The Sarbanes-Oxley Act and Its Impact on European Companies

Autor:  Krimmer, Peter Bestellnummer:  1878 Hochschule:  Wirtschafts Universität Wien Benotung:  1,0 Studiengang:  Betriebswirtschaft Abgabedatum:  10.11.2005

The Sarbanes-Oxley Act and Its Impact on European Companies

The present thesis examines the impact of the Sarbanes-Oxley Act of 2002 (SOA) on European companies and identifies their attitude towards its provisions. To raise the information needed, from May until the end of June 2005 all affected European companies (290) received access to the online questionnaire.

Overall nearly twenty percent responded to the questionnaire. The following key findings have been identified:

•     The smaller a company is, the more problems it has to comply with the Sarbanes-Oxley Act.
•     The degree of the top management’s involvement in the compliance process plays a crucial role.
•     Almost every company has a formal code of ethics in place, but their senior management does not communicate it enough to their employees.
•     Almost every company has a whistleblower hotline in place to let all employees raise ethics and compliance issues and many of them also indicate that it allows an anonymous, confidential reporting and follow-up on raised issues. Only 30 percent of the hotlines were managed by an outside third party.
•     Most of the companies believe that the compliance costs have exceeded the benefits in 2004, but a positive trend – after the first compliance – towards the benefits can be identified.

All in all, the thesis provides a representative overview on the SOA compliance situation of European companies.

Studienfach: Betriebswirtschaft
Abagabedatum: 10.11.2005

Table of Contents

ACKNOWLEDGEMENTS ................................................... I
TABLE OF CONTENTS  ...................................................... II
TABLE OF FIGURES  .......................................................... IV
ABBREVIATIONS  ................................................................ VI
ABSTRACT  .......................................................................... VII
1 INTRODUCTION  ............................................................... 1
2 PROBLEM STATEMENT  ................................................ 3
2.1 HISTORY ......................................................................... 3
2.2 FINANCIAL FRAUDS ..................................................... 7
2.2.1 Enron  ............................................................................ 7
2.2.2 WorldCom .................................................................... 11
2.2.3 Parmalat  ...................................................................... 13
2.3 SUMMARY ....................................................................... 18
3 THE SARBANES-OXLEY ACT OF 2002  ...................... 19
3.1 CONTENT  ....................................................................... 19
3.1.1 Title I – Public Company Accounting Oversight Board ........... 22
3.1.2 Title II – Auditor Independence  ................................................. 25
3.1.3 Title III – Corporate Responsibility  ........................................... 26
3.1.4 Title IV – Enhanced Financial Disclosures  ............................. 29
3.1.5 Title V – Analyst Conflicts of Interest ........................................ 32
3.1.6 Title VI – Commission Resources and Authority ..................... 32
3.1.7 Title VII – Studies and Reports .................................................. 33
3.1.8 Title VIII – Corporate and Criminal Fraud Accountability  ....... 34
3.1.9 Title IX – White-Collar Crime Penalty Enhancements ............. 35
3.1.10 Title X – Corporate Tax Returns .............................................. 36
3.1.11 Title XI – Corporate Fraud Accountability ............................... 37
3.2 INTERNAL CONTROL SYSTEM  ................................................. 38
3.2.1 Definition ....................................................................................... 38
3.2.2 Objectives ..................................................................................... 38
3.2.3 Committee of Sponsoring Organizations of the Treadway Commission ............... 39
3.3 SUMMARY ....................................................................................... 40
Peter Krimmer Table of Contents
III
4 THE EMPIRICAL SURVEY  .............................................................. 41
4.1 LITERATURE REVIEW  ................................................................. 41
4.1.1 Sarbanes-Oxley – Beyond Planning  ......................................... 42
4.1.2 Sarbanes-Oxley Implementation Survey .................................... 43
4.1.3 Insights on Today’s Sarbanes-Oxley and Corporate Governance Challenges ..... 44
4.1.4 Internal Audit – Sarbanes-Oxley Survey  .................................... 46
4.1.5 Business Ethics and Compliance in the Sarbanes-Oxley Era .............. 47
4.1.6 Sarbanes-Oxley Compliance Costs Exceed Estimates  ....................... 48
4.1.7 Sarbanes-Oxley Section 404 Work – Looking at the Benefits  ............. 48
4.1.8 Delisting and Deregistering of German Issuers in the USA  ................. 50
4.1.9 Summary  .................................................................................................... 51
4.2 METHODOLOGY ............................................................................ 53
4.2.1 Research Intention  ...................................................................... 55
4.2.2 Definition of Information Needed ............................................... 55
4.2.3 Implementation of Variables ....................................................... 57
4.2.4 Information Collection .................................................................. 61
4.2.5 Data Preparation  ........................................................................ 62
4.2.6 Interim Cognition  ......................................................................... 64
4.2.6.1 Part I – Company Based Questions  ...................................... 64
4.2.6.2 Part II – Implementation Based Questions  ............................ 72
4.2.6.3 Part III – Cost Based Questions .............................................. 85
4.2.6.4 Part IV – Benefits Based Questions  ...................................... 93
4.2.7 Cognition Utilization .................................................................... 116
4.3 SUMMARY ...................................................................................... 117
5 EXECUTIVE SUMMARY .................................................................. 119
APPENDIX I .......................................................................................... 122
APPENDIX II ......................................................................................... 127
INDEX .................................................................................................... 140
BIBLIOGRAPHY .................................................................................... 142