The objective of the following article is to comment on the Sarbanes-Oxley Act of 2002 (“Act”) from a transatlantic point of view and to discuss its effects on foreign companies as far as theoretical or practical impacts are already visible at this early stage.
It is an attempt to show the compatibility of the Act with other legal systems, especially with the existing German regulations.
It is not the goal of this paper to point out the important changes regarding requirements in general.
In a first section (I) the author wants to describe briefly the reasons for enacting the Act and to present the problems that occur with some of the regulations contained therein.
In a second step (II), the author will outline the Act’s impacts on German and other European legal systems.
In a final conclusion (III) the author wants to use the “holdings” he worked out in the second part to discuss the reform and criticize some aspects of the Act in an international light.
Table of Contents
I. Introduction
1. Context of the Sarbanes-Oxley Act
2. Presentation of the Topic
II. Impact of the Act on Foreign Companies
1. Applicability to Foreign Firms
2. Compatibility with German Law
III. Conclusion
1. Criticism
2. Suggestions
3. Closing Words
I. Introduction
The objective of the following article is to comment on the Sarbanes-Oxley Act of 2002 (“Act”) from a transatlantic point of view and to discuss its effects on foreign companies as far as theoretical or practical impacts are already visible at this early stage.
It is an attempt to show the compatibility of the Act with other legal systems, especially with the existing German regulations.
It is not the goal of this paper to point out the important changes regarding requirements in general[1].
In a first section (I) the author wants to describe briefly the reasons for enacting the Act and to present the problems that occur with some of the regulations contained therein.
In a second step (II), the author will outline the Act’s impacts on German and other European legal systems.
In a final conclusion (III) the author wants to use the “holdings” he worked out in the second part to discuss the reform and criticize some aspects of the Act in an international light.
1. Context of the Sarbanes-Oxley Act
On July 30, 2002, the President of the United States of America, George W. Bush, signed into law H.R. 3763, known as the “Sarbanes-Oxley Act of 2002 (the “Act”).
The Act reflects a Congressional response to a series of highly publicized business scandals, earnings restatements, pension losses and bankruptcies that have been headlines, not just in business journals but also in all the daily newspapers over the past months.
The Act aims to prevent the practices, which have been disclosed, by setting new corporate governance standards, adding new disclosure requirements and increasing the criminal penalties for violations of the securities laws and creating a strong auditor oversight board.
Many provisions of the Act remain subject to the rulemaking of the Securities and Exchange Commission (“SEC”).
2. Presentation of the Topic
The Sarbanes-Oxley Act does not, by its terms, distinguish between U.S. and foreign reporting companies. Moreover, the Act’s revolutionary provisions generally apply to all U.S. and non-U.S. issuers that have registered securities under Section 12 of the Security Exchange Act of 1934.
II. Impact of the Act on Foreign Companies
As seen before (I 2), the Act contains sweeping changes to corporate governance and the accounting industry- within the United States as well as abroad.
1. Applicability to Foreign Firms
Foreign public accounting firms that prepare or furnish audit reports with respect to any issuer are subject to the Act and the rules of the accounting Supervisory Board and the SEC issued there under.
This fact of an “omni-applicability” can be read from Title 1, sec. 106 (a) (1) that provides central information on foreign companies: “Any foreign public accounting firm…shall be subject to this Act…in the same manner and to the same extend as a public accounting firm that is organized and operates under the laws of the United States.”
In other words: All (larger) foreign certified public accountants (“CPA”) are therewith under control of the new Oversight Board and are governed by all regulations of the Sarbanes-Oxley Act.
2. Compatibility with German Law
In order to illustrate the impact of the Act on non-U.S. law, I will pick out the compatibility of the Sarbanes-Oxley Act with the German legal system.
Germany represents the largest country of the European Union and -last but not least- it is the legal system of the author’s native country. Due to the fact that most of the quoted regulations in the following are based on directives of the European Union, it can be maintained that most of the other European national legal systems have similar or even the same restrictions.
[...]
[1] For example: Establishment of a so called Public Company Accounting Oversight Board (“PCAOB”),
Risks of litigation, Audit Committees to list just a few.
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- Nick Oberheiden (Autor), 2003, The Sarbanes Oxley Act of 2002, Múnich, GRIN Verlag, https://www.grin.com/document/20211
