Financial Compliance – Understanding The Nature of Compliance

To maintain and ensure the quality of the list, the New York Stock Exchange, requires listed companies to abide by the original listing criteria as well as maintain the listing standards which are considered to be the highest of any stock market around the world.

Meeting these requirements ensures that the company has obtained leadership in its own specific industry based on acceptance, investor’s interest and business.

The listed company compliance comprises of two components: the Corporate Compliance and the Financial Compliance.

Corporate Compliance

This ensures that the listed companies are adhering to the highest standards of transparency and accountability, which includes enhanced government requirements when configuring audit committees, corporate boards, financial competency, and director independence.

The Stock Exchange has taken an active role in creating standards for corporate government practices for more than a century now and has periodically supplemented and amended its standards while keeping focus on the investors’ protection.

The governance rules that had been implemented in 2003 and 2004 empowered independent directors for being representatives of shareholders. They even enhanced disclosure of listed companies, so that investors are fully informed about the organizations activities with regards to ethics and governance.

Financial Compliance

Financial compliance reviews a company’s financial statements to ensure that the organization is following the original listing and continued listing requirements. The criteria includes share price, market value, trading volume, distribution of company shares, cash flow, as well as revenue.

If a company falls below a criterion, the Exchange will immediately notify them and will review the appropriateness of continued listings. After being notified the company has the opportunity to submit a plan in order to return to compliance before 18 months.

If the plan is accepted by the Exchange, it will monitor the company’s performance throughout the planned period. If the company fails to follow through with the plan in a timely manner, the Exchange will then suspend the securities of that company and will remove it from the list.

Here’s what companies on the list need to do in order to remain on the continued listing requirements:

  • organize and plan to maintain controls
  • Implementation and acquisition of control mechanisms (technology) and measures (processes and policies).
  • Support and Delivery of operations
  • Evaluation and Monitoring of controls.

As time goes, auditors will expect that the organization will raise the bar according to reliability and maturity of controls. They will expect the company to be more rigorously compliant and should have better integration of the technical and business controls. As it stands, organizations are given a grace period like mentioned earlier to improve their compliance infrastructure, if they want to stay listed.

The solution for these organizations is to ensure IT and corporate governance perfectly integrated in a consistent and common framework. The sooner an organization adopts such an approach the more likely it will remain on the list.

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