Meeting the challenge of preparing for UK SOX

April 1st 2022 | Posted by Phil Scott

The coming UK audit reform may have been delayed but it’s still on the horizon.

Many experts expect there will still be some resemblance to the US Sarbanes-Oxley regime despite recent rumours that changes will be ‘watered down.’

If these significant changes arrive imminently, many firms will be ill-prepared. So, companies need to start making arrangements for potentially more onerous audit requirements.

Firms should be prepared despite delays in audit reforms

The upcoming changes to UK audit requirements may be subject to delay but they are still planned to happen. When they are introduced, firms will have time to make necessary changes, but it helps to begin the process as soon as possible.

After all, it could take more than up to three years to design, test, and implement processes that enable firms to meet the stringent requirements that will apply if the new regime mimics the US SOX arrangement.

Any such regime would require enhanced certification, and there would be increased non-compliance penalties, so it’s essential for firms to put the right processes in place.

These processes will mean that many finance personnel are taken away from their traditional tasks in order to ensure that additional audit questions can be answered. This could lead to increased finance staffing requirements and additional costs.

How firms can minimise additional expense

There has been a backlash from some business leaders against the additional requirements that may result from audit reforms especially if a ‘UK SOX’ regime resembling the US model does become a reality.

There have been rumours of changes being ‘watered down’ but this is far from certain as there has been pressure on the government to make changes in order to reduce the risk of repetitions of the Carillion situation.

If ‘UK SOX’ does happen, as seems likely to be the case in some form, there are ways for firms to minimise the additional expense involved.

To begin with, there is an opportunity to ensure those inside the organisation with appropriate skills are given the opportunity to upskill. This reduces the need to rely on external resources.

There is also the opportunity to employ automation. Doing so makes it easier to achieve compliance with the end-to-end process. If the UK does adopt a SOX like regime, additional factors will need to be considered, beyond traditional automation.

This includes the requirement for CEOs and CFOs to certify that they have reviewed the financial statements and they are an accurate reflection on the current position of the company. This certification includes clarification that all the information is accurate, and nothing has been omitted.

With this in mind, forward-thinking finance leaders are making sure that their automated systems provide enough information to ensure they can comply with any additional audit requirements.

While the outcome of the review of the audit in the UK, and proposed reforms, are subject to delay they will happen. So, firms should already be preparing to meet the potential challenge of UK SOX should this type of regime be introduced.

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