The Sarbanes-Oxley Act (SOX) details criminal and civil penalties for noncompliance, certification of internal auditing, and increased financial disclosure. It affects the public (and private) U.S. companies and non-U.S. companies with a U.S. presence. SOX Compliance is all about corporate governance and financial disclosure.
The SOX Act requires all financial reports to include an Internal Controls Report. This shows that a company’s financial data accurate and adequate controls are in place to safeguard financial data. Year-end financial disclosure reports are also a requirement. A SOX Compliance auditor is required to review controls, policies, and procedures during a Section 404 audit.
Sarbanes-Oxley builds a security system between the auditing function and other services available from accounting firms. The firm that audits the books of a publicly held company may no longer do the company’s bookkeeping, audits, or business valuations. It is also banned from designing or implementing an information system, supplying investment advisory and banking services, or consulting on other management issues.
Sarbanes-Oxley has mandates about the establishment of payroll system controls. A company’s workforce, salaries, benefits, incentives, paid time off, and training costs must be accounted for under Section 404 of Sarbanes-Oxley. SOX requires certain employers to adopt an ethics program that includes a codified code of ethics, a communications plan, and staff training.
According to a 2008 SEC survey of officers at public companies, Sarbanes-Oxley costs the average company $2.3 million annually in direct compliance costs, including staff time, documentation, and external audits. This is compared with estimates of $91,000 in annual expenses before the Act was passed.
CEO and CFOs acknowledge responsibility for the accuracy, documentation, and submission of all financial reports, plus the internal control structure to the SEC.
SOX requires an Internal Control Report stating that management is responsible for an adequate internal control structure for their financial records. Any shortcomings must be reported up the chain as quickly as possible for transparency.
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