Some Similarities and Differences between Sarbanes-Oxley Act & UK Corporate Governance Code

The Sarbanes-Oxley Act (SOX) and the UK Corporate Governance Code are two sets of rules and recommendations that aim to ensure proper accountability, transparency, fairness and responsibility in the conduct of an organisation’s business. Both SOX and the Code apply to listed companies, but they differ in their scope, approach and enforcement.

Similarities

• both require the board of directors to have a balanced composition, with independent non-executive directors and a clear division of roles between the chairperson and the chief executive officer
• both require the board to establish committees for audit, remuneration and nomination, with defined responsibilities and membership criteria
• both require the board to oversee the effectiveness of the internal control system and the risk management process, and to report on their assessment in the annual report
• both require the board to ensure that the financial statements are prepared in accordance with applicable accounting standards and present a true and fair view of the company’s financial position and performance
• both require the board to maintain a high level of communication with shareholders and other stakeholders, and to disclose relevant information in a timely and accurate manner

Differences

• SOX is law (UK CG Code is not)
• SOX => rule-based approach
  • prescribes specific requirements and procedures for internal control over financial reporting
  • sanctions and penalties for non-compliance
• UK CG Code => principle-based approach
  • generally principle-based with some specific requirements
  • delist companies for serious breaches
• SOX requires the chief executive officer (CEO) and the chief financial officer (CFO)
  • to certify the effectiveness of the internal control system and the accuracy of the financial statements
  • to disclose any material weaknesses or deficiencies in the internal control system
• SOX requires the external auditor
  • to attest to and report on the management’s assessment of internal control over financial reporting
  • to express an opinion on the financial statements