The wave of recent corporate scandals has put company directors and management under increasing scrutiny with new requirements mandating stricter controls and even potentially putting limits on the remuneration directors can take for their services.

This was according to KPMG partner Richard Lightowler, who was addressing an audience of about 50 guests with ties to KPMG or the Bermuda chapter of the Institute of Directors (IOD), along with Allan Goldstein, director for internal audit services for KPMG in New York, at a special information session held Wednesday morning.

Mr. Lightowler said companies, and especially those that are publicly-held, were having to undergo a "dramatic shift" to tighter internal controls.

Mr. Goldstein added that the climate was "volatile and so badly bruised that the pendulum had swung so far the other way".

Although in today's business climate there is constant talk of the need for "corporate governance", Mr. Lightowler said this was not a new imperative but one that had come in for intense scrutiny and public attention on the back of "what has happened in the last 12 months in Corporate America and elsewhere."

The group, largely made up of the directors of Bermuda companies, were talked through the three components that must be present to ensure corporate governance.

Calling it a three-legged stool, Mr. Lightowler said the financial reporting process must be comprised of the board of directors and audit committee, the external auditor, and management and internal audit. And he said "open and frank" communication between the parties was key to keeping the process on course.

But with greater scrutiny, there is a changed business landscape and companies listed on US exchanges are now faced with legislation - the Sarbanes-Oxley Act, which was passed into law on July 30, 2002 - that carries criminal penalties for corporate wrong-doing.

The Act already required the CEOs and CFOs of public companies to personally sign off on the validity of financial statements, but Mr. Richard Lightowler said regulations in the pipeline would also require company management to make a public assertion that they had reviewed disclosure controls and that external auditor must also attest to that assertion.

Mr. Lightowler said what was being required of companies was a "financial mapping process of more than just numbers, but one that also includes full disclosure."

If not, under the new laws, company directors and management could be faced with stringent penalties - including imprisonment - for any contravention.

The legislation was pushed through as a means to boost investor confidence - after the corporate scandals of Enron, WorldCom incited investor rage and distrust of market investments.

But Mr. Lightowler said that it was ultimately a piece of legislation that was "reactionary, political" and something "rushed into law".

He added that despite it having been enacted to boost investor confidence, "initially it hasn't done that and we don't know where it is going to end up. It is really quite frightening", he said and cited the fall-out of a number of SEC appointees having stepped down in recent weeks under a cloud of controversy.

Mr. Lightowler said there was "a lot not defined yet" including the requirements for legal services and what remuneration could be taken by board members that agreed to sit on corporate audit committees.

One thing is clear however, that company management, board members and even the firm hired to do the company's external audit are going to have to practice hyper-vigilance under increasing demands and scrutiny from investors and regulators.

Mr. Lightowler said all parties must ensure that they have access to the right data, asking the right questions and fixing any "disconnects" in the system.