Issues: Lessons to be learnt from U.S. Soxa Act

The U.S. corporate world is undergoing a thorough cleansing exercise in the aftermath of the numerous corporate scandals, which shook the world during the last three years.

The latest in the series of such initiatives is the Sarbanes-Oxley Act (Soxa), which was signed by President George W. Bush into law on July 30, 2002.

The biggest concern in the rest of the world is that Soxa aplies to any company, including non-U.S. companies which have securities registered, or are required to file reports under the Security Exchange Act of 1934 of the U.S.

Presenting his views on the new law, Peter Diekman, global head of group audit of ABN-Amro, said, "In an attempt to exorcise the decline of corporate values and to improve the public trust in corporate business and the financial market, there are some remarkable initiatives in the U.S.."

Peter was speaking recently at a seminar organised by Institute of Internal Auditors, Dubai Chapter, and Moore Stephens, UAE, chartered accountants. Debates are taking place on the impact of Soxa, which is to a large extent, deemed as an extraterritorial act in nature.

"If a foreign company wishes to have its shares registered and traded in the U.S. market, it has to play the game according to the U.S. rules," Peter explained.

Further, the extraterritorial nature of Soxa widely ignores the international rule of mutual recognition of foreign law and regulation. It ignores the strength of the continental European two-tier corporate governance system.

However, Peter underlined the fact that despite the legal queries that Soxa attracts on this law, the enactment of Soxa is a strong signal from the U.S. Government that the deterioration of public trust in corporate business and the financial markets is taken seriously and must be reversed.

India's professional accountancy professional body was one of the least worried about the implementation of the Sarbanes-Oxley Act.

According to the Institute of Chartered Accountants of India (ICAI), almost all requirements of Soxa have been in application in India much before President Bush signed it into law.

"This is the main reason why the Indian corporate world has been successful so far in saving itself from any major shocks," a top office bearer of ICAI pointed out.

The U.S.-listed companies in the UAE also will fall under the Sarbanes-Oxley Act which will make them mandatorily follow certain tough requirements.

They will be required to submit statement on internal controls in the annual report, statement by the company whether it has adopted a code of ethics for senior financial officers, disclosure of material adjustments that have been identified by the company's auditors, disclosure of off-balance sheet transactions, to mention a few.

There are views expressed by certain sections in the UAE corporate world that the standard of corporate governance here is relatively low.

With the creation of international dedicated centres like, Dubai International Financial Centre (DIFC), Dubai Metals and Commodities Centre (DMCC), Dubai HealthCare Centre (DHCC), etc, UAE, especially Dubai, will have to think in terms of international standards when it comes to corporate initiatives and they hope Sarbanes-Oxley could be an inspiration in the right perspective.