Essential points of SOX Act

The Sarbanes-Oxley Act of 2002, a U.S. law, helps protect investors from corporations’ fraudulent accounting activities. For a company to be SOX compliance, it has to ensure proper financial disclosure from the companies and stop accounting fraud. It has been named after two congressmen Paul Sarbanes and Michael Oxley. It is administered by the U.S. Securities and Exchange Commission. The act came into the picture because of the financial scandals by public trading companies like Enron Corporation, Tyco International, and WorldCom.

Who should comply with SOX law?

All public companies in the United States are covered in this act. The following companies are liable to be SOX compliance.

●      Publicly-traded companies

●      Wholly-owned subsidiaries

●      Foreign companies are trading in the U.S.

●      Accounting firms that perform audits for any U.S. public company.

●      Private companies were getting ready to go public with an IPO.

There is protection provided in this act to-.

●      The employees who report fraudulent activity within their own company are provided protection.

●      There are strict laws for officers, board members, and auditors for the destruction of company documents.

There are 11 sections in the SOX act out of which the main sections to be understood are discussed below.

Important Sections for SOX Compliance

All the sections need to be followed, but a few which hold more importance and to be understood are:

●      Section 302

As per the section, every public company must file periodic financial reports with the Securities and Exchange Commission, principal executive officer, and the top financial officer should sign each statement to certify that the report does not seem to miss out on any information. The authorized signatories of the report have internal controls for 90 days before issuing the statement.

●      Section 404

As per the section, all annual financial reports should include an Internal control report that management is responsible for an adequate internal control structure. Registered external auditors should check that the accuracy of the company management’s internal controls is operating effectively.

●      Section 409

As per the section, companies should disclose any material changes in their financial condition or operations to protect investors and the public’s interest regularly.

●      Section 802

As per the section, there will be criminal penalties for whosoever alters, destroys, mutilates, conceals, or falsifies any record, document, or tangible object to influence the investigation or proper administration of matters before the Securities and Exchange commissions can be fined or imprisoned.

●      Section 906

As per the compliance in this section, the criminal penalty for certifying a misleading or fraudulent financial report can be $5 million in fines and 20 years in prison.

To sum it up

The sox compliance helps the investors and public from financial fraud and monitors corporations’ financial side and the corporations’ technical department. In today’s corporate world, all the economic data is dependent on technology control of the corporation. Therefore, the SOX act tries to protect the data by actively participating in its encryption to keep a check that it has not tampered with no matter where it is stacked. It is vital for companies to secure the data.