What is UK SOX? And is your finance team ready?

The finance market spent much of the last year grappling with the ongoing effects of the pandemic and the IR35 reforms. However, a major new challenge is already on the horizon with the imminent introduction of the new financial reporting framework ‘UK SOX’. In fact, recent research from audit technology firm Galvanize indicates that two-thirds of UK listed firms believe their internal controls will require improvement to ensure compliance. 

At PageGroup, we are already seeing many of our largest clients starting to recruit to ensure that the necessary interim finance talent is in place to support implementation. But what exactly is UK SOX, and how can your business prepare for it?

What do you need to know about UK SOX?

In a 2019 review of the UK audit industry, Sir Donald Brydon highlighted the need to improve internal controls over financial reporting. One of Brydon’s suggestions was the introduction of a UK version of the US Sarbanes-Oxley Act (SOX), requiring major listed companies to provide statements on internal controls over financial reporting. In March 2021, the Department for Business, Energy and Strategy (BEIS) responded to growing interest in this possibility with a new white paper entitled ‘Restoring trust in audit and corporate governance’. 

One of the many recommendations in the white paper was to move toward the implementation of a UK SOX regulation. The intention of the new framework is to “sharpen directors’ accountability”, and improve internal controls, corporate reporting, and corporate governance. 

How will UK SOX affect talent acquisition and resourcing?

It is still unclear whether UK SOX will require legislative changes or just regulatory changes – in the former case, it is unlikely to come into effect fully before December 2023, at the earliest. However, at PageGroup we have seen that it often takes large, complex companies significant time to create sufficiently robust control environments to adapt to such major regulatory changes. This is reflected in commentary from the wider industry: experts from KPMG, for example, estimate that it may take up to three years for companies to reach a state of readiness. 

The time to get ahead of the curve is now, and an essential early step will be to ensure that you have the necessary talent to make the transition to the new framework a success. Given the timelines, companies will benefit from hiring new talent on a more flexible, interim basis, and should prioritise gaining early access to what is a small pool of top candidates. 

Of course, building an internal controls framework while the precise rules are not yet known will be a challenging task, and you will need the best people to achieve a successful outcome. At the same time, there is a finite number of candidates with relevant controls backgrounds; competition for these individuals will therefore be fierce. It will be important for companies to move fast and early to secure talent capable of guiding them through this period of transition. 

What skillsets will UK SOX demand?

In order to prepare often large and complex organisations for the more rigorous reporting requirements of UK SOX, companies will need highly qualified, experienced professionals within their finance departments. Big Four accountancy trained candidates will be in high demand. So too will those that have audit, compliance, and accounting experience in large, listed businesses - especially if they have already had exposure to US SOX. 

Given the scope and importance of the reporting required, it will also be important to onboard professionals with proven track records of recommending, implementing, and defining robust governance and controls. Moreover, given the relevance of UK SOX to larger businesses, candidates who have experience supporting complex business operations will bring invaluable on-the-ground experience to the table. 

Many of our clients here at PageGroup are already assessing the interim market. Interim hiring is a good option for most businesses looking to ensure UK SOX compliance, as these candidates will generally be more experienced, accustomed to results-driven work, and able to work autonomously. As well as this, they provide flexibility, which is well suited to the intense windows of work involved in preparing for regulatory upheaval. On the other hand, we also work with many companies who already have the necessary professionals within their finance departments. In this case, interim hiring is a great way to backfill the roles these professionals are currently performing, freeing them up to temporarily work on UK SOX alignment. 

What challenges could businesses encounter?

One of the major challenges we already see many businesses struggling with is the battle for top finance talent, particularly in what is a highly candidate-driven market. The effects of UK SOX will be widespread, requiring new, higher standards of internal control effectiveness and over financial reporting from all listed companies – and eventually all public interest entities (PIES). This means that a great many companies will be vying for a limited number of finance professionals. Add to this the small number of interim finance candidates who would be best suited to a project of this nature, and the scale of the challenge becomes clear. 

How can businesses attract top talent?

Given the difficulties already outlined, it is essential that companies reassess the strength of their employer value proposition while there is still time. PageGroup has carried out extensive research into the finance talent market, finding that in a post-lockdown world, top candidates value flexible working options more highly than ever before. 

Our findings also highlighted that by taking a flexible approach to hiring, employers will tap into a wider talent geographic talent pool, since candidates who commute less frequently are typically far more willing to undertake long commutes to meet team members where necessary. Salary and other benefits are as important as ever – but in the new world ushered in by the Covid-19 pandemic, flexibility is the new currency, and employers will need to take note if they want to attract top talent.  

Ensuring full compliance and alignment with UK SOX will be a massive challenge for finance departments across the UK. If you want to make sure that you are attracting the top talent you will need to support you going forward, reach out here to set up an introductory conversation with one of our expert consultants.