RegulationCorporate GovernanceSpectre of UK Sarbox looms

Spectre of UK Sarbox looms

Risk of introducing Sarbanes-Oxley-type rules to the UK as investors issue ‘sign-off’ warning

Onerous legal sign-offs for all conversations between auditors and client
officials risk introducing Sarbanes-Oxley-type rules to the UK by the back door,
a senior investor has warned.

Last week, Accountancy Age revealed that the
International Federation of Accountants has
proposed making all company officials who speak to auditors sign ‘management
representations’, or legal letters, raising the prospect of mountains of extra
paperwork. Currently in the UK only directors have to do this.

Following a crunch meeting of industry figures to discuss
IFAC’s proposal last week Tim
Bush, an investor and former AQF chairman, said: ‘There is concern that ISA580
may be following the model of Sarbanes-Oxley s404 ­ creating new obligations on
directors via the back door when there are sufficient duties on directors
already.’ He accused the body responsible for the idea of having ‘a poor
understanding of company law’.

IFAC this week implied it was pressing ahead with the rules. When asked to
comment on widespread opposition in the UK, John Kellas, chairman of the
IFACboard pushing the proposal, dismissed comparisons with Sarbox.

‘That [requirement] would indicate an acknowledgment by the directors that
they are responsible for internal controls. It is not intended to be remotely
like s404,’ he said. ‘We were hoping it would find more favour..’ He added that
the letters were ‘not intended to be a substitute for other audit evidence’.

The APB’s executive director Jon Grant said IFAC would need to think through
more carefully the interaction between law, auditing standards and company
processes.’

Yvonne Lang of Smith & Williamson said: ‘We’re concerned with the
practicalities and the possibility of many representation letters going through
a lawyer, which will draw out the audit process and ultimately increase risk.’

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