Outsourcing SOX - Best OptionsAsha Jacob
October 20, 2008 — 1,782 views
It is mandatory for all US public companies to adhere to the Sarbanes-Oxley Act (SOX) introduced in the country in July 2002. The primary objective of the Act is to regulate financial practice and corporate governance and restore investor confidence in response to major financial scandals involving Enron, WorldCom and others. But public companies are already grumbling about the costs of abiding with the Act's requirements.
The Japanese government similarly, promulgated a law in June 2006, known as J-SOX in order to prevent accounting frauds by public companies and to safeguard investor interest. This will be in force for all fiscal years starting from April 1, 2008. Drawn up on the same lines as the US-SOX, companies listed in Japan and operating in other countries as subsidiary companies have to adhere to J-SOX compliance.
Weighty Regulations The most contentious part of SOX is Section 404, which requires management and the external auditor to report on the adequacy of the company's internal control over financial reporting (ICFR). Tremendous effort goes into documenting and testing important financial, manual and automated controls. Additionally, the Sarbanes-Oxley Act states that all business records, including electronic records and electronic messages, must be saved for "not less than five years." The penalty for non-compliance is fines, imprisonment or both. Expectedly, the additional compliance costs and the increased paperwork that have come with the legislation have put companies in a tizzy. Outsourcing - the Key
Both US SOX and J SOX involve documenting processes, mapping and identifying risks and controls. Fulfilling this daunting task involves diverting scarce corporate resources. The sensible option in such a scenario is to outsource these mandatory processes in order to ensure compliance in a cost effective manner and to free up resources to focus on other aspects of business.
Outsourcing companies particularly from India have jumped on to the Knowledge Process Outsourcing (KPO) bandwagon with SOX compliance related work garnering a major share in the outsourced processes. While significant cost savings is the key driver to consider India as a preferred outsourcing destination, there is no disputing the fact that companies benefit from the huge English speaking work force with superior financial and technology skills.
Additionally Indian chartered accountancy firms bring with them professional expertise and cross-disciplinary skills to the various assignments they handle a sample of which is listed below:
1. End to End Process Mapping (including documentation of process narratives and flow charts) 2. Risk Assessment based on Risk Control Matrix (RCM) 3. Process Walkthroughs 4. Test of Design & Operating Effectiveness Assessment 5. Spread Sheet Control Assessment 6. Segregation of Duty (SOD) 7. Gap Reporting 8. Remediation of Gap
With their vast experience in offshore solutions, Indian companies offer back office and internal audit services for SOX compliance - streamlining and automating the complex process to employ best practices to fulfill SOX regulations. An experienced player in this sector is Mr. Udyen Jain, founder and Managing Partner of the Pune based Udyen Jain & Associates (UJA), a chartered accountancy company. He states, "At Udyen Jain & Associates, our endeavor is to become your business partner and not just an offshore vendor. It makes complete business sense to offshore your firm's internal compliance related procedures to our experienced team of financial and legal experts who will facilitate the setting up of secure, ongoing procedures and controls to meet your firm's requirements under the Sarbanes-Oxley Act." Visit text for more details
Sustaining Compliance with Automation
Documentation of financial controls is best met by using workflow management software and enterprise planning solutions that will help companies breeze through SOX audits. Automating the internal audit process ensures the accuracy and consistency of financial procedures. Linking up with a company that offers technology driven solutions will help automate everything from file transfer to document retrieval. This has been the positive experience of UJA who have a partnership arrangement with Pune based Leo Technosoft that provides the automation to ease financial procedures. Fool-proof Security Practices
The process of taking over the parent company's bookkeeping, accounting and tax return activities is seamlessly accomplished in a systematic manner to a fully secure and protected environment. The offshore team synchronizes the client firm's compliance requirements by setting up robust internal controls and processes from their offshore site at a fraction of the cost. Companies can thus meet the challenges of compliance upfront and take home significant cost savings.
About the Author
Asha Jacob is a professional content writer. She may be contacted at [email protected]