Edition No. 6
Truth or Consequences… Facts about the Sarbanes-Oxley Act
The Sarbanes-Oxley Act of 2002 requires public companies to meet stringent requirements in order to improve the quality of corporate financial reporting. It was passed in part to restore investor confidence in the marketplace after the Enron and WorldCom financial scandals. Passed on July 30, 2002, the law already demands that chief executives and financial officers include their signatures on all Security and Exchange Commission (SEC) filings. Additional requirements of the law will take effect June 2004 for large US companies and in April 2005 for smaller businesses. Although the long-range implications of the law will not be realized until the court system defines it, environmental, health, and safety (EHS) departments may well be impacted.
Most of what has been reported about Sarbanes-Oxley centers around its financial nucleus – record retention for audits, auditor independence, corporate responsibility, financial disclosures, and conflicts of interest of financial analysts. But the law is likely to go beyond financial reporting and require a series of disclosures about corporate operations, including those in safety, health, and the environment. According to the SEC, Section 401(a) of Sarbanes-Oxley requires disclosure of all off-balance-sheet transactions and other agreements that have a material effect on the financial performance and financial statements of a company.
For instance, if a company is acquiring or divesting of real estate or other property that is contaminated and the remediation of the contamination will be expensive, this condition should be reported to the public company’s shareholders via financial disclosure.
Those EHS professionals with compliance responsibilities are now tasked with navigating uncharted waters in respect to Sarbanes-Oxley. Laws like this with such far-reaching consequences often take years to be defined by the court system. These legal decisions will eventually provide more framework on the reporting and disclosure requirements. But, in the meantime, EHS professionals should make themselves aware of the law and what could dramatically impact the practice of their profession.
Here are a few suggestions from several EHS professional organizations and the staff at EORM, which will help you learn more about the law and its impact on environmental, health, and safety.
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Corporate EHS functions should communicate with their counterparts in Human Resources, Finance, Legal, and Public Communications to define roles and responsibilities and to discuss escalation procedures, distribution of information and confidentiality issues.
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A legal opinion written by corporate counsel is also recommended along with writing, implementing, and documenting the corporate communication structure.
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The finance department should use EHS as the expert in determining the long-range environmental impact of certain conditions existing within the company today or in its foreseeable future. (Typically, this is a two-step procedure. One, a determination to see if the condition deserves investigation. And two, a financial analysis of the consequences of the condition.)
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Familiarize yourself with the law and some of the initial analysis of its enforcement. Some web sites that may be of interest include:
http://www.asee.org
http://www.auditing-roundtable.org
EORM offers several services that are valuable in regard to Sarbanes-Oxley. We’re experienced at helping clients develop and implement Environmental Management Systems (EMS) that both conform to the ISO 14001 Standard and cost-effectively integrate with existing business processes. Since decisions about Sarbanes-Oxley tend to be cross-functional, the implementation of an EMS gives the EHS function a voice in the planning and decision making process. In addition, it enhances the EHS organization’s perceived value within a company’s corporate culture.
EORM consultants also provide an environmental assessment of property in two phases. Phase One includes a record check over the past 75 years to evaluate the possible contamination of the property. Phase Two includes a sampling strategy for the ground and the building. We then create a prioritized environmental impact portfolio using our proven standards and protocols.
EORM is a leading provider of EHS assessments for individual sites or an international portfolio of properties. Our prioritization of issues (POI) assessment protocol provides companies with an objective, third-party review of the EHS issues that may impact the financial performance of the company and may be subject to reporting under the Sarbanes-Oxley Act.
More Information:
- Contact an EORM consultant to learn how our services will benefit your company.
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