In 2002, The Sarbanes-Oxley Act was passed by Congress. The timing of the signing of the Act is significant because it was signed after several serious fraud cases, including the Enron fraud scandal in 2002. Obviously, additional security measures are required. Designed to protect the integrity of companies and investors from internal and external intruders.
The basic purpose of this bill intends to protect investors against faulty or misused disclosures of publicly registered companies’ monetary information. It delivers these defenses by demanding CEOs, CFOs, and alternative C-suite executives to require responsibility for honest financial data reporting, official data security policies as well as documentation of all related financial details — which may all be force up and reviewed through audit at any time.
Companies acquiring safeguards to have comprehensive and accurate knowledge of their financial information and to maintain the security of their network in any area where financial information could be breached or misrepresented. Although a company's market and overall value may vary over time, however, SOX ensures that internal and external shareholders are not misled about their investments.
SOX specifically governs the financial information of publicly traded companies, particularly in relation to corporate transactions, which can include items such as off-balance sheet transactions, proforma numbers, and stock transactions.
Federal law endorses several rules for this type of financial data that require companies to undergo regular external audits and allow internal reporting and controls to sustain the accuracy of financial data. Moreover, companies are anticipated to report concrete indication of changes in the SEC's financial position.
The controls required by SOX include an internal control report that lists the entire financial history for the responsibility and transparency of management, as well as additional documentation that certifies the regular monitoring of financial data. The SEC also requires formal data security guidelines with evidence of communication and compliance through a corporate network. SOX does not provide precise security protocols or expectations.
In United States, all traded companies with shareholders must comply with SOX standards. This mostly involves all associated boards of directors, administration, and auditing companies of public companies. In addition, they have their own set of procedures associated to auditing and avoid conflicts of interest.
SOX can be applied to other situations, but most organizations have not resolved it yet. For instance, if private companies impede with federal financial investigations, they may also be liable for certain parts of the SOX Act. This is also applicable to international companies. Similar to other data laws including GDPR, SOX affects to any public company that performs business with U.S. citizens, even if the company is not in the U.S.
A SOX compliance requirement instructs all affected companies to undergo annual audits and to make the results publicly available to their stakeholders - an external auditor is usually hired to conduct a financial audit of all data and financial statements, but the auditor cannot do otherwise Perform type of test perform. At the same time, owing to the conflict-of-interest clause in SOX, the auditor will review the annual financial statements for the current year during the audit process and compare them with the data of the previous year in order to determine whether intentional or deliberate errors were inadvertently in the general ledger.
The US Securities and Exchange Commission enforced SOX, which the Public Company Accounting Oversight Board established to oversee, regulate, and discipline auditors who work with SOX traded companies. Generals are also accountable for reporting and analyzing broad view indicating the role of accounting firms, rating agencies, and investment banks in implementing SOX. More importantly, over time, the SEC provides additional guidance on SOX-related cases and has the final say on whether an organization has failed to comply.
The SEC as well as SOX take CEOs and CFOs solely responsible for the accurate presentation and documentation of their company's financial data and reports, as well as all other rules set out in SOX. Involuntary non-compliance could face fines of up to $ 1 million and the possibility of 10-year prison sentences for company executives. The willful non-compliance has even more serious ramifications for the offenders, including a fine of up to $ 5 million and a 20-year prison term.
There are significant ramifications for non-SOX compliant organizations, so it's easy to assume that the law only benefits consumers and investors outside the company.
Therefore, SOX offers a multitude of benefits for both the company and the consumer Seriously: