Thanks to the Sarbanes-Oxley Act, CFOs of American companies could face a 10-year prison sentence for signing off on corporate figures that are later found to be inaccurate. But if they get sent down, they don’t want to go alone. Many of them are now asking the FDs of their non-US subsidiaries to assume direct responsibility for their financial data by signing SarbOx certificates, too. This forms part of the certified data filed with the US Securities and Exchange Commission and Internal Revenue Service.
London-based Darlene Hart, managing director of the specialist firm US Tax and Financial Services, has seen a huge increase in FDs and financial controllers asking what they should do when told by their bosses to sign off on IRS 5471 (the US tax form for foreign corporations). The uncertainty of dealing with the interaction between US and UK GAAP and the related tax adjustments on both sides of the Atlantic can hardly be imagined. “If they sign off on something that is inaccurate, they face a maximum of 10 years in jail,” she says.
It’s not a legal requirement to sign on the dotted line, but what if your US boss puts pressure on you? According to corporate lawyer Richard Mitchell of McDermott Will & Emery, just say no. Like Hart, Mitchell is seeing a similar increase in relation to 10-Ks and 10-Qs (respectively, the SEC annual and quarterly reports).
Under Sarbanes-Oxley, these forms have to be certified by the CEO and CFO. To gain some comfort, the top brass are asking those further down the line to certify their company or unit numbers. Mitchell describes it as a fairly scary process, mostly because the form of the certificates cannot be changed in any respect.
Mitchell says that sharing the responsibility is “stupid” and reckons it won’t provide top CFOs with the comfort they seek – though one UK FD told us: “It certainly focuses the mind.” The most obvious downside is how the corporation may react to people who refuse to sign, especially as the whole process falls over without a signature at the top.
Mitchell believes the US should implement internal procedures that obligate the CFO to sign, as well as hold minuted meetings so it is clear the subsidiary FD has stated that the accounts are accurate. But Hart has a different approach – to obtain independent, expert advice; in effect, a second opinion on the numbers.
How does that song Jail House Rock go again?