10 Steps in SOX Compliance Checklist & Requirements Every Business Must Know
The foundation of any publicly traded company is corporate financial integrity. The Sarbanes Oxley (SOX) Act was passed to ensure these businesses are open and responsible for their financial reports.
As a business owner, you cannot afford to disregard the importance of SOX compliance. In this guide, we will show you the ten essential steps to ensure your company follows SOX regulations and prepares for any inspections.
What is SOX Compliance?
In response to scandals like Enron that dissolved investor certainty and dominated news scope, the Sarbanes-Oxley Act (SOX) was enacted in 2002. This enactment sets up thorough benchmarks for corporate administration and financial detailing to anticipate comparative emergencies from happening in the future.
The responsibility for the accuracy of financial articulations lies with senior officials, including Chief Official Officers (CEOs) and Chief Financial Officers (CFOs), making compliance with SOX a fundamental commitment that must be taken seriously.
10 Steps in SOX Compliance Checklist
This 10-point SOX compliance checklist can simplify the procedure and guarantee that your company is meeting its legal obligations effectively.
Establish Internal Controls
A solid internal control system is essential for SOX compliance. This framework guards against fraud and mistakes to help guarantee accurate financial reporting. Controls are insufficient; they must also be robust, subjected to frequent testing, and modified as needed.
Document Financial Processes
All of your financial procedures, including the logging of transactions and the preparation of financial statements, must be documented. Thorough documentation helps during audits and ensures a verifiable trial if any questions arise.
Assign Roles and Responsibilities
Assign tasks to team members to reduce the risk of fraudulent activity. Dividing tasks between different roles helps reduce risk and human error by preventing one person from having too much control over financial matters.
Control Access to Financial Data
It’s essential to restrict access to financial data. Sensitive data handling should only be done by authorized personnel, and these permissions should be periodically checked to ensure nothing slipped through the cracks.
Perform Risk Assessments
Frequent risk assessments enable you to identify possible gaps in your internal control system. You can avoid more severe issues later and maintain the stability of your system by proactively finding and closing these gaps.
Conduct Regular Internal Audits
Internal audits are essential to remain SOX compliant. With these audits, you can quickly test your controls and identify problems. Be sure they’re done by someone independent to keep everything objective.
Hire External Auditors
External auditors must assess your financial reports and internal controls following SOX. The key to preventing conflicts of interest is to separate auditors from your internal audit team.
Executive Certification of Financial Statements
CEOs and CFOs need to personally approve their company’s financial statements. This is one of the critical provisions of SOX as they are now responsible for the accuracy of the data, and submitting fraudulent information can have significant legal consequences.
Utilize Technology to Streamline Compliance
Handling compliance manually can be difficult. For this reason, many businesses are using tech tools to automate reporting and control testing. Employing technology has improved compliance efforts without requiring a significant increase in person-hours, according to 66% of businesses referred to as “digital leaders.”
Stay Up-to-Date with Regulatory Changes
Ensure to be updated on the latest developments in SOX regulations as they can change. Provide your team with regular training and updates to help your company stay ahead of the game and maintain your good reputation.
Why SOX Compliance Matters
Disregarding SOX compliance can have consequences. Companies that come up short to comply can face massive fines, and critical executives may be looking at penalties of up to $5 million and some prison time. CEOs and CFOs can’t claim obliviousness when it comes to financial reports. If they intentionally sign off on wrong explanations, the law becomes difficult.
Many companies spend over 10,000 hours more on compliance activities than in previous years. A 2021 survey even found that 65% of companies saw increased time spent on SOX compliance.
That said, using technology can help offset these costs by streamlining many time-consuming processes.
Conclusion
In addition to being required by law, SOX compliance can help you establish credibility and transparency for your business. Technology can make compliance much more manageable, although sometimes it can seem impossible due to rising costs.
We hope that following these ten steps will help you stay compliant and, build with your stakeholders, avoid financial penalties, and protect your company’s reputation.
Need help navigating SOX compliance? Reach out to Renascence IT for expert advice and support.