What accountants should know about SOX
The Sarbanes-Oxley Act (SOX) is a United States federal law passed in 2002 as a way of overseeing accounting practices in publicly held companies. While this law primarily focuses on auditing and compliance, it involves many different aspects that affect business performance. For example, SOX also puts in place requirements for management teams, data security protocols, and internal control reports.
The SOX law was written in response to the wave of accounting scandals in the early 2000s. Therefore, its primary role is to increase transparency in financial reports while establishing a formal system where such documents can be internally and externally verified.
Understanding SOX and how it applies to accountants
SOX is a company-wide law, but it also applies specifically to accountants. This is because accounting professionals are involved in many different aspects of financial reporting. From bookkeeping to valuation and even the implementation of information systems, accountants play a critical role in the financial success of any public corporation.
Similarly, accountants may be involved in representing an inaccurate image of any company’s performance. SOX laws were designed to oversee these aspects of the financial process and minimize instances of fraud.
As an accountant, you may be wondering which specific aspects of SOX apply directly to you. SOX is not just a legal burden that public corporations need to adhere to. Indeed, it is a good business practice to implement SOX because it can help detect and prevent accounting fraud, prevent data theft, and also limit cyber security attacks. But what should you specifically know about SOX as an accountant?
SOX: What accountants need to know
Yearly independent audits are a requirement
The core SOX requirement that applies to accountants is mandatory yearly audits. Public corporations are required to undergo an external audit of their financial records to ensure that all the information reported is accurate. These audited statements are relied upon by investors, government officials, and other stakeholders when assessing the performance of the business.
You may be hired as an external auditor to carry out SOX audits for clients. If so, you’ll need to verify the client company’s financial statements and check them for accuracy. This involves comparing the current statements to previous years—and identifying any possible areas of concern.
Effective internal audits smooth the external auditing process
For any business to have a successful external audit, internal auditing also needs to be as accurate as possible. External auditors will rely on internal reports and software systems to access public company information. If these systems are not in good shape, the external audit may be delayed. Auditors may also have additional concerns regarding your company’s financial statements.
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