What is SOX compliance, anyway?
Do you operate a business or work in a corporation? Then you probably need to get your head around SOX compliance. IT SOX compliance is basically a requirement for corporations to properly report their finances.
The main idea behind it is to protect investors with absolute transparency. But there is a little bit more to it than that. So, in this article, we will explain everything you need to know about SOX compliance!
First off, what does SOX stand for? Well, it stands for Sarbanes-Oxley Act. This was an act that was passed by Congress back in 2002.
The main purpose of the act was to ensure that investors would have transparency in viewing the finances of companies. This was ultimate to protect investors from different types of fraud.
The SOX act came into force after some quite high-profile cases around the time of the new millennium involving fraudulent financial statements. This affected really big corporations like Enron, for example.
But the most important thing, these days, is to know that SOX compliance is all about providing accurate financial information to the government so that fraud cannot occur.
You have to keep certain financial information on file because there is a possibility that your firm will be audited by the government. This is something similar to doing your tax return.
With a tax return, you have to be accurate in your reporting, but the government generally only checks a small percentage of tax returns in their audits.
If you are not SOX compliant, you can face prosecution and some seriously damaging fines. So what does it mean to be SOX compliant?
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The first level of SOX compliance is to keep accurate documentation for the full finances of the corporation. But this is not new. What is new with SOX is that if companies don’t record this information accurately, they can face fines and jail time.
The other requirements of SOX mainly relate to the implementation of reporting procedures within the company. Companies must have formalized reporting processes so that there is full accountability from the top to the bottom.
The main reason for this is that, in the past, the top executives were able to make themselves immune from prosecution by pretending they were not aware of issues.
However, SOX requires that these executives formally accept responsibility for overseeing all financial transparency.
A further compliance requirement is that companies institute policies for many different situations and create infrastructure to support them. Because of this complexity, SOX compliance software like Workiva has become popular to simplify the process.
As with most compliance issues, SOX compliances can create a certain amount of anxiety. We all want to do the right thing and it can be worrying to think that you might not have properly recorded or reported something.
So, to help avoid this, get yourself some good software and get organized now! This will be the best way to save yourself from anxiety later on.
If you’ve found this information useful, why not check out some of our other great articles on business topics?
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