The financial integrity of your business isn’t all about doing things right, but also about keeping everything transparent and showcasing your stability. To comply with the SOX (Sarbanes-Oxley) act of 2002, businesses must conduct an audit of financial statements on an annual basis.
The audit has the primary purpose of verifying every statement, as well as how it’s been created. Every statement is analyzed by a third party. Once completed, it’s then made available to parties interested, such as investors or stakeholders, among others.
In theory, it’s an easy step to add to the integrity of your business, but how does it benefit you?
- Doing SOX Auditing the Right Way
The SOX compliance audit helps investors, clients, accounting companies, staff and other parties. The act asks a wide variety of businesses to comply with this standard.
Publicly traded companies headquartered in the USA (as well as subsidiaries) must conduct these audits, but also non-US companies that are publicly traded and conduct business in the country.
Private companies will require SOX compliance too, mainly while getting ready for an initial public offering.
Last, but not least, smaller businesses offering various services to such companies must follow the same rules.
- A Well-Established Business Framework
The SOX compliance audit is basically a control system. It allows a business to keep the risk of financial issues under control and maintain robust financial integrity. Whether these inaccuracies are obtained by error or intentional, this program aims to reveal everything with meticulous precision.
When done by the book, the audit will identify potential risks within the company’s financial system. At the same time, having all this data readily available, the management can develop systems or controls to reduce such risks in the future.
Even if this isn’t your first audit and you already have some controls in place, the audit will help you determine whether or not they actually work and meet current regulatory standards.
Last, but not least, this business framework is a confirmation that you have an effective control operating within the business.
When the standard was established more than two decades ago, many companies struggled to implement controls. Things are different these days because there are countless software solutions, as well as automated solutions.
- Transparency and Visibility for Businesses
The SOX audit is all about transparency and visibility. It’s a standard that allows looking into a company’s finances. It prevents fraud and increases stability, but it also gives stakeholders and investors a more objective view over the financial side.
A business adopting these SOX standards will see immediate benefits. It makes no difference if these standards are required by the law or not. At the end of the day, not every business has to implement the audit, yet it’s always a good idea for everyone to do it.
A SOX compliant business basically reports that its financial aspect is predictable and less likely to cause any unpleasant surprises. From this point of view, stakeholders are kept happy and encouraged, while investors are more likely to dive in.
Simply put, a company adopting these standards will end up with more opportunities in the future. Sure, not every company will skyrocket. But at the end of the day, this is only a small piece of a more comprehensive plan for growth and success.
For example, valuations could be higher prior to a partnership or acquisition. Access to capital could also be easier and for better terms and conditions. At the same time, if you’re seeking an IPO, you’ll notice your deal is likely to close much faster.
Beyond these immediate advantages, SOX compliance serves as an important foundation for building long-term organizational credibility. It demonstrates a commitment to ethical practices, risk management, and financial discipline that can differentiate a company in competitive markets.
- An Extra Layer of Asset Security for Companies
SOX standards come with even more benefits in terms of financial security. Take data breaches, for example. Not only are they embarrassing, but they also come with expensive problems. Data protection, fraudulent transactions, money down the drain, these are only some of the consequences.
A cleanup after a data breach isn’t just expensive, but also messy. It can seriously ruin the reputation of a company. And while it may seem surprising, some companies affected by such issues have never managed to recover. Once ruined, fixing a reputation could be an impossible task for some.
In theory, almost every company has a type of framework in place, but not every framework is effective.
SOX auditors tend to investigate a wide variety of aspects regarding a business, but also a few internal controls. Data backup is one of them. Companies are meant to keep backups of financial records off-site. Some of them keep such data in the cloud, so it can be easily accessed anytime, anywhere.
Another protocol is security, meaning the internal system must show some sort of protection against potential breaches. Different businesses implement these controls in different ways.
Both electronic and physical access is considered too, not to mention the change management. In other words, how your business handles users, software and changes will impact your SOX standard compliance.
In the end, SOX compliance audits are more than just a regulatory checkbox; they are a powerful tool for strengthening a company’s financial integrity, building investor confidence and creating a culture of transparency and ethical financial management.
