It’s been almost twenty years since the introduction of US SOx, and we have seen first-hand how many organisations are still struggling to get it right – especially when dealing with highly manual control environments. I have both audited and applied US SOx control procedures throughout my career and saw on numerous occasions how a lack of adequate accounting processes could translate into high implementation costs and lengthy automation efforts spanning the course of decades in the US. However, this does not need to be the case here in the UK. We have an opportunity to bypass certain challenges endured by our American peers. With hindsight on our side, we can learn from US SOx success stories and avoid repeating mistakes resulting in unmanageable compliance burden with little value-add.
As we await legislative clarity from the government on UK SOx, it is clear that change is coming and businesses need to act now. Comments are now being reviewed on the Government’s consultation white paper released in March 2021, “Restoring trust in audit and corporate governance”. Businesses and CFOs are preparing themselves for the potential impact of these new regulatory reforms. Our Accounting Advisory Services (AAS) team works with clients to understand and prepare for the new regulatory reforms from a specialised technical accounting lens.
Getting the basics right: Linking accounting with UK SOx
When it comes to getting ready for UK SOx, there’s a clear priority: ensure that your underlying accounting processes and policies are fit for purpose in a new control environment. Maintaining a healthy financial reporting process that is regularly reviewed and updated is imperative. Ensuring that your controls are adding value to financial reporting will be difficult if your foundation accounting processes and policies are outdated or inaccurate.
Greg Stinson, a partner in our AAS team, shares his thoughts on the importance of quality accounting processes when it comes to supporting a successful internal controls implementation. “I hope that companies don’t miss a trick here. There is no point in having a control to ensure that the accounting manual is updated if the content within is poor and not used by the business. Implementing controls over high-quality processes and policies is required, so this achieves what BEIS intends and is not just more admin for finance.”
How does this work in practice when it comes to your UK SOx journey?
Adding robust training, regular accounting policy reviews, and recurring updates of those policies into your controls framework will translate into cleaner general ledger output, more streamlined review processes, and a lower chance of significant deficiencies post-implementation.
Five questions to assess the health of your accounting processes before UK SOx implementation:
- Do you have a comprehensive accounting policy manual?
- Do you have a process to ensure your accounting policy manual is regularly updated in line with new accounting standards pronouncements?
- Are regular internal training sessions on accounting policies held for finance employees?
- Is there a formal process for an accounting technical review of material contracts and events to ensure that the appropriate accounting is applied and documented for audit?
- Do you have a process to identify the impact of upcoming accounting regulatory changes that may have a material impact on financial statements?
If the answer was no to any of the above – don’t worry, you’re not alone. We have developed several solutions to get you on track, many of which can be tailored to your company’s specific needs.
Taking accounting digital as a part of your UK SOx implementation
There are easy wins to standardise processes and controls. By leveraging technology effectively, you will ultimately drive resilience and efficiency. Actions you can take to get ready for UK SOx now include upgrading your policies, digitising your accounting policy manual and preparing digital learning modules on various accounting standards. In the world of automation, efficiencies can be gained by elevating your accounting documentation into a digital format where it can be easily referenced, reviewed, and updated real-time – leading to a faster reporting close cycle and a lower-risk control environment. KPMG Powered Enterprise is a great starting point to define leading practices for your business, including accounting processes and financial reporting automation.
To learn more about how we can help with accounting support, please get in contact with Ian Greenwood or Rachel Greenberg.