EU Corporate Governance Forum Rejects SOX Internal Controls

Europe is definitely moving away from Sarbanes-Oxley Sec. 404 internal controls, The latest manifestation of this is the European Corporate Governance Forum’s emphatic rejection of the internal controls over financial reporting mandates of Sarbanes-Oxley for EU public companies. The forum was created by the European Commission as a high-level advisory group on corporate governance.

While acknowledging that the Sarbanes-Oxley mandates have inspired greater confidence in financial reporting, the forum also pointed out the serious concerns over the costs of implementing the internal controls rules and standards. In addition, internal control measures developed to enhance financial reporting must be proportionate and reflect the Better Regulation principles adopted by the European Commission, which require balancing the benefits of a regulation against the burden it places on a company.

The forum’s position builds on a growing consensus within the EU that the Sarbanes-Oxley prescriptions on internal controls are not the route to better corporate governance. Recently, after extensive consultations on internal controls reporting, the European Federation of Accountants concluded that it is not desirable to have a European equivalent of Sarbanes-Oxley Sec 404.