Sarbanes Oxley for non US firms

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Background
It is important to understand how Sarbanes Oxley relates to non US firms as this U.S. legislation of 2002 affects foreign companies who are listed in the USA stock markets.

The law intends to provide a level playing field in the U.S. market for all issuers, regardless of country of origin and it was started due to the financial disasters and financial scandals at Enron, WorldCom, Adelphia, Health South, Tyco, Global Crossing and Cendant. US companies were not alone as there were Parmalat, Vivendi, Hollinger, Ahold, Adecco, TV Azteca, Royal Dutch Shell and Seibu in other parts of the world, including Scandals in Asia and Europe.

The reason why this is important for foreign companies is that many US citizens, more than half, have share ownership in the US and many own foreign non US companies. Also, many foreign private and institutional investors own shares issued in the US, including the NASDAQ and the Dow Jones.

Costs of non US firms Sarbanes Oxley compliance

Foreign and European companies, in particular say that the requirements set out in Oxley Section 404, certification of internal controls, are onerous and costly, and unnecessary. Section 404 has even led some foreign firms to declare that they may wish to leave Americas capital markets altogether rather than have their internal controls certified.

The SEC states that individual non US companies often focus on the cost of compliance with the Sarbanes Oxley Acts and are horrified. However, they also believe that the cost also comes with benefits regardless of their nationality and regardless of where they're investing as worldwide investors hold honesty and integrity as extremely important.

Important Sarbanes Oxley points for non US firms

	non U.S. investors have approximately 4.5 trillion invested in U.S. stock markets
	section 404 is a reminder of the need for high standards in securities markets in the world
	helping to raise standards throughout the world
	signify to investors throughout the world that this company is willing to make the investment needed to meet these standards
	the Sarbanes Oxley cost of compliance can be an average of 8m but for larger firms it can be somewhere between 30 and 40m per year.
	Especially for European companies, cross border listings frequently entail issuers having to navigate duplicative or even contradictory regulations in different jurisdictions.
	Some firms may de list from the US stock exchanges.
	The European Union have not imposed a blanket form of Sarbanes Oxley across all member states. Instead it has let individual countries put their own legislation in place.

Some duplicative or contradictory regulations can place an unnecessary burden on non US issuers, firms and investors. The SEC stated that it is working with foreign regulators and market participants to reduce the likelihood of this occurring and continuing uncorrected. Its important to point out that some US firms with a certain number of shareholder from the USA also will have to conform to some parts of Sarbanes Oxley even if they do not have a US listing.

Some problems for non US firms are related to the publication of financial information not strictly in compliance with U.S. Generally Accepted Accounting Principles, or GAAP. In this area, the SEC included an exemption for non GAAP communications outside the U.S, even where those communications reach the U.S. This is due to the SEC not wanting to interfere with the regular practices governing how foreign companies communicated with investors in non U.S. markets.

Under the Sarbanes Oxley Act, all audit firms, including non US audit firms, providing significant audit services for issuers listed in the United States, are required to be registered and inspected by the PCAOB. Because of potential conflicts with foreign privacy laws, the PCAOB has made some changes to the information requested of foreign firms during registration.

The SEC are considering whether there should be a new approach to the deregistration process for foreign private issuers, if they do not feel prepared to meet the U.S. requirements as U.S. federal securities laws and regulations on this issue were implemented in the past when there was little in the way of non US listings.

There has been large changes in Europe due to Basel II and IFRS (international financial reporting standards) for many European countries, which is the European Unions effort to require the use of a single set of high quality accounting standards. Foreign issuers listed on U.S. exchanges are allowed to use IFRS, provided the financial figures were reconciled to U.S. Generally Accepted Accounting Principles over a three year period. Soon the SEC may allow first time users of IFRS to reconcile their financial statements to U.S. GAAP for only two years.

However some non U.S. companies and auditors have already implemented the processes for Section 404, necessary to report on internal controls.

There is also resentment though at companies being forced to take fast action to keep a listing on the US Stock Exchanges.

Please use the sub sections links on the left or the content links to find out more about Sarbanes Oxley for non US firms.

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