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Source: Accounting Today
Even though your client base may not include public companies, you should be prepared to advise your private company clients on SOX. Small companies with no plans to sell or go public, and in which owners are all in management, may have little or no interest in SOX. But companies with outside shareholders, or with a potential sale or public offering looming, will probably adopt some SOX provisions voluntarily. The following cover applicability of SOX in other situations:
- Lenders or capital investors may require SOX compliance.
- Auditors may recommend it.
- Companies and their directors concerned about shareholder suits may be concerned that courts will require SOX-type practices in place of reliance on “business judgment” as a defense.
- Government or public company contracts may require SOX compliance.
- Companies may require vendors to comply with SOX especially if the former are applying for ISO certification.
- Nonprofit organizations are finding that SOX compliance enhances public trust.
SOX compliance for private companies may include:
- Financial statement certification by the CEO and CFO
- An internal code of ethics
- Independent board members
- Audit committees
- Protection of whistle-blowers
- Independence of outside advisors
- Engagement of separate firms for audit and non-audit services
When advising clients, consider that:
- Companies should have a written statement of business ethics covering conflicts of interest, confidentiality, safeguarding of assets, compliance with laws and regulations, and employee whistle-blowing.
- Directors should have well-defined qualifications and responsibilities.
- If an advisory group is in place, care should be taken that the board of directors does not relinquish responsibilities to it.
- There should be an audit committee to review internal controls, recommend or select auditors, and approve non-audit services by the audit firm. If the full board undertakes this responsibility, it should do so in a separate session.
- The board should review executive performance and compensation.
- Independence requirements should be applied not only to auditors but also to attorneys and other advisors.
- The board should include independent directors. Bankers, accountants, and attorneys who serve the company are not considered independent under SOX. Directors compensated with stock options and such may also be considered not independent.
- Legal counsel to the company should not represent executives’ personal interests.
From Accounting Today, September 26 - October 9, 2005, p. 19. For the complete article, click on the following link: http://www.webcpa.com/article.cfm?articleid=14626&;pg=acctoday |
