range of proposals which are designed to strengthen the UK’s framework for major companies and the way in which they are audited. We are working our way through the paper and will publish a series of articles and posts on some of the key proposals. Our summary of the consultation paper is available at https://www.burges-salmon.com/news-and-insight/legal-updates/corporate/corporate-governance-and-audit-a-wide-ranging-programme-of-reforms/
Our third post looks at options put forward in the white paper for strengthening the UK’s internal controls framework. The proposals suggest that the UK may soon have its own SOX style regime.
The obvious reference point in this context is the US Sarbanes-Oxley Act (SOX) introduced in 2002. The white paper notes that the key SOX provisions include requirements for the management of public companies to assess and report annually on the effectiveness of their company’s internal control structure and procedures for financial reporting. The company’s auditor is then required to attest to and report on this assessment. SOX places responsibility for a company’s financial statements and internal controls clearly with the CEO and the CFO.
The details of the certification requirements are set out in section 302 of SOX. In summary, the CEO and CFO must certify in each annual or quarterly report that:
Is SOX coming to the UK?
We will know the answer to that when the consultation closes and the government reports back – however the preferred option appears to be less onerous than the US SOX regime. For now the consultation paper considers the following options:
What's the preferred option?
The white paper sets out the government's preferred option as follows:
If introduced the UK SOX style regime will apply initially to premium listed companies. We anticipate that issuers will want to respond to the consultation and make their views known especially as regards the costs of the new regime.
"new directors’ duties relating to internal controls and risk management in a way that builds upon the UK’s existing framework, with the government’s initial suggested option less burdensome than the US Sarbanes-Oxley system and providing companies and shareholders greater flexibility"
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