What is UK SOX?
UK SOX is the unofficial name given to the UK new corporate governance reforms which will be coming into place soon. Following the release of the Department of Business, Energy and Industrial Strategy (BEIS), Restoring Trust in Audit and Corporate Governance white paper in March last year, the Government has announced details of its corporate governance changes which will move it closer to US style, Sarbanes-Oxley (SOX) regulations.
What will it mean for UK organisations?
The major change is the creation of a regulator for corporate governance, known as the Audit, Reporting and Governance Authority (ARGA) which will replace the Financial Reporting Council (FRC).
This new system places substantial new reporting requirements on directors and is likely to involve a significant investment of time and planning to make sure the changes are understood properly and to ensure the organisation is compliant and has processes in place to remain so. The standout change is new requirements for public disclosures by the directors of a company including a Director’s Responsibility statement, a Statement on Fraud, a Resilience statement and an Audit and Assurance Policy (AAP).
Which businesses are affected by UK SOX?
The proposals seek to expand the definition of Public Interest Entities (PIEs) which will bring into scope large privately owned companies as well as AIM listed businesses. The wide-ranging reforms look to increase accountability for directors, shareholders, audit firms and the regulator.
When is it coming into force?
The Government has confirmed that these changes will be deployed in stages. FRC have announced they plan to make Corporate Governance code updates effective from 1/1/24. Ministerial Direction is being used initially to expand the scope of the FRC, following which primary legislation will be used to establish ARGA;
Reporting requirements will vary depending on the nature and size of your organisation. The FRC has recognised support will be needed to navigate the complexities the changes will make.
What are the Drivers for UK SOX?
As the UK SOX changes will not be optional, so for those companies that fall within range, avoiding penalties will be a considerable driver. But with the changes likely to involve considerable investment, what are the underlying drivers for the change?
With better governance and control, the directors, board and management teams should see the introduction of UK SOX as an opportunity to drive value and efficiency in their business. Improvements in the control environment, risk management and confidence will drive improvements in efficiency and strength, such as:
- Increased risk visibility - transition from reactive to proactive decision making
- Greater transparency and accountability – data analytics will drive deeper insight and shared learnings
- Reduction in manual activities and increased resilience of finance and IT functions.
- Creating a tool for driving the right behaviours across the organisation
- Encouraging ESG compliance
The long-awaited overhaul is designed to help prevent scandals that beset companies such as Carillion and BHS. However, after a push-back from UK boardrooms, the current plans are considered a more watered-down version of what had been proposed.