Spectre of UK Sarbox looms

Onerous legal sign-offs for all conversations between auditors and client officials risk introducing Sarbanes-Oxley-type rules to the UK by the back door, a senior investor has warned.

Last week, Accountancy Age revealed that the International Federation of Accountants has proposed making all company officials who speak to auditors sign ‘management representations’, or legal letters, raising the prospect of mountains of extra paperwork. Currently in the UK only directors have to do this.

Following a crunch meeting of industry figures to discuss IFAC’s proposal last week Tim Bush, an investor and former AQF chairman, said: ‘There is concern that ISA580 may be following the model of Sarbanes-Oxley s404 ­ creating new obligations on directors via the back door when there are sufficient duties on directors already.’ He accused the body responsible for the idea of having ‘a poor understanding of company law’.

IFAC this week implied it was pressing ahead with the rules. When asked to comment on widespread opposition in the UK, John Kellas, chairman of the IFACboard pushing the proposal, dismissed comparisons with Sarbox.

‘That [requirement] would indicate an acknowledgment by the directors that they are responsible for internal controls. It is not intended to be remotely like s404,’ he said. ‘We were hoping it would find more favour..’ He added that the letters were ‘not intended to be a substitute for other audit evidence’.
The APB’s executive director Jon Grant said IFAC would need to think through more carefully the interaction between law, auditing standards and company processes.’

Yvonne Lang of Smith & Williamson said: ‘We’re concerned with the practicalities and the possibility of many representation letters going through a lawyer, which will draw out the audit process and ultimately increase risk.’