Taxing Overseas Firms for SOX Compliance

The Sarbanes-Oxley Act, also called the Public Company Accounting Reform and Investor Protection Act of 2002 was signed into law on July 30, 2002 by President Bush. In the aftermath of Enron, Arthur Andersen, Global Crossing, and WorldCom, SOX promises greater corporate accountability and transparency. Named after Senator Paul Sarbanes and Representative Michael G. Oxley, SOX focuses on the importance of ethical behavior in corporate governance-across the United States and now?overseas.

All countries have government-required laws like Sarbanes Oxley. In the UK, it's the "Combined Code on Corporate Governance," in The Netherlands it's the "Code Tabaksblatt," Germany has a "Bilanz Reform" and a "Bilanz Kontroll Gesetz." But then, why do we need SOX overseas since we already have the required laws? It's because companies with U.S. headquarters must ensure that all foreign outposts meet federal standards. This is the major cause of concern in the management and accounting circles. According to some experts, the Sarbanes Oxley Act might have dictated convoluted rules and regulations on the U.S. businesses. While the rules are concrete ideologies that prevent accounting scandals, the constant flux in the policies confuses businesses around the globe.

SOX compliance by vendors and business partners outside the U.S. is a frightening task. The risks and complications involved in enforcing the regulations for multiple firms around the world are enormous. The U.S. firms should keep themselves abreast of the data operations and data management followed by overseas vendors. This complicates the case further as the data should be integrated in financials or entered in balance sheets. Cumbersome processing of data would step up IT-related expenses.

The global impact of SOX is tremendous. At the moment, the UK Big Four firms are feeling SOX repercussions in their consulting sectors. Big4.com -a website for global Big4 alumni- receives periodic updates on the latest news and trends at the Big Four firms. The Big Four in UK reportedly lost GBP250 million in consulting fees since 2002-a direct outcome of Sarbanes-Oxley Act. Among the Big Four firms, PricewaterhouseCoopers faced a huge decline in their consulting fees. Causes for this decline can be attributed to:

· The increased cost of compliance that usurped consulting budgets.

· Independence restrictions in Sarbanes-Oxley have restrained companies from utilizing their auditors for many consulting services.

There is an apparent role reversal in consulting fees and audit services. If consulting fees have declined, audit fees have considerably increased. A whopping 30% increase in Big Four audit fees has been observed over a period of two years. This spike does not compensate for the revenues lost for consulting. Consulting was the major strength of the Big Four in the UK. But, in the present conditions, the significant decline in consulting fees clearly demarcates the performance of the Big Four in the UK.

According to a survey by an European firm, many overseas firms with their shares listed in the U.S. were not ready to meet the deadlines of Sarbanes-Oxley. Since European firms already have specific regulations, SOX compliance is extremely difficult. Some overseas firms have been attempting to get delisted from the U.S. stock markets since SOX's inception. Foreign firms about to get listed on overseas exchanges are also resisting to get listed in the U.S. These problems would take toll on the U.S. market performance and economy. But, the exit of foreign firms from the U.S. exchanges is not that easy. As per SEC guidelines, foreign firms holding 300 or more shareholders in the U.S. cannot delist from the U.S. exchange where they trade.

In the light of these problems, the Securities and Exchange Commission-in its bid to offer sustained flexibility-started modifying rules for overseas firms listed in the U.S. The SEC would facilitate foreign firms to delist their securities that are traded on the U.S. exchanges. Modifying SEC rules to accommodate European firms would create a state of unrest among the American managements.

The SOX compliance should be an "all-encompassing" formula-that which enables governments and managements worldwide to function efficiently and in rhythm. A level headed approach to weed out this disconcert would improve the situation.

Hi. I am Neil and am a Big4.com Alumni Member. I have been writing articles since my college days. Would love to interact and share my articles with other writers.

---

Render Unto Caesar

Once a year Canadian taxpayers are required, by law, to... Read More

Uncle Sam is Ready...Are You? Organizing Tips for Tax Time

Anyone who is closely related to an accountant knows that... Read More

Business Tax Loophole: Leasing Assets To Your Corporation

While there are many equally valid reasons to incorporate, saving... Read More

Tax Trap #1 -- Waiting to Incorporate: What A Difference A Date Can Make

NOTE: This is the first in a series of 5... Read More

Tax Investigation - What You Need To Do

The knock on the door from a Tax Inspector is... Read More

Know A Tax Cheat? Get Paid To Tell The IRS

According to the IRS, taxpayers underpay their taxes by some... Read More

Furnishing Evidence in E-Tax Compliance

Self-assessment relies on taxpayers voluntarily meeting their tax obligations. This... Read More

Deducting Points On Home Refinances

Deduction of Refinance PointsAny points that you pay in the... Read More

Correspondence From The IRS ? Yikes!

It's a moment every person dreads. You pick up the... Read More

Access to E-records by Taxing Authorities: A Case for Pakistan (Part II)

All tax authorities to e-commerce transactions should investigate the record... Read More

Fiscal Deity: Tax Consultant

Strategic planning throughout the year results in a minimal tax... Read More

History Of The Federal Income Tax

The powers of Congress, and the limitations set upon those... Read More

IRS Offer-in-Compromise, Hype or Hope?

"Settle for Pennies on the Dollar! IRS debts settled for... Read More

Understanding Marketing Tax Deductions

Marketing is a necessary expense in running practically any business... Read More

Tax Records - What You Should Keep And For How Long

Many taxpayers are confused about how long they should keep... Read More

Back To School ? Educators Deduct School Expenses

As teachers and students head back to school following a... Read More

Are You Overpaying Taxes If You Use Tax Preparation Software?

For many business owners the answer to this quandary is... Read More

Another Tax Loophole

Just image, you are a small manufacturing company, business has... Read More

Tax Trap #4 -- The Quagmire of Depreciation

If you are a Small Business Owner or Self-Employed Person,... Read More

Small Businesses: Company Car Vs. Personal Mileage Reimbursement In Hurricane Katrinas Wake

With gas prices at an all time high before Hurricane... Read More

I Havent Filed a Tax Return with IRS in Years, What Do I Do?

In elementary school, kids come up with creative excuses why... Read More

How To Claim CHILD TAX CREDIT The Right Way And Add An Extra $2,000 To Your Refund

The U.S. Department of Agriculture estimates that it costs nearly... Read More

Tax Help Secret: Avoiding the Entreprenuers Curse

Your days as an entrepreneur and businessperson are consumed with... Read More

Tax Trap #5 -- Ignoring The IRS (and the 5 best ways to contact them!)

We all love to criticize the IRS, don't we? And... Read More

10 Tax Tips to Reduce Costs and Increase Income

No one likes paying tax. Everyone understands that tax is... Read More

Employment Taxes ? What Are They?

If you have employees, you are responsible for paying a... Read More

Fraudulent Tax Shelters ? KMPG Goes Down Hard

In the largest criminal tax case ever filed, KMPG has... Read More

Small Businesses Filing Amended Federal Tax Returns to Recover Money

Small Businesses Filing Amended Federal Tax Returns to... Read More

Tax Trap #3 -- IRS Penalties, Interest and Love Letters

As a small business owner or self-employed person, one of... Read More

Alas! In E-Commerce Taxland

In trying to comply with tax laws for your e-business,... Read More

Section 179 ? Tax Relief From Depreciation Rules

"Depreciation." For business owners, this word is the one most... Read More

SFR Substitute for Returns: IRS Action on Non-Filers

In the latest Star Wars episode, the evil empire executes... Read More

The Tax Man Cometh... To Search

You're at your office, or home, and the doorbell rings... Read More