The first decade of the twenty-first century will remain etched in the memories of investors, shareholders, and the public due to some massive financial scandals of the major American enterprises and corporations that made a mockery of accounting standards.
People not only lost money but also their confidence in the business administration and accounting system took a massive hit. Understanding the impact of the unfortunate incidents, the US government lost no time to formulate rules to plug the gaps in the system to restore the confidence of the public.
This lead to the implementation of the SOX or Sarbanes – Oxley Act in 2002 that people look upon as the bible for good business administration.
SOX goals and coverage
Protecting investors by improving the reliability and accuracy of disclosures is the primary purpose of SOX. It aims at implementing accounting standard and disclosure requirements that would bring more transparency in financial reporting and corporate governance and formalize a system that would lend checks and balances to internal systems.
The act aims at preventing misreporting of business figures that can send wrong signals to people and misguide them. The bill covers all publicly held American companies, as well as any third party or accounting firm that provides financial service services to these enterprises.
If an international company has debt securities or registered equity with the SEC (US Securities and Exchange Commission), then it also comes under the purview of the act.
IT software for SOX compliance
Compliance with SOX is an ongoing concern for all business managers, and IT plays a significant role in completing the task satisfactorily. Since you have to do much more than merely keeping up with the rules of financial reporting, it would require much effort for compliance.
For smooth compliance, you must use suitable software like Salesforce SOX that facilitates the process. The software can help IT administrators to keep track of their networks and have close surveillance on all outgoing and incoming information so that they can be sure that the software is properly registered and capable of generating accurate reports.
If you fail to comply with SOX, you attract penalties in more ways than one. From imposing fines to de-listing from the public stock exchanges, anything can happen. Your D&O insurance policies can be invalidated, and if it is found that the violation is an act of willful submission, then the CFO and CEO can face up to 20 years imprisonment and a fine of $5 million.
Creating Value for The Organization
When you are complying with the provisions of SOX, you are not only meeting the legal requirements but also in the process adding more value to the business. You stand to gain a lot when you implement data governance procedures in the right way.
According to survey reports, 78% of organizations took advantage of SOX compliance to achieve continuous improvement in financial reporting. Another 52% reported moderate to significant improvement in internal control.
When you work for SOX compliance, you are creating more value for the organization.