By Oscar Johnson
PC maker NEC's recent woes due to its U.S. accounting practices, combined with pending J-SOX regulations here in Japan, should be a wake up call to the slumbering on how essential IT as well as financial departments are to corporate compliance.
In September, NEC was suspended from the NASDAQ and faces full delisting after missing three successive deadlines to file an earnings report for fiscal 2005 to the U.S. Securities and Exchange Commission. The problem, CFO Takao Ono complained to the Financial Times was, "The data requested was too extensive, old and detailed for us to comply." In other words, neither the firm's IT nor accounting controls were congruent with U.S. Generally Accepted Accounting Principles (GAAP).
That NEC had to restate its earnings three times last year after it was revealed one of its subsidiary's sales numbers had been inflated didn't help matters. Since only 2.9 percent of NEC's issued shares were traded as American Depositary Receipts (ADRs) on the NASDAQ the impact will be slight. But its shares have shed 20 percent since it switched from U.S. GAAP to its Japanese counterpart in October. It raises the broader issue of how ready firms here are for a looming Japanese version of the U.S. Sarbanes-Oxley Act.
The Financial Instruments and Exchange Law, or J-SOX, is slated to go into effect in fiscal 2008 (April 1). Unlike its U.S. counterpart, the long awaited law is said to generally welcome by most of the approximately 3,800 publicly traded firms in Japan that, along with their foreign subsidiaries, will be affected. Since it has no special provisions for small companies, however, they are expected to bear a disproportionate burden in complying with the new regulations - especially with regard to initial preparation and implementation. This includes information systems and solutions.
Under J-SOX, companies must take a proactive approach to assessing how effective existing compliance and risk management policies are. The main difference between J-SOX and Sarbanes-Oxley is that oversight boards developed and promoted their own internal control framework. The clear framework offers more guidance in staving off unnecessary confusion - especially regarding what IT and application controls to consider as well as spotting and responding to IT problems. In the end, this can also help keep a handle on costs, notes ComputerworldUK, an online IT management source.
For companies already complying with Sarbanes-Oxley or similar regulations, J-SOX is unlikely to pose any major challenges, experts say, and the IT requirements will differ little, if at all. The inexperienced, however, would do well to budget for the added IT as well as business costs for analyzing controls and process, dealing with outside auditors, etc. And with the deadline for compliance soon approaching, preparations should be well under way by now, they say.
There's a wealth of information and a growing number of products and service to choose from: Protiviti Inc., for example, began directing its business and technology risk consulting and internal audit services towards J-SOX last year. In addition to a recent online seminar on J-SOX, it has a review of the draft law with recommendations at www.protiviti.com/go/jsoxflashreport. And ArcSight, Inc. in July unveiled its ArcSight ESM Compliance Insight Package for J-SOX, a comprehensive solution framework to help Japanese firms comply with the new law.
Needless to say, more of such companies are moving to fill the void. That also means the demand for bilingual accounting, IT and compliance specialists with J-SOX knowledge and expertise will only continue to rise - both in Japan and overseas. A good place to start looking for career opportunities in these fields is at:
http://www.careercross.com
