Listed companies are confused at the interpretation of J-SOX Practice Standards And the sufficient level of internal control is still fluid.
Introducing “top-down” approach and establishing company’s own internal control standards is required.
- “Survey of J-SOX Internal Control Development and Assessment”, first year -
July 24, 2008
|♦90% of listed companies depends on external experts e.g. auditor, consultant for J-SOX preparation.|
♦Criteria is unsettled to consider qualitative impact
♦How much is enough?
Confusion over levels of internal control to be developed.
In April 2008, The Japan Research Institute, Limited (President: Yasuyuki Kimoto; Headquarters: Chiyoda-ku, Tokyo; "JRI") conducted a survey on J-SOX Law preparation, among listed companies. And issues the result of survey and a few proposals to respond J-SOX audit effectively. (“J-SOX” is named after “SOX” Act in the U.S. “J-SOX” is formally named “Financial Instruments and Exchange Law” and its purpose is also to assure reliability of financial statements. “J-SOX” law has been applied for the fiscal year beginning after April 1, 2008.)
Since April this year, under J-SOX Law, assessment and audit of internal control has been started. Though some official guidelines e.g. “Practice Standards for Management Assessment and Audit concerning Internal Control Over Financial Reporting” are released, listed companies are confused on various issues in the first year.
The result of the “Survey of J-SOX Internal Control Development and Assessment” conducted by JRI reveals how listed companies are prepared at the point of the J-SOX Law enforcement, in terms of
1. the progress of preparation
2. the scope of evaluation
3. the sufficient level of internal control
This survey concludes that standards remain vague, for instance, the criteria to consider qualitative impact and the sufficient level that to be assessed “the internal control is effective”. In view of these results, JRI recommends to switch viewpoint to ”top-down” and “risk-based” approach to establish each company’s standard and focus on high-risk operation could be concluded ”material weakness”, though listed companies has been developed internal control system in “build-up” approach by examining each procedure and rules in detail.
For more information on the content of this report, please contact Masayuki Ohbayashi, the Japan Research Institute, Limited.