What You Need to Know About the Sarbanes-Oxley Act (SOX)

Posted by Rick Yvanovich

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The Sarbanes-Oxley Act of 2002 (or SOX) is a federal law that established stringent auditing and financial regulations for publicly traded corporations.


What You Need To Know About The Sarbanes Oxley Act

The legislation was enacted to regulate financial reporting, internal auditing, and other business practices and protect shareholders, employees, and the general public from accounting errors and financial fraud.

These rules were amendments and additions to several securities and exchange commission (SEC)-enforced laws, including the Securities and Exchange Act of 1934 and the Investment Advisers Act of 1940. The Sarbanes-Oxley Act is enforced by the SEC.

The Act is primarily concerned with the following topics:

  • Increased criminal penalties 
  • Accounting rules 
  • New safeguards 
  • Corporate responsibility

Read more: IFRS 17 Overview: What Is It For? Who Is Affected? Why Should You Care?

What companies must comply with the Sarbanes-Oxley Act?

SOX applies to all publicly traded companies in the United States, including wholly owned subsidiaries and overseas companies operating and listed in the United States. Private firms, charitable organisations, and non-profits are generally exempt from all SOX requirements. 

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However, private organisations that intentionally damage or misrepresent financial data may still face sanctions under certain SOX language. 

Below is a short list of companies covered by SOX: 

  • US-based public companies 
  • International companies whose shares or securities are registered with the SEC 
  • Private companies in certain areas of financial reporting 
  • Accounting firms that audit companies for SOX

If your organisation falls into one of these categories, it is subject to the data security and control requirements specified by SOX.

SOX also determines professional accountants that audit SOX-compliant companies. Auditors, accountants, and corporate executives are all held responsible for the new set of rules.

Read more: 5 Compelling Reasons Why You Need Cloud Accounting Software Today

The advantages of SOX conformance

  • Financial custodianship: SOX offers the needed framework for enterprises’ financial records, thus protecting other aspects of the business. 
  • Better reporting: SOX-compliant businesses report more consistent finances and simpler capital markets access. 
  • Improved cybercrime: SOX protects entrepreneurs from cyber attacks and the high-cost aftereffects of a breach. 
  • Improved collaboration: SOX compliance aims to enhance communication and enforce coherency and consistency across the organisation. 
  • Prioritisation of threats: Adhering to SOX requires your business to implement a comprehensive risk management framework into its culture. 

When does your company need to comply with Sarbanes-Oxley?

The Act, among other things, requires public corporations to hire independent auditors to review their accounting practices and define how corporate audit committees and external auditors should engage. 

In addition, the Act appointed the Public Company Accounting Oversight Board (PCAOB) to establish audit reporting standards and rules. By law, all public accounting firms that audit public companies must be registered with the PCAOB. The PCAOB investigates and enforces compliance among registered public accounting firms.

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How to comply with Sarbanes Oxley?

SOX proponents acknowledge that the Act has helped improve corporate financial management by strengthening controls, standardising processes, improving documentation, and establishing greater oversight by the board of directors.

Studies also show that the Act increases investor confidence as SOX requires formal data security policies, communication of those policies, and consistent and ongoing enforcement.

SOX mandates that companies complete yearly audits and share the results with stakeholders as requested. SOX compliance should be treated as a year-round effort and be continuously prepared for the next audit.

Below is a checklist to help make sure your organisation complies with SOX: 

  • Prevent data tampering and monitor violations 
  • Document activity schedules and encrypt data 
  • Install access tracking controls that can identify security violations 
  • Always make sure your defence systems are working 
  • Analyse security system data and improve where necessary 
  • Implement real-time violation tracking 
  • Grant auditors access to defence systems for complete transparency 
  • Disclose security incidents to auditors for rapid response 
  • Reporting technical issues to auditors to avoid delays and deadlocks 

SOX compliance does not have to be challenging. It is a chance to augment your financial reporting, cybersecurity, and access control capabilities.  

Implementing new strategies and technologies to stay compliant, such as identity access management or automated data governance enforcement, can strengthen your company over the long term. 

SunSystems and Sarbanes Oxley

For over 30 years, Infor SunSystems has been the financial management solution of choice for over 9,000 customers in 190+ countries. Infor SunSystems can meet the needs of a wide range of industries, including hospitality, non-profit, oil and gas, banking, and many more, with minimal customisation and quick and easy implementation.

The solution is a combination of powerful local and global capabilities that are constantly enhanced to meet rapidly changing requirements in international accounting and budgetary control standards, corporate governance, and technology.  

Moreover, the solution also allows your business to always stay compliant with various international accounting standards, including IFRS, GAAP, and, most certainly, Sarbanes-Oxley.

The solution "grows" with your organisation. Its scalability and flexible deployment options allow you to adapt to complex business adjustments and update quickly.

If what you are looking for is a financial management system that provides real-time analytics plus reporting, budgeting, multi-language, and multi-currency capabilities, and complies with both local and international accounting standards, SunSystems is the answer.

Everything you need to know about Infor SunSystems

Topics: CFOs, Financial Accounting Management Software

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Rick Yvanovich

 Rick Yvanovich
 /Founder & CEO/

With TRG International Blog, it is our mission to be your preferred partner providing solutions that work and we will make sure to guide your business to greatness every day.

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