New rules to drive BPM and doc management adoption


19 Mar 2004

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Forthcoming EU financial legislation that mirrors similar US legislation on auditing rules for corporations to ensure that shareholders can rely on the accuracy of audited corporate accounts will drive businesses across Europe to invest heavily in business process management (BPM) and document management technologies, industry analyst Gartner has predicted.

On Tuesday, the European Commission published a proposed directive on auditing rules for corporations within the EU. The directive, which has yet to be approved by the European Parliament and the Council of Ministers, is aimed at ensuring that shareholders can rely on the accuracy of audited company accounts. The directive is part of a wider plan for reforming corporate governance and contains provisions similar to those of the US Sarbanes-Oxley Act, which regulates financial reporting and external audits of US company accounts.

In the two years following the WorldCom, Enron and AIB/Rusnak financial scandals the EU, like the US, has been tightening financial regulatory rules. In Europe, for example, the Basel II rules have resulted in financial institutions investing heavily in management information systems (MIS) and other technologies aimed at boosting accountability and transparency.

Gartner analyst Debra Logan has warned that European companies must ensure they have BPM procedures, including audit trails and document management, in place to respond to the proposed European auditing rules directive.

“Gartner has been warning for some time that the EU would introduce legislation similar to Sarbanes-Oxley. Though the timetable is uncertain, we believe it’s inevitable that the EU will introduce a directive based on these proposals. Once the Council of Ministers has agreed to the directive, it will then need to be implemented in the laws of the EU’s member states. The EU will then set up an audit regulatory committee of member states, but supervision of auditors will be carried out mainly by member states,” warns Logan.

According to Logan, companies being audited will have to set up an independent audit committee that will communicate directly with external auditors, bypassing company management. “The committee will be responsible for selecting the external auditor, and company management will have to give reasons to its national government if it decides to dismiss the external auditor. If a company has different external auditors in different worldwide locations, the auditor responsible for the consolidated accounts will be fully responsible for the company’s financial reporting,” Logan stressed.

Logan said that European companies should offset the difficulties of complying with new legislation by ensuring that BPM procedures and document management systems are in place in advance of new legislation. In addition, firms should consider appointing an audit compliance department to ensure that compliance projects are centrally management.

By John Kennedy