The Financial Standards Authority (FSA) is asking for feedback on extending the rules for auditing to internal risk controls. The proposals, if implemented would bring the UK into line with US practice. American auditors are required to examine internal controls under the Sarbanes-Oxley Act 2002.

Sarbanes-Oxley Section 404 places a heavy burden on American public companies. The concern for UK companies is that a similar burden would be placed upon them.

The benchmark against which companies are to be checked is the Corporate Governance Code. 10 key auditing areas are identified, as indicative of the strength of internal controls.

Corporate Governance globally has taken a much higher profile following the Enron and WorldCom collapses. In Europe the restating of oil reserves by Royal Shell has been blamed on weak controls. Indeed only today, they restated for the fourth time.

Auditors may already be inspecting internal controls of UK companies. If the company is listed in the US or has aspirations to do so, they should already be expecting inspection. Sarbanes-Oxley applies to all companies listed in the US. Thus BP will have its internal controls opened for inspection.