Deloitte is claiming that the demands of Sarbanes-Oxley are dissuading companies from making acquisitions as CFOs take more care over due diligence. ?Deals are taking longer as CFOs take pains to ensure that they can certify the accounts and controls of target businesses,? says Deloitte corporate finance director Simon Russell. ?Some companies are being put off certain transactions altogether.?
Section 404 of Sox has the greatest bearing on M&A activity and requires that companies have a sound system of internal control over financial reporting. The SEC recently introduced an exemption, allowing companies undergoing acquisitions in the year of Section 404 certification to bypass the tests and assessment. However, they must still disclose whether the new business has been excluded from the requirements and what the impact will be upon the registrant's consolidated results.
This is having a knock-on effect, according to David Noon, a partner in Deloitte's enterprise risk services, who thinks some businesses will not wish to risk sending negative signals by excluding recent acquisitions from Sox. ?Many companies wish to time their acquisitions so that they have time to complete the necessary controls work ready for the first Section 404 management assessment,? he says.