SOX Compliance for Ireland subsidiaries

WHY SOX

COMPLIANCE MATTERS

THE ROLE OF DUBLIN SALES COMPLIANCE IN

SARBANES-OXLEY ACT COMPLIANCE:

INTRODUCTION TO & APPLICATION OF SOX

WHAT IS SARBANES-OXLEY ?

Improved

transparency &

flow of info

Federal law binds

all public

corporations

Enacted 2002,

guidance in 2004,

2007, …

A change in US business practice SARBANES-OXELY ACT

Reacting to major corporate and accounting scandals, U.S. Govt. enacted

extensive rules, particularly for public companies, with respect to enhanced

financial disclosure, corporate governance, internal controls and auditing.

Management

accountability

Auditor

independence

Record

requirements

New Rule-Book for Public Co.’s SARBANES-OXELY ACT

Administration records must be accurately stored and available to management

and auditors alike, particularly further to reporting on a corporation's internal

control of financial reporting.

SOX imposed stricter rules on auditors and made corporate directors criminally

liable for false/inaccurate statements about company accounts.

Reforms to enhance corporate responsibility and fight corporate & accounting fraud

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As part of obligations under the Sarbanes-Oxley Act, every quarter, subsidiaries

of U.S. public companies should certify that he or she has operated in

compliance.

It is an important reminder that we are all responsible for the overall health of the

company.

In turn, company executives can make the proper representations in quarterly

Sarbanes-Oxley certification letters issued to the Securities Exchange

Commission on behalf of the company.

SARBANES-OXELY ACT

PUBLIC COMPANIES & FINANCIAL MARKET REGULATION

Governing legislation for U.S. financial market regulation

TRUST INDENTURE ACT OF 1939

SECURITIES ACT OF 1933

SECURITIES EXCHANGE ACT OF 1934 created the Securities Exchange Commission

(section 4 of the Act / 15 U.S.C. § 78d)

INVESTMENT COMPANY ACT OF 1940 INVESTMENT ADVISERS ACT OF 1940

DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT OF 2010

SARBANES-OXELY ACT OF 2002 aka the Public Accounting Reform and Investor Protection Act,

Or the Corporate and Auditing Accountability and Responsibility Act

Laws central to the governance of financial market players and regulatory powers of the Securities Exchange Commission

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DEFINING A ‘PUBLIC COMPANY’

a limited liability company that offers its securities for sale to the general public.

FINANCIAL & CAPITAL MARKETS

Securities refers to stocks and bonds traded in financial and capital markets. In the

U.S., stock refers to shares of a particular corporation (company) and all related

trade and activity is regulated by the SEC (Securities Exchange Commission).

VERIZON Communications Inc.,

A Public Corporation, and …

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SECURITIES & EXCHANGE COMMISSION (SEC) A U.S. government board, consisting of five members, charged with regulating the public offer and sale of securities (stocks and bonds).

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v

The SEC has a three-part

mission:

(i) to protect investors;

(ii) maintain fair, orderly &

efficient markets; and

(iii) facilitate capital formation.

To achieve its mandate, the SEC enforces statutory requirement that public

companies submit quarterly and annual reports, as well as other periodic

reports.

U.S. REGULATION OF PUBLIC CO’S & FINANCIAL MARKETS

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Parent (Public)

Inc.

(Issuer)

SECURITIES REGULATION

As an “issuer” of securities, Verizon Communications Inc. is regulated by the SEC.

Stocks Bonds (issue)

SEC

Securities and

Exchange Commission

Financial Markets

Stock and Options

Exchanges

Electronic securities


Stockholders / Bondholders

CORPORATE AUDITORS UNDER PCAOB SCRUTINY

Current accounting rules apply to off-balance sheet financing under the U.S.

General Acceptable Accounting Principles

(GAAP) and International Financial Reporting Standards (IFRS).

Established by the SOX Act 2002, the Public Company Accounting Oversight Board (PCAOB) became the primary regulator of audits of publicly traded companies.

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SOX reforms increased independence of professional auditors

carrying out audits on U.S. public corporations.

The PCAOB has a supervisory role over independent auditors.


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Parent (Public)

Inc.

(Issuer)

Aol, Inc.

SECURITIES REGULATION

As an “issuer” of securities, Parent (Public) Inc. is regulated by the SEC and required to appoint an auditor, which is regulated by the PCOAB.

Stocks Bonds

(issue)

PCAOB Public Company Accounting

Oversight Board

SEC

Securities and

Exchange Commission

Financial Markets

Stock and Options

Exchanges



Stocks Bonds

(issue)

Independent Auditor

WHAT’S NEW IN SARBANES-OXLEY ?

SIGNIFICANT REQUIREMENTS UNDER SOX COMPLIANCE

Managers have responsibility:

• to maintain and assess the effectiveness of a sound internal-control structure for financial reporting

Auditors have responsibility:

• to certify the soundness of this assessment by management and report on the state of the overall financial control system

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AIMS OF SOX COMPLIANCE

REQUIREMENTS

• Restore investor confidence

• Improve reliability of financial reporting

CHANGES FOR SENIOR

CORPORATE OFFICERS • Role of General Counsel has increased

due to SOX compliance, requiring

General Counsel to work in tandem with

the Chief Compliance Officer

• Role of Chief Compliance Officer has

expanded

MOST BURDENSOME REQUIREMENT – SECTION 404

FINANCIAL REPORTS, ONUS ON CORPORATE BOARD

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CERTIFIED STATEMENT BY CEO

The Chief Executive Officer must submit a

written statement alongside periodic financial

reports certifying that such report “fairly

presents in all material respects, the financial

condition and results of operations of the

issuer”, and fines and/or criminal liability may

attach for failure to do so [Section 906].

SAFE HARBOUR FOR WHISTLEBLOWERS

Similar penalties apply for any act of retaliation

against whistleblowers who provide law

enforcement with true information relating to a

SOX investigation [Section 1107]. (see also Dodd-

Frank Act)

CRIMINAL SANCTIONS FOR FAILURE TO

COMPLY

Criminal penalties apply for altering,

destroying, mutilating, concealing, falsifying

records, documents or tangible objects with

the intent to obstruct, impede or influence a

legal investigation, as well as violation of the

requirement to maintain all audit and review

papers.

INTERNAL CONTROL REPORTING

BOARD RESPONSIBILITY FOR FINANCIAL REPORTS

FINANCIAL REPORTING

• Reporting must include a list of all deficiencies in the internal controls and

information on any fraud that involves employees who are involved with

internal activities;

• Disclosure in reporting must include any significant changes in internal

controls or related factors that could have a negative impact on the internal

controls;

• Organizations cannot attempt to avoid these requirements by

reincorporating their activities or transferring their activities outside of the

United States.

FINANCIAL REPORTING

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ASSESS SCOPE, ADEQUACY

& EFFECTIVENESS

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ASSESSMENT BY MANAGEMENT

Section 404 imposes the requirement of management assessment of the scope,

adequacy and effectiveness of internal controls and publishing such findings in

the annual reports.

The registered accounting firm preparing financial reports must also attest to and

report on the effectiveness of internal control structures and procedures for financial

reporting.


SECTION 404 OBLIGATIONS ON MANAGEMENT

In determinations of the scope, adequacy and effectiveness of internal controls both

management and accountants must:

• Assess both the design and operating effectiveness of selected internal

controls related to significant accounts and relevant assertions, in the context of

material misstatement risks;

• Understand the flow of transactions, including IT aspects, sufficient enough to

identify points at which a misstatement could arise;

• Evaluate company-level (entity-level) controls;

• Perform a fraud risk assessment;

• Evaluate controls designed to prevent or detect fraud, including management

override of controls;

• Evaluate controls over the period-end financial reporting process;

• Scale the assessment based on the size and complexity of the company;

• Rely on management's work based on factors such as competency, objectivity,

and risk;

• Conclude on the adequacy of internal control over financial reporting.

SECTION 404 OBLIGATIONS

ON MANAGEMENT

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REAL TIME REPORTING

REAL TIME REPORTING

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You must tell us now!

REAL TIME REPORTING According to Section 401, disclosure in periodic reports

must include all material off-balance sheet liabilities,

obligations or transactions.

REAL TIME DISCLOSURES Section 409 imposes an obligation on the corporation

as an issuer to make real-time disclosures of

information on material changes in the financial

condition or operations, as a matter of urgency and

presented in easy-to-understand terms and

supported by trend and qualitative information of

graphic presentation where appropriate.

DUBLIN & SOX COMPLIANCE

WHAT IMPLICATIONS DO SOX REQUIREMENTS

HAVE ON AOL TECHNOLOGIES (IRELAND) LTD.?

SOX requirements apply to:

• (i) all publicly-held American

companies

• (ii) any international companies

that have registered equity or

debt securities with U.S.

Securities and Exchange

Commission [SEC]

• (iii) any accounting firm or

other third party that provides

financial services to either of

the former.

DO SOX

RULES IMPACT DUBLIN?

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US Subsidiary Inc.

Parent (Public) Inc.

Subsidiary (Ireland)

Ltd.td.

WHAT IMPLICATIONS DO SOX REQUIREMENTS

HAVE ON U.S. PUBLIC COMPANY SUBSIDIARIES?

INDIRECT REACH OF SOX COMPLIANCE

No direct obligations are binding on the Ireland subsidiary entity because no filing

to the Securities Exchange Commission is required.

The Ireland subsidiary’s U.S. parent corporation (which is required to file with the

Securities Exchange Commission), however, is required to assess the

effectiveness of internal controls within its Ireland subsidiary.

The role of sales compliance and related reporting directly facilitates the U.S.

parent corporation in meeting its requirements under SOX law, principally

making filings with the Securities Exchange Commission.

DO SOX

RULES IMPACT DUBLIN?


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Parent (Public)

Inc.

(Issuer)

U.S. subsidiary,

Inc.

Ireland subsidiary Ltd. SECURITIES REGULATION

As an “issuer” of securities, a Public corporation is regulated by the SEC and required to have independent auditors, which in turn are scrutinized by the PCOAB.


PCAOB Public Company Accounting

Oversight Board

SEC

Securities and

Exchange Commission

Financial Markets

Stock and Options

Exchanges


Independent Auditor

REPORTING ONUS TRICKLES DOWN TO SUBSIDIARIES

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Periodic Reporting

including: material off

balance sheet transactions SEC Securities Exchange

Commission

Parent (Public)

Co.

Inc.

REACH OF SOX COMPLIANCE

Not direct obligations on Ireland subsidiary ltd.,

because no filing to the Securities Exchange

Commission is required.

However, the U.S. parent of Ireland subsidiary ltd.,

U.S. subsidiary Inc. (which is required to file with the

Securities Exchange Commission if a public

corporation) must assess the effectiveness of

internal controls within its Ireland subsidiary.

U.S. subsidiary

Inc.

Ireland subsidiary Ltd.

INFORMATION SOURCED FROM SHARED SERVICES

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Parent (Public)

Inc.

US Inc.

Ireland subsidiary

Ltd.

DISCLOSURE IN PERIODIC REPORTS

All material off-balance sheet liabilities, obligations or transactions must be disclosed in periodic reports submitted to the SEC (Securities Exchange Commission) in accordance with Section 401




Financial Markets

Periodic Reporting

Audit Reporting

Stockholder Reporting

Independent Auditor

SEC Securities Exchange

Commission

INFORMATION SOURCED FROM SHARED SERVICES

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Parent (Public)

Inc.

What are subsidiaries

doing? How many deals have we closed in EU markets?

How many deals have we collected in EU

markets?

U.S. subsidiary

Inc.


Deal Management

Team Billing/

Collections Teams

CLOSED CONTRACTS = OFF-BALANCE SHEET ASSETS Generally, an item should appear on the company's balance sheet if it is an asset or liability that the corporation owns or is legally responsible for.

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All promises

to pay must be recorded

Current accounting rules apply to off-balance sheet financing under the U.S.

General Acceptable Accounting Principles and International Financial Reporting

Standards.

REPORTING ONUS TRICKLES DOWN TO SUBSIDIARIES

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Periodic Reporting

including: material off

balance sheet transactions

SEC Securities Exchange

Commission

Parent (Public)

Inc.

U.S. subsidiary

Inc.


BENEFITS OF SOX COMPLIANCE

MARKET EXPECTATIONS

Financial markets are driven on forecasting and expectations

• Stockholders are constantly prospecting on the future performance and health of the corporation.

• An important indicator of such performance and health is off-balance sheet assets, e.g. sales which have not been fully closed / collected.

• Therefore, sales compliance is carrying out an important reporting function, as well as compliance function.

• In fact, sections 404 plus 409 of the SOX Act together address real-time reporting, including the sales compliance function of reporting ‘closed but not collected’ sales.

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+ =

M&A SOX INTEGRATION SOX compliance can be an issue when integrating new entities resulting from M&A acquisitions

• Complex factors for such integration have propensity to result in divergence between actual and reported performance.

• An unintended consequence and benefit of implementing documentation efforts is increased employee understanding of operations, how they are accomplished and how they might be improved.

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PERCEIVED VS. ACTUAL

"A lot of steps we assumed were being taken -account reconciliations and interest calculations and data integrity checks- actually weren't"(PepsiCo)

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PERSONAL ATTESTATIONS Sections 302 and 404 require CEOs and CFOs attest

personally to the effectiveness of internal control

systems for financial reporting (and Section 906

attaches criminal liability for 'willful failure' to portray the

true condition of the company's finances and

operations).

INDEPENDENT AUDITOR Section 404 mandates an independent auditor to attest

each year to the company's evaluation of its controls.

(The auditor is expected to assess the documentation

of controls and procedures as well as how competently

employees perform the control activities for which they

are responsible.)

PCAOB https://pcaobus.org/Pages/default.aspx

The Public Company Accounting Oversight Board is a

non-profit corporation established by Congress to

protect investors and the public interest by promoting

informative, accurate, and independent audit reports

and to oversee the audits of public companies and

broker-dealers.

BEST PRACTICE Responsibility for internal controls to be assigned to a

“sufficiently high level” person possessing “adequate

resources” to implement the system and periodic

reviews to uncover errors and wrongdoing.

SARBANES-OXLEY ACT 2002 http://www.soxlaw.com/

COMMITTEE OF SPONSORING

ORGANIZATIONS OF THE

TREADWAY COMMISSION The COSO is a joint initiative of the five private sector

organizations listed on the left and is dedicated to providing

thought leadership through the development of frameworks

and guidance on enterprise risk management, internal control

and fraud deterrence.

http://www.coso.org/

https://pcaobus.org/Pages/default.aspx

https://pcaobus.org/Pages/default.aspx

http://www.soxlaw.com/

http://www.coso.org/

ANY QUESTIONS? THANK YOU

Documents

SOX Compliance for Ireland subsidiaries