U.S. accounting law that forces companies to adopt more transparent and responsible accounting practices will affect Canadian companies, and the onus will be on business and IT to provide the means for compliance.
According to industry players, however, companies across North America are still not exactly sure how they’re going to go about complying with this new law – dubbed the Sarbanes-Oxley Act.
At a seminar in Toronto in July, Hyperion Corp. and BearingPoint Inc. explained that the Act, passed on June 30, 2002, was enacted to try to protect investors from financial scandals such as those at WorldCom and Enron.
Sarbanes-Oxley calls for financial transparency and accountability by CFOs and CEOs in attempts to stop fraudulent accounting procedures and accounting errors. Executives will face severe penalties if they vouch for false information.
According to Terry Furlong, an Ottawa-based account manager at Hyperion, Canadian companies listed on American Stock Exchanges or subsidiaries of American companies will need to make their accounting practices Sarbanes-Oxley-compliant. Companies that do business solely in Canada will not need to comply with the law. However, there have been rumours that similar laws will be passed
The same rumours have been heard at PeopleSoft Canada. “I think the general feeling is that Sarbanes-Oxley was enacted for very good reasons…so I think people would just expect [a similar law to
be passed in Canada],” said Doug Gosling, account executive, financial services at PeopleSoft Canada Inc. in Toronto.
“There’s a general feeling in the business community…that financial control, internal control, and stakeholder reporting should be more open and transparent.”
Both Gosling and Vic Guelewicz, manager at Liberty Corner, N.J.-based BearingPoint, said the main focus in the U. S. financial industry has been on Section 404 of the Act, which requires increased responsibilities for boards and audit committees, new attestation standards for external auditors, certification of results by CEOs and CFOs and increased penalties for wrongdoing.
Guelewicz said compliance with Sarbanes-Oxley is a good opportunity for companies to enhance and improve their business processes to gain a competitive advantage, and CFOs and IT executives seem to agree with him. Sixty-five per cent of respondents to a survey in PeopleSoft’s Business Finance Magazine said they would leverage their Sarbanes-Oxley initiatives to get additional functionalities.
Remy Milad, senior business systems analyst and product manager at CNA Canada, a Canadian subsidiary of Chicago-based insurance company CNA, said his company is still in the discovery process. He said the big question with this project is where to begin – that is, CNA Canada is still unsure what technology solutions it will employ to become Sarbanes-Oxley compliant, and is deciding whether to build or purchase.
It is possible that CNA has the technology infrastructure to comply with Sarbanes-Oxley, but the company is still in the process of assessing its needs, Milad added.
However, one thing that he is sure of is that these decisions will involve not only IT, but all levels of management including the CIO, CFO and CEO.
Guelewicz said companies should take a pilot project approach and start first by establishing a control environment that will be the foundation for how information is handled.
A Web survey conducted by Hyperion and BearingPoint showed that six per cent of the 425 respondents had systems that were already compliant with Sarbanes-Oxley. Nine per cent said they were not very compliant; and 39 per cent were unsure.