In the term, SOX compliance SOX stands for Sarbanes-Oxley, named after sponsors of the bill Senator Paul Sarbanes and Micheal G. Oxley. The SOX compliance bill was passed by Congress in 2002 to protect the public from fraudulent activities of the public listed companies. The SOX act, with the help of a SOX compliance audit, enhances the organization's reliability by implementing certain regulations that a company must comply with to be declared as a fair organization.
Now the question is, what is SOX compliance? As a result of SOX, the board of directors can oversee the financial statements and transactions happening within the organization and thus conduct a proper audit to keep everything honest and transparent.
The goal of the SOX compliance act is to initiate clarity of financial reporting by firms and to require a formalized system of checks and balances in each enterprise. It is not just a legal obligation that every company must comply with but also a healthy business practice. Of course, companies should conduct all their transactions ethically and limit access to internal financial systems. But meeting the SOX compliance requirements and financial security controls has the additional benefit of also serving to protect the company from data theft by insider threat or cyberattacks of sorts. Thus, SOX compliance can involve many of the same practices as any data security scheme.
Now that you know the answer to the question- what is SOX compliance? You must be wondering why it is also essential for the smooth functioning of the business? As mentioned above, meeting the SOX compliance requirements are not only to ensure the honest functioning of the firm but also is a great safety tool for sensitive data and other pieces of information.
There are many benefits of implementing SOX compliance and conducting SOX compliance audits. To name a few, we have made a small list for your better understanding:
It is beneficial for the companies in the long run to have an integrated and consolidated view of their business risks and objectives. SOX compliance requirements help companies to construct a framework that supervises their financial records and improves many other aspects of the company, such as identifying and prioritizing risks.
Thus, businesses can benefit highly from corporate-wide visibility and transparency in processes. By embedding coordination and timely mitigation with the help of SOX, a unified and comprehensive risk management framework can be incorporated into the firm's culture.
SOX compliance helps companies establish a standard control framework that strengthens their control structure and improves the connection between control and risk. This further also helps in streamlining the documentation of controls and control processes assessment. Thus, SOX helps improve internal control that leads to benefits such as effective operations, highly dependable financial reporting, etc.
The legislation of SOX led to the establishment of the Public Company Accounting Oversight Board (PCAOB) to assess the individual liability of the auditors, executives, and board members and supervise the management's accounting judgments. This allows the SOX audit to be an independent guaranteed function and makes sure that the operating effectiveness of an organization's risk management, governance and internal control processes are competent. It is moreover streamlining and reducing the gap between the purpose of an audit and its fulfilment.
SOX compatible companies report that their financial values are more likely, which impresses the stockholders and builds trust. Companies also claim that due to their well-planned financials, they have easier access to capital markets due to their better financial reporting.
By implementing SOX, companies are protected from cyberattacks and the expensive, embarrassing outcome of a data breach. Data breaches are costly to manage and clean up, and companies might never retrieve the damage to their brand.
SOX compliance develops a cohesive internal unit and enhances communication between everyone concerned with the audits. The advantages of a company-wide program such as SOX can have other quantifiable effects on the company – like improved cross-functional communication and collaboration.
Basically, there are four internal controls that you must keep in mind while planning for the SOX audit. Here are all four explained for your understanding:
Electronic accesses such as login guidelines, procedures and controls along with physical accesses such as locks, doors, and access cards etc., come under this control. The SOX Compliance requirements also state that not everyone should be granted access to the critical data or documents that they don't require to perform their tasks.
The second control is security one of the most crucial control this one checks your plan of action to prevent any possible data violations. The best, however, is that SOX lets you have the liberty to freely decide how you want to implement this control.
According to the SOX regulations, organizations must maintain appropriate backups for their financial data. This backup should be kept at an off-site location and is mandatory.
SOX authorizes organizations to assign defined processes to sustain and add users into their systems.
With this, we hope that you are aware of several important benefits of staying compliant with SOX and the risks of being non-compliant. Thus, you must now understand how critical it is to be efficient in this area. Thus, you can seek expert insight and professional help to make sure everything is on track.
The professionals at TRC Corporate Consulting have years of experience in this industry and are armed with the necessary knowledge to provide professional assistance on matters associated with SOX compliance. From each and every SOX audit regulation to other SOX requirements, our experts can assist your business on every step of the procedure. Get in touch to know more about our offerings today!
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