The Basic Standard for Corporate Internal Control (“China SOX” or “C-SOX”) was announced in China with great fanfare in the summer of 2008. However, more than a year after the announcement of this new management regulation of risks and internal control, there is still confusion in the market about when it will come into force. This confusion has an impact on the planning and execution of compliance projects for many companies in China that will need to adopt China SOX.
There are currently three dates that are considered possible timelines for the adoption of China SOX. I will list each of them and give the background and drivers as to why they might be the actual implementation deadline. Of course, we are still waiting for official confirmation from the Chinese Ministry of Finance, but it is worth reviewing what we are hearing from the market. Possible start dates are:
one) July 1, 2009. This was the intended start date when the Basic Standard for Corporate Internal Control was originally published. And yes, it’s in the past, so we should already know if this was the date Chinese companies were supposed to start their C-SOX compliance work. It would make sense for the government to want to stick to its existing timeline to show that it is serious about implementing corporate governance and risk management reforms in the Chinese market.
two) January 1, 2010. Many companies complained when the China SOX regulation was first announced that the regulation was too vague and that the financial crisis forced them to focus on other aspects of their business to stay afloat. This put pressure on the regulator to delay the required start date to give companies more breathing room during the economic crisis. It also gave the government additional time to refine the details of the rule and make sure it was clearly articulated to the market.
3) January 1, 2011. Recently, some market analysts have been saying that the full implementation of China SOX will not start until early 2011. They propose that this will give the market enough time to recover from the financial crisis and give the government the time it needs to release the C -SOX. implementation guidelines (which were promised at the end of 2008).
My guess? I think the Chinese government sees the value of implementing real reforms in the way their companies govern themselves and manage risk. Most analysts think that China has weathered the financial crisis well (or at least not been as affected as many Western countries) and wants to make sure that future crises are averted. This leads me to believe that implementation of the Basic Standard for Corporate Internal Control will begin in January 2010, with companies expected to submit detailed internal control reports by the end of 2010. Any further delay risks diluting the value and the message of this new regulation.