What is the ‘Sarbanes-Oxley Act Of 2002’?
The Sarbanes-Oxley Act of 2002 (SOX) is an act passed by U.S. Congress in 2002 to protect investors from the possibility of fraudulent accounting activities by corporations. The SOX compliance made it mandatory for companies to be transparent in their financial reporting and impose better internal controls and measures for corporate governance.
The SOX Act was created in response to accounting malpractice in the early 2000s when public scandals such as Tyco International plc, and Enron Corporation shook investor confidence in financial statements and demanded an overhaul of regulatory standards. The Sarbanes-Oxley Act requires that all publicly held companies must establish internal controls and procedures for financial reporting to reduce the possibility of corporate fraud.
Let’s have a Brief Intro about Sarbanes-Oxley, simply to get an overview:
- Corporate governance
- Financial reporting
- Internal controls
It requires a technological underpinning that facilitates integration, collaboration, reporting, and monitoring. The following are the sub-pages cover the key compliance sections:
- The Sarbanes-Oxley 401
- The Sarbanes-Oxley 404
- The Sarbanes-Oxley 409
- The Sarbanes-Oxley 802
- The Sarbanes-Oxley 302
What’s the Cost?
Pricing is the most important part that comes into consideration when we are talking about compliance. Sarbanes-Oxley compliance is burdensome and complicated to US businesses which are shelling out billions of dollars to achieve regulatory compliance.
Companies must identify their key processes, and necessary controls within those processes, and also measure the effectiveness of those checks. It requires a collaborative effort from multiple departments. This kind of process requires control points throughout the workflow and role-based identity management to determine who has access to what and when. Automation technology makes the Sarbanes-Oxley compliance procedure consistent, repeatable, and sustainable. Enterprise-wide standards have to be established to provide the management with ‘big-picture’ and ‘drill-down’ views of all data. It enables better decision-making and risk-management.
The task is enormous, and so are the costs. Sarbanes-Oxley places a heavy HR and financial burden on companies. Small wonder, then, that most companies put cost-containment at the top of their corporate priorities.
Turning Sarbanes-Oxley into Business Performance
Companies are working towards making the Sarbanes-Oxley compliance a natural outcome of the way they do business. The best practices instituted across the company bring in returns like:
- Correct documentation of internal controls and identity management – this allows companies to audit and track changes over time.
- On-time and accurate financial reporting.
- Monitoring through dashboards makes the management aware of weaknesses and takes action to rectify them (for instance: combining overlapping processes).
- Communication, collaboration, and operational effectiveness.
- SOX initiatives support good governance and added value.
- Incorporating SOX compliance into the company’s culture by using a business performance management (BPM) model will turn Sarbanes-Oxley into profit.