With SOX requirements now in place, many companies are scrambling to find the best way to satisfy those requirements. Many different options are available, and it can be hard to know which one will work best for your company. In this blog post, we’ll show you why SOX compliance is important and give you a SOX compliance checklist.
SOX Compliance is Important to Companies
The regulations are in place to make sure that companies can accurately report their financial statements. These reports need to be accurate and transparent for shareholders, analysts, banking partners, etc., without any errors or omissions so they can all have confidence in the data being reported by your company. If you’re not familiar with SOX requirements, it’s important to know that they’re a set of regulations and laws put into place by the United States government in 2002. They were implemented to respond to several corporate accounting scandals, most notably those at Enron and WorldCom, where misreporting or overstating financial results led to millions of dollars being stolen from investors who had no idea what was happening.
A Company can be fined up to $5,000 per Violation of the Law
The companies that are required by SOX requirements to have an outside accounting firm review their financials to ensure compliance with the law falls into two main categories:
Publicly-traded entities include everything from large multi-national corporations to small mom-and-pop shops that list themselves with an investment banker to trade their stock publicly.
Non-listed companies are generally small businesses that don’t list themselves on one of the major exchanges to sell their shares. These include private equity firms, privately held corporations or LLCs, etc.
Six Major Areas must be Addressed to Comply
IT Infrastructure Controls – These controls are meant to ensure that the data used throughout your company is accurate and reliable. This includes having a system in place for security (accessing who has access, tracking changes), segregation of duties (accountability with multiple people involved in processes/decisions), and how you protect against fraud or misuse (auditing, monitoring).
Audit Trail Controls – These controls ensure that all changes made to your data are trackable and auditable. This ensures both accuracies of the information and accountability for who was responsible for making those changes.
Risk Assessment – Companies need to know where potential risks may be within their business to address them before any issues arise. This includes areas like identifying weak points in the process or understanding how new regulations might affect existing processes/security measures you have in place. Risk assessments help everyone work together with a common goal of maintaining compliance without sacrificing security or access levels along the way!
Independent Reviews – Periodic independent reviews should happen on an ongoing basis throughout each year. This gives management teams an idea of where they are excelling/struggling, what changes may need to be made and allows them to see the current state of compliance within their organization.
Internal Controls – These controls help ensure that your employees have the proper training for all tasks assigned throughout the company, so there is no question about who has access or why it’s being done. Without these measures in place, you risk misappropriating funds or not following through on important projects because records were never updated properly!
Documentation – Ensuring documentation covers everything from job descriptions to regular updates on policy changes can make life much easier when auditors call after SOX requirements are implemented. Having this information readily available will help make the process go much more smoothly and reduce any misunderstandings between your company and audit teams.
The best way to fulfill SOX requirements is by understanding and following the guidelines set out in the law. The major size areas listed above must be addressed to comply with SOX requirements. Make sure your business follows these as soon as possible.