Sarbanes-Oxley "SOX":
Introduction
SOX Requirements
FASB Requirements
Introduction
Who ever thought that Enron, WorldCom or Adelphia et als would affect honest businesses? The answer, of course, is Congress! Whether this legislation will prevent future Enrons or just burden business, will continue to be debated. For our purposes, SOX requires a clearer focus on the proper treatment of unclaimed property.
More about the SOX Requirements
SOX's intent is to impose a greater degree of transparency upon the company's financial reports. The major concern is possible misstatements in the filings which the SEC requires from publicly held companies (SOX is also applicable to some privately-held companies.)
Section 302 requires top-level certification, e.g. CEO and CFO signature, of the accuracy of the financial statements. Section 404 requires that (1) all public companies assess their internal controls and (2) their outside auditor attest to the reliability of these controls. With this general background in mind, the "unclaimed property piece" of the puzzle must be re-examined. One of the uncertainties which may be applicable to the MD&A Report (a Section 303 requirement) is escheat liability. While this liability may be relatively minor in any given year, the cumulative total may become material. Thus the failure to report and remit may be a violation of this federal legislation and the escheat statutes.
The FASB Requirements
FASB No. 5 addresses the accounting treatment of "loss contingencies." While any number of business events may create a significant loss, most executives never consider escheat.
This liability came as very unpleasant surprise to the company which recently wrote a $51,000,000 check to the Delaware Escheator. There is a moral to this: review your escheat policies and procedures (you have them, don't you?) and retain counsel to review your potential liability. Counsel's assessment is confidential and should be protected under the attorney-client and work product doctrines.
