23 Jun 2021 Ankit Chadha

Sox Compliance: Importance and Retaking the Reins of Compliance

SOX Compliance | TRC Corporate Consulting

The US Congress passed the Sarbanes-Oxley (SOX) Act in 2002 to protect people's interest against erroneous activities conducted by businesses and corporations. This act is aimed at increasing transparency in the way businesses perform financial reporting and encourage a standardized system of balance and check across all businesses.

SOX Compliance is not merely a legal necessity. It is a just business practice that urges businesses to act ethically and decrease access to internal financial systems. Moreover, adopting the SOX financial security practices protects your business against data theft or other kinds of cybercrimes. SOX Compliance covers similar parameters as most data security systems.

What is SOX Compliance? 

Before we move ahead, let's answer a simple question – what is SOX compliance? The SOX bill was drafted by Senator Paul Sarbanes along with Representative Michael G. Oxley. It was drafted in response to the many corporate scams that had been brought to light during that time. SOX Compliance was created with the objective of safeguarding investors by augmenting the accuracy and consistency of corporate discoveries. It brought forward a few important responsibilities for executives and board members of publicly listed firms. Additionally, it established criminal penalties if a business fails to comply with these responsibilities.

To Whom Does SOX Compliance Apply? 

SOX Compliance affects all publicly listed companies.  Additionally, it also applies to audit and accounting firms that work for organizations that fall under SOX.

What are the SOX Compliance Requirements? 

  1. CFOs and CEOs of an organization are required to accurately document and submit the financial archives and internal control structure at the time of a Sarbanes-Oxley (SOX) Audit. These officials can face financial penalties and/or imprisonment in case they fail to do so.
  2. Businesses are required to produce an internal control report. This report should hold management responsible for maintaining a financial control structure. Any compromise should be brought forward in a timely manager to ensure transparency.
  3. As per SOX, companies are mandated to have comprehensive data security policies and clearly communicate these policies. Additionally, it also needs businesses to refresh and reinforce these policies consistently to implement a robust data security framework and protect financial data.
  4. Lastly, SOX requires firms to produce proofs establishing that they are compliant and making efforts to stay compliant with the SOX requirements.

What are SOX Compliance Audits? 

SOX mandates all applicable organizations to participate in SOX audits every year. Organizations are required to make the results of these audits public to all stakeholders. Organizations appoint external auditors to conduct the SOX audits. The primary purpose of these SOX audits to validate an organization's financial records and statements. The appointed auditor verifies the presented data with the previous year records to make sure that everything is streamlined. They might also choose to hold one-on-one interviews with employees to make sure everything is as per the SOX requirements.

What to do Before Sarbanes-Oxley (SOX) Audit or SOX Audits? 

You need to keep four internal controls in mind while preparing for your Sarbanes-Oxley (SOX) Audit or SOX audit. Lets take a look at them.

There are four internal controls that you need to keep in mind while preparing for a Sarbanes Oxley audit. Let's look at each one of them.

  1. Access 

This refers to electronic accesses such as login policies and controls and physical accesses such as locks, doors, and access cards. According to SOX Compliance regulations, no one should be given access to data or documents they don't need to perform their tasks.

  1. Security 

The second control is security. This control checks your plan of action to prevent any possible data breaches. SOX gives you the liberty to independently decide how you wish to implement this control.

  1. Data Backup 

SOX mandates organizations to maintain appropriate backups for their financial data. This backup should be maintained at an off-site location.

  1. Change Management 

SOX mandates organizations to appoint defined processes to maintain and add users into their system

SOX Checklist 

While preparing for your SOX audit, you should keep the following SOX checklist handy to ensure you're not missing out on any essential point.

  • Make sure you're maintaining a proper SOX compliance report. You must be proactive in maintaining these reports on a regular basis, as looking at them at the last minute can be inconvenient and time-consuming.
  • Support SOX auditors by providing them access to everything they require to conduct the audit efficiently
  • Report any security breaches in advance to enable transparency and trust.

This sox compliance checklist will help you in avoiding any last minute hassles. Remember to refer to this sox compliance checklist every now and then to ensure you’re up to speed.

Benefits of SOX Compliance 

So far, this article has explained what SOX compliance is and how to be SOX compliant. But why do we need to be SOX compliant? Let's try and understand.

  • SOX provides a standard framework that the organizations are required to follow in order to maintain their financial data efficiently. This helps in improving several other functions of the organization as well.
  • SOX Compliance companies have agreed that SOX has helped make their finances much more predictable and transparent. This makes stakeholders happy.
  • SOX prevents organizations from cyberattacks and keeps them safe from data breaches which can be expensive and embarrassing. This is very important because data breaches have long term impacts, and companies may never completely recover from the reputational loss.

Now that we know the benefits of staying compliant with SOX and risks of being non-compliant, it is easy to recognize how critical it is to be proactive in this area. This is why it is always a good idea to seek expert insight and professional help to make sure everything is up to speed.

Professionals at TRC Corporate Consulting have years of experience in this industry and are equipped with the necessary knowledge to provide professional help on matters related to SOX. From every SOX audit to other SOX requirement, TRC experts can assist your business on every step of the process. Get in touch to know more about TRC's offerings.