Finance teams should automate internal control in preparation of the UK’s upcoming audit reform, and its highly anticipated UK-style Sarbanes-Oxley (SOX) regime.
“Companies should implement a software that can organise their internal controls, capture the operating effectiveness in real time, and can limit the amount of additional work required to document the evidence of such controls,” says Adam Zoucha, managing director at FloQast EMEA.
In March last year, the Department for Business Energy & Industrial Strategy (BEIS) published a whitepaper aimed at restoring confidence in the audit and corporate governance of publicly listed companies, following a series high-profile corporate scandals involving Carillion, Thomas Cook and Patisserie Valerie.
How prepared are firms?
The implementation of UK SOX will mean “there is more scrutiny coming down the road” for corporates, says Zoucha.
While the final audit reform package is expected imminently, companies will have time to meet compliance requirements, but they should begin to alter their processes sooner rather than later, says Zoucha.
“In our recent surveys, we’ve found that companies are thinking about UK SOX but have been pushing the necessary changes to the back of the roadmap until needed.”
Currently, if the new requirements had to be implemented tomorrow, there would be a “mad dash” to try to get things in place, says Zoucha.
“SOX compliance is a robust testing of the operating effectiveness of controls within a business’s control environment, with additional requirements to certify financials and increased penalties for non-compliance.”
As such, compliance will require greater demands of finance teams and even carry the risk of having to re-prioritise the key tasks.
“Cleaner evidence will have to be kept on hand by finance teams, more time will be shifted away from their day-to-day tasks to deal with a whole new type of audit that includes a large PBC listing and having to answer any corresponding questions should any exceptions be identified,” explains Zoucha.
This will inevitably see finance costs increase, and teams may need to hire more talent to handle the additional workload placing pressure to streamline the company’s financial close, he adds.
Minimising additional costs
The new reform package has seen resistance from business leaders arguing that the additional requirements place an unnecessary compliance burden and cost on companies.
“Finance departments are always stretched thin as it is, so it is daunting to think about adding more process and documentation to adhere to UK SOX,” says Zoucha.
On the plus side, most internal audit and finance teams do have the skills needed to support UK SOX compliance. “Naturally, there will be a lot of research and learning on the new requirements but the skills to perform and document these controls are there,” he adds.
Moreover, automation can aid companies with a smooth transition to compliance and overall end-to-end audit process, as well as boost morale in the finance team and limit additional costs to meet the new requirements.
FloQast’s systems make the process easier for clients and can capture the necessary documentation directly within the central solution, says Zoucha.
“If you link the controls within the greater accounting workflow of the month end, it becomes a much easier process to develop and see.”
Moreover, if the UK’s model mirrors the US SOX regime, there will be additional requirements businesses will need to meet that go beyond automation.
This includes certification from the CEO and CFO indicating they’ve reviewed the financial statements, as well as confirming the report does not contain any untrue statements and does not omit any material information.
“Finance leaders should re-assess the automation of their systems to ensure the system can truly provide enough information to be compliant with additional requirements beyond having automated processes,” says Zoucha.
Learn more about how you can streamline the financial close to stay audit-ready in a virtual world in FloQast’s upcoming webinar.