20 Nov 2021 Ankit Chadha

What Is SOX Compliance? Here's Everything You Need to Know About It

SOX Compliance | TRC Corporate Consulting

In 2002 US Congress passed the Sarbanes-Oxley Act. The whole and sole purpose of the act is to protect the people from the fraudulent activities of the big organizations and the business.  SOX compliance is a systematic audit method to create transparency between the public and the organizations.

SOX compliance is not a mere legal obligation, but it is a business practice adopted by honest and dignified organizations that helps them maintain their honour and reputation in the market. Moreover, SOX compliance not only motivates the companies to behave ethically, but SOX controls also have the side benefit of protecting the company from a data breach by any internal threat or cyberattack. Thus, you can say that SOX compliance encompasses many of the similar practices as any data security project does.

 

What Is Sox Compliance And Who Must Comply With It? 

If the question 'what is SOX?' arises in your head, then here is how we can put it in simple words: SOX compliance was a bill drafted by Senator Paul Sarbanes and Representative Michael G. Oxley.  The need for this bill emerged at the time because the number of corporate scams and fraudulent activities was significantly increasing. The plan was to keep a check on the organizations by conducting strict SOX audits and safeguarding the public interests from fraud.

SOX Compliance is also a tool that protects investors and shareholders by enhancing the accuracy and consistency of corporate discoveries. It brings several important responsibilities for executives and board members of firms to the limelight while establishing criminal penalties if a business fails to comply with these responsibilities.

Now about who has to comply with SOX controls, any and all publicly listed companies have to obey the SOX compliance act. Additionally, it also applies to the audit and accounting corporations that are working for companies that fall under SOX.  

The Requirements Of SOX audit 

Some of the most important things that are required at the time of SOX audit to abide by the SOX compliance act are as follows:

  1. CFOs and CEOs of the organization have to accurately document and present the financial archives and internal control structure during a SOX Audit. In case these officials are unable to do so, they might have to face financial penalties and/or imprisonment.
  2. Organizations must produce a precise internal control report. The report must clearly state that the management is responsible for the maintenance of the internal financial control structure of the company. And any negotiation should be brought forward in a timely manner to ensure transparency.
  3. As per SOX compliance, it is mandated for publicly listed companies to have comprehensive data security policies that need to be clearly communicated within the company. The Sarbanes Oxley compliance also insists that businesses should refresh and reinforce these policies consistently to implement a robust data security framework and protect financial data.
  4. Finally, the SOX audit requires the firms to have and document proofs stating that they are compliant and making constant efforts to stay compliant with the SOX requirements.

What are Sarbanes Oxley Compliance Audits? 

Sarbanes Oxley compliance states that all applicable organizations must participate in SOX audits on a yearly basis. Companies are supposed to present the results of the SOX audits to all stakeholders.

Companies need to appoint external auditors to conduct the SOX audits. The primary purpose of the Sarbanes Oxley compliance audits is to authenticate the organization's financial records. The hired auditor validates the presented data with the previous year's records to ensure that everything is streamlined. They might also set up one-on-one interviews with employees to make sure everything is as per the SOX guidelines.

Things To Do Before SOX Audits? 

The four internal SOX controls that you need to check before the audit are as follows:

Access: This means the electronic accesses that the employees have, such as login policies and controls, along with physical accesses such as locks, doors, and access cards. According to SOX Compliance regulations, people/employees must not be given access to any data that they don't need to perform their tasks.

Security: The second and essential control – security refers to having a strict check on your plan of action to prevent any potential data theft. SOX allows you the liberty to objectively decide how you wish to execute this control.

Data Backup: Sarbanes Oxley compliance states that organizations must maintain required backups for their financial data. Also, this backup must be kept at an off-site location.

Change Management: SOX authorizes organizations to appoint defined procedures to sustain and add users into their systems.

The SOX Checklist: It is advisable to have a SOX checklist handy while preparing for your SOX audit to ensure you're not missing out on anything important.

  • While preparing for the audit, ensure that a proper SOX compliance report is being maintained simultaneously. It is essential on your part to be proactive in maintaining these reports on a daily basis.  
  • Assist SOX auditors and provide them access to everything they need to conduct the audit efficiently and effectively.
  • Account for any security breach in advance to enable clarity and trust.

What Are The Benefits of SOX Compliance? 

Now that you know what SOX compliance is and how to be SOX compliant, you must also understand the need for it.

SOX creates a universal framework that every organization must follow to gain trust and maintain proper records of their financial activities. SOX Compliant companies have stated that SOX has made their financial records much more predictable and transparent, and thus this makes stakeholders well-informed and content.

SOX protects organizations from cyberattacks and keeps their data safe as it can be expensive and embarrassing if the data gets lost or gets into the wrong hands. However, data breaches have long-term effects, and in some cases, companies might never entirely recover from the reputational loss.

That being said, we hope that you understand the benefits of staying compliant with SOX and the consequences of being non-compliant and decide to be proactive in this area. You can always seek expert insight and professional help to make sure everything is up to the mark.

At TRC Corporate Consulting, we have a panel of experts with years of experience in this industry who are equipped with the necessary knowledge to provide professional help on matters associated with SOX. From every SOX audit to other SOX requirements, TRC professionals can help your organization at every step towards progress. Get in touch to know more about what TRC offers. 

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