Sarbanes-Oxley:
What Does It Mean and How Does It Apply to UK?
Sarbanes-Oxley Act of 2002 (SOX)
is the biggest change in securities law since the stock market crash
of 1929. Developed as a result of recent corporate scandals, SOX establishes new standards for
corporate accountability and seeks to improve the integrity of financial reporting for publicly traded
companies. Among other things, SOX mandates corporate governance reforms. It requires
corporations to establish audit committees, mandates management accountability for internal controls
over financial reporting and requires corporations to disclose all material off-balance sheet
transactions. Additionally, SOX enhances the role and independence of audit committees. The act
requires that audit committees pre-approve all audit and non-audit services, receive regular reports
from the independent auditor on accounting practices, and be responsible for oversight of the
independent auditor. Although SOX applies mostly to publicly traded companies, their executives, and
to public accounting firms who audit publicly traded companies, colleges and universities may be
impacted as well.
What does that mean to colleges and universities? According to Walter Janus in his article, "Corporate
Governance - Sarbanes Oxley Goes to School" published by the Fitch Agency, "increasing voluntary
adoption of the Sarbanes Oxley Act in U.S. higher education is viewed as a 'best practice' by the
agency to improve accountability, transparency, and disclosure within the sector. Colleges and
universities issue bonds, and the rating agency is taking into account corporate governance practices in
connection with those bond issues." Additionally, if a college or university needs additional resources
- through federal grants, fundraisers, and donations - having a solid system of internal controls helps
provide an additional degree of confidence for stakeholders. The National Association of College and
University Business Officers (NACUBO) issued a report, on November 20, 2003, titled "The
Sarbanes-Oxley Act of 2002: Recommendations for Higher Education" in which it said "...institutions
of higher education should look at the Sarbanes-Oxley Act as a framework to help evaluate overall
financial risks..."
The University of Kentucky has responded to the creation of SOX by making the following changes:
Audit engagement letters will be addressed to the Audit Subcommittee rather than
management.
Internal Audit will report an annual summary of all complaints received and their
disposition to the Audit Subcommittee.
Plans are being made to modify the Ethical Principles and Code of Conduct
policy to address the issue of deceiving independent auditors for the purpose of rendering the financial
statements materially misleading.
Internal Audit has implemented a "Best Practices" framework for evaluating controls over
compliance, financial reporting and operational efficiency and effectiveness based on the
COSO model.
Ultimately, the University of Kentucky must continue to conduct business with a commitment to ethics
and integrity. As a receiver of federal grants, Medicare, financial aid and donor funds, the
transparency of financial practices is a must.
A Two Day Sarbanes-Oxley informational class is being offered on Campus November 9-10. Review this PDF for further information.
Auditor's Opinion
Sarbanes-Oxley:
What Does It Mean and How Does It Apply to UK?
Sarbanes-Oxley Act of 2002 (SOX) is the biggest change in securities law since the stock market crash of 1929. Developed as a result of recent corporate scandals, SOX establishes new standards for corporate accountability and seeks to improve the integrity of financial reporting for publicly traded companies. Among other things, SOX mandates corporate governance reforms. It requires corporations to establish audit committees, mandates management accountability for internal controls over financial reporting and requires corporations to disclose all material off-balance sheet transactions. Additionally, SOX enhances the role and independence of audit committees. The act requires that audit committees pre-approve all audit and non-audit services, receive regular reports from the independent auditor on accounting practices, and be responsible for oversight of the independent auditor. Although SOX applies mostly to publicly traded companies, their executives, and to public accounting firms who audit publicly traded companies, colleges and universities may be impacted as well.
What does that mean to colleges and universities? According to Walter Janus in his article, "Corporate Governance - Sarbanes Oxley Goes to School" published by the Fitch Agency, "increasing voluntary adoption of the Sarbanes Oxley Act in U.S. higher education is viewed as a 'best practice' by the agency to improve accountability, transparency, and disclosure within the sector. Colleges and universities issue bonds, and the rating agency is taking into account corporate governance practices in connection with those bond issues." Additionally, if a college or university needs additional resources - through federal grants, fundraisers, and donations - having a solid system of internal controls helps provide an additional degree of confidence for stakeholders. The National Association of College and University Business Officers (NACUBO) issued a report, on November 20, 2003, titled "The Sarbanes-Oxley Act of 2002: Recommendations for Higher Education" in which it said "...institutions of higher education should look at the Sarbanes-Oxley Act as a framework to help evaluate overall financial risks..."
The University of Kentucky has responded to the creation of SOX by making the following changes:
Ultimately, the University of Kentucky must continue to conduct business with a commitment to ethics and integrity. As a receiver of federal grants, Medicare, financial aid and donor funds, the transparency of financial practices is a must.
A Two Day Sarbanes-Oxley informational class is being offered on Campus November 9-10. Review this PDF for further information.