Preparing for J-SOX
Last year, the Japanese National Diet passed legislation creating the Financial Instruments and Exchange Law (FIEL). This law, considered the “Japanese Sarbanes-Oxley”, due to its similarities to the U.S. regulations, goes into effect April, 2008.
FIEL was passed by the Diet following a string of accounting scandals at companies such as LiveDoor and Seibu Railway.
BearingPoint has just released a new report, J-SOX Compliance: Avoiding the Pitfalls, which looks at FIEL, compares it to the US Sarbanes-Oxley regulations and provides guidance for companies preparing for it to take effect.
J-SOX will affect all publicly traded Japanese companies and their subsidiaries around the world. An estimated 3,800 companies must comply with the law when Japan’s Financial Services Agency (FSA) begins reviewing internal control reports.
According to the report, much of the J-SOX regulations mirror those of Sarbanes-Oxley; company executives are held responsible for internal controls and a top-down risk-based approach is required by each. The report points out that there are differences, however. Under J-SOX, external auditors are not required to audit internal control over financial reporting (ICFR), instead simply evaluating management’s assessment of those controls. In addition, the penalties are lower under J-SOX than under SOX, with individual penalties capped at approximately $42,000 (USD) and five years’ imprisonment, as compared to $5 million and twenty years in the U.S.
In their report, BearingPoint propose a framework for implementing a J-SOX compliance program. The three-phase program encompasses project launch, documentation and testing & remediation.
The BearingPoint report is available for free download at the BearingPoint site (registration required).
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