Is a U.K. version of SOX compliance on the horizon?

Almost 20 years ago, the U.S. Congress passed the sweeping Sarbanes-Oxley Act (SOX) that improved how companies register with the U.S. Securities and Exchange Commission (SEC) and report their financial performances. These tougher regulations have come a long way in helping reduce financial fraud in the U.S., but interestingly, no other country has adopted similar rules. However, the tide appears to be turning, at least in the U.K.

Earlier this year, Kwasi Kwarteng, secretary of state at the U.K.’s Department of Business, Energy and Industrial Strategy, backed proposed legislation that would hold company directors to account for serious corporate failings. And like SOX, directors would have to attest to the accuracy of financial statements. He also indicated his support for laws to strengthen Britain’s corporate governance regime and reform audit regulation and competition. (See Kwasi Kwarteng gives the green light for holding directors to account, by Louisa Clarence-Smith, The Times, Jan. 30 and UK company directors face personal liability for financial statements - sources, by Huw Jones, Reuters, Feb. 5.)

Over the past few years, U.K. regulators and politicians have discussed implementing their version of SOX following widely reported accounting scandals. (See UK watchdog backs tougher Sarbanes Oxley-style rules for top companies, by Huw Jones, Reuters, March 9, 2020.)

Since 2018, U.K. experts have assembled a series of reports with recommendations on how to improve audits. These led to the creation of a new regulatory body called Audit, Reporting and Governance Authority (ARGA), among other initiatives.

The latest report came in December 2019 from Sir Donald Brydon, a U.K. businessman and former chairman of the London Stock Exchange Group. (See The quality and effectiveness of audit: independent review, Gov.UK, last updated Feb. 18, 2019.)