BACKGROUND
The Financial Instruments and Exchange Act (金融商品取引法) promulgated on June 14th, 2006. It codifies securities law and regulates securities companies in Japan.
This law covers the following:-
- Registration and regulation of broker dealers and their registered representatives
- Disclosure obligations applicable to public companies, investment trusts and similar entities
- Tender offer rules
- Disclosure obligations applicable to large shareholders in public companies
- Internal controls in public companies;
INTERNAL CONTROLS IN PUBLIC COMPANIES
Large corporate scandals in Japan were criticised to be lacking in internal controls. (Upcoming posts on this topic)
This Guidance provides details to Japanese companies on implementing a Management Assessment of Internal Control over Financial Reporting similar to the Sarbene-Oxley Act in the U.S. The nickname J-SOX was given due to to its similarity in substance to Sarbane-Oxley Act Section 302 (Corporate Responsibility on Financial Reports) & Section 404 (management assessment of internal controls) .
SCOPE
The main objective is to ensure the reliability of financial reporting therefore the internal controls prescribed are only limited to financial reports with key objectives such as:-
- Effective and efficient operations
- Compliance with law & regulations
- Safeguarding of Assets
- Reliability of Financial Reports
With the objectives in mind, management will design and implement company-level and process -level internal controls.
The internal controls’s effectiveness will be assessed and management reports issued. External Audit’s scope in assessing internal controls will begin from the management’s scope to management report.
VIEWS
A detailed look at how internal controls are developed and differences between J-SOX & SOX will be covered in upcoming posts.
