Unlock the potential of internal control with this latest management briefing, produced in conjunction with KPMG

To find outright friends of the US legislation that now tightly governs the internal controls of companies trading across the Atlantic is a difficult thing.

Link: Download Internal Controls management briefing

US businesses, and UK companies with stateside listings, have all thrown their share of brickbats at the now infamous regulations known collectively by the reference term - section 404.

A substantial part of the 2002 Sarbanes Oxley Act, these rules have proved a major point of conflict between US regulators, in the form of the Securities and Exchange Commission, and corporate America. UK company chiefs with shares traded on US markets have levelled their own insults.

But could there be something more to the changes than simple regulatory compliance? Could companies take the new regulations further than box ticking and blind rule adherence?

The reason for asking these questions now is that UK companies with US shares have to comply with s404 for their financial year ending on or after 2006. It's a deadline that looms heavily for finance directors and chief executives alike.

A keen reader of the UK business pages could be forgiven for believing there was terror in UK boardrooms at the prospect of meeting the stringent demands of the new rules.

After all, Lastminute.com delisted from the US specifically because of the cost associated with compliance.

Sir Christopher Bland, chairman of BT Group, famously told the world that £10m a year spent by his company on compliance with US regulation meant things had 'gone too far' and 'it's money not well spent'. The press coverage has done little to improve the UK's corporate morale.

But the SEC has stuck to its guns, despite pressure to soften the measures and extend deadlines. Last month William Donaldson, the SEC chairman, said in a speech that he believed s404 had the 'greatest long-term potential to improve the quality and usefulness of corporate reporting of any of this era's corporate reforms'.

Those are big words and mean he won't back down, even though there may be much complaining about the cost, the burdens and the time and resources involved in compliance.

As a result the debate has now shifted among corporate leaders. Sure, the argument over whether radical change was justified still lingers and will do so for some time. But there's now an enthusiasm for exploring whether the new regulations can actually, against all the odds, add value to a company and its internal controls in a way that was not at first anticipated.

Experts believe that the reforms could actually bring down compliance costs over the longer term, instead of raising them. Companies will learn more about themselves and will be able to apply that knowledge imaginatively and effectively to the management of the internal controls environment.

These emerging views are taking s404 along a path of evolution that the delisters may not have envisaged. And UK companies have an advantage. Their US colleagues have already done it, and the lessons are there to be seen and interpreted.

The SEC has made it plain that learning from the US experience so far is crucial. Following roundtable discussions in April, which allowed US corporates to unburden themselves of complaints and frustrations, the regulator responded.

It said it was surprised that companies had done quite as much work as they had. That companies failed to use efficient risk-based approaches, that they checked every control instead of identifying weaknesses. Their compliance approach was mistakenly 'bottom-up' instead of a more effective, and potentially less costly, 'top-down'.

UK companies should take note now. Learning the US lessons could help minimise the effort and expense while still gaining benefits that are about more than just compliance. More importantly, there's still time.

For more on internal controls go to www.accountancyage.com and www.kpmg.co.uk