The US Securities and Exchange Commission (SEC) has extended the deadline for non US companies to comply with a vital clause of the Sarbanes-Oxley Act to July 2006.
Sarbanes-Oxley was passed in 2002 with the aim of making companies more financially transparent and better at handling business risks – a reaction to the financial scandals at Enron and WorldCom.
Its application to all companies with a US listing – or those contemplating a US listing – means that it affect many companies overseas.
Section 404 of the Act requires reports by a company’s management and its auditors on its internal control of financial reporting. That provision has now been delayed by a year to July 2006.
The CBI and other employer groups argued that section 404’s provisions were placing a significant burden on European companies’ resources, particularly as many of these changes are being dealt with by the same staff.
The extension of one year was announced after CBI chief Digby Jones and a delegation of UK business leaders met with the SEC’s commissioners and again emphasised the resource problems that European companies were experiencing.
The CBI said it was pleased the SEC had granted a “meaningful extension” and hoped the decision signified a new mood of consultation to make the Act more workable for non-US businesses.
The 12-month extension will allow most UK companies a full financial year to deal with IFRS, the EU’s financial services action plan and the new listing regime in the UK before full compliance with Sarbanes-Oxley.