‘Burdens’ of Sarbox compliance delay results

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The “burdens” of the US Sarbanes-Oxley Act will force some of Japan’s largest corporations to delay their 2006 earnings announcements by several weeks.

Sony and Hitachi have both said their results statements for the current year will be released in mid-May – about three weeks later than usual. Both companies blamed the delays on the heavy burden of additional paperwork and internal checks required to comply with Sarbanes-Oxley.

Non-US companies with shares trading on the New York Stock Exchange or Nasdaq have been required to file Sarbox-compliant accounts for financial years that came to an end since July last year.

Sony has long known about the stiffer governance and accounting requirements but a company insider admitted that the “burdens of compliance had exceeded our planning”.

Pioneer, another electronics group, produces accounts to meet US standards and said on Wednesday that its full-year earnings statement in Japan would be delayed by about three weeks as it rushed to ensure compliance with Sarbanes-Oxley.

Other large Japanese corporations such as the carmakers Toyota, Honda and the electronics group Matsushita have said they would not need to delay their earnings announcements.

European blue chips with US listings have invested millions of dollars in Sarbanes-Oxley compliance and none has been forced to delay its results. There have, however, been delays in the US where companies did not benefit from deadline extensions granted to foreign peers by the US Securities and Exchange Commission.

Although Sony and Hitachi said they remained committed to their listings in the US, both said the financial cost of compliance with Sarbanes-Oxley had been “extremely high”.

Higher Sarbanes-Oxley compliance costs and the additional internal resources needed to scrutinise accounting processes have already persuaded a number of Japanese companies, such as Kirin Breweries, to abandon their US listings.

The delays to earnings announcements do not threaten Sony or Hitachi’s listings in either Japan or the US. Sony’s plan to release its earnings on May 16 will fall more than 45 days after the end of its financial year, putting it one day beyond the “ideal” period recommended by the Tokyo Stock Exchange.

NEC, the electronics and semi-conductor group, has made clear that the more stringent accounting rules will delay its full-year earnings announcement.

Additional reporting by Barney Jopson in London

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