By Huw Jones
LONDON (Reuters) – Forcing executives at top listed companies to personally vouch for the accuracy of financial statements would drive better company behaviour and help stamp out fraud, Britain’s accounting watchdog says.
A UK government-commissioned review said in December 2018 there was a case for considering the introduction of a “Sarbanes-Oxley” style regime in Britain.
This refers to a U.S. law introduced in 2002 to crack down on accounting fraud after Enron went bust in a book-keeping scandal that also brought down the energy company’s auditor Arthur Andersen.
Known as SOX, it requires top officials to attest that their company’s internal controls are robust enough to ensure that financial statements can be relied on. An external auditor would check the assertions.
“We are in favour of a version of Sarbanes-Oxley in the UK,” Jon Thompson, chief executive of the Financial Reporting Council (FRC), told Reuters in an interview last week.
Such a regime, which Thompson wants to see for the largest listed companies, would mark a significant toughening up in governance rules by making top executives personally liable for breaches.
The FRC has powers to fine and suspend accountants for breaches of its rules and is set to become a more powerful regulator under legislation the government has said it will submit to parliament.
Thompson said a new regime would need to be “carefully designed” to avoid clashing with SOX itself given that many UK-listed companies are also traded in New York.
It should also be compliant with Britain’s system of senior manager accountability in the financial services sector.
“We think it’s possible to design that. We think it would raise standards of corporate governance, risk management, financial management, financial accounting, and accountability within the organisations,” he added.
A UK system should not, however, replicate the sanctions in SOX, which can mean jail for breaches, Thompson said.
Britain’s business ministry is expected to publish a consultation paper in around May on how it wants the UK audit sector reformed by applying lessons learned from corporate collapses at builder Carillion and retailer BHS.
The ministry had no comment regarding the upcoming consultation on legislation that would not come into force until 2022 or later.
The two most radical reforms to audit are likely to be introduced voluntarily by EY, KPMG, Deloitte and PwC – the Big Four – to avoid legislation and start changes from this year.
(Reporting by Huw Jones; Editing by Susan Fenton)