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SOX compliance is a major requirement for American corporate entities. SOX, or Sarbanes-Oxley Act, is a piece of legislation that is aimed at protecting investor interests and regulating corporate governance. It seeks to make American corporations such as public accounting firms and management and public company boards more accountable by setting new, higher standards for their conduct. Background to the legislation SOX Act was enacted in the background to the corporate frauds that rocked America in the 1990’s and early 2000’s, namely Enron, WorldCom, Tyco, Adelphia, peregrine and other smaller ones. Following these scandals, it was felt that corporations’ accounting practices needed to be tightened and made more accountable. The eponymous Act is a creation of Senator Paul Sarbanes and Representative Michael Oxley. The essence of SOX is to verify the authenticity and truthfulness of corporate financial statements. Since it brings accountability into the core of the financial and corporate system; this Act is termed as the most far reaching reforms for the American business environment since the New Deal introduced by Franklin Roosevelt in the post Great Depression era. What does it mean to be in SOX compliance? Following the passage of this Act;corporations are required to adhere to the new, more stringent regulatory requirements set out in it. American and other nations’ firms doing business in America are bound by a more comprehensive and complex set of regulatory requirements. Their accounting practices are subjected to far greater scrutiny than they were in the past. For firms to be in SOX compliance, they are required to practice transparency into their financial dealings. Some of the tools by which SOX compliance is ensured: The outstanding features of SOX are outlined in its 11 Titles. These titles relate to the all-round compliance and supervision of all aspects of corporate governance. These are: Title 1: Public Company Accounting Oversight Board (PCAOB) Title 2:Auditor Independence Title 3:Corporate Responsibility Title 4:Enhanced Financial Disclosures Title 5:Analyst Conflicts of Interest Title 6:Commission Resources and Authority Title 7:Studies and Reports Title 8:Corporate and Criminal Fraud Accountability Title 9: White Collar Crime Penalty Enhancement Title 10:Corporate Tax Returns Title 11:Corporate Fraud Accountability How is the Act administered? SOX compliance is enforced through the Securities and Exchange Commission (SEC). This body publishes the rules for requirement of compliance. It also sets deadlines for implementation of respective areas of SOX compliance. SOX and electronic records Since the tendency these days is for electronic records; the SOX Act lays out requirements for preservation of electronic records. It has three sections which deal specifically with the way electronic records have to be handled. The first of these is set out in Sec. 802 (a). It concerns itself with destruction, falsification or alteration of records, which invites fines and imprisonment of up to 20 years or both. Sec. 802 (a)(1) sets out rules for preservation of electronic records. Accountants who audit firms should keep records for up to five years from the end of the fiscal period in which the audit was conducted. This is a major requirement of SOX compliance. Sec. 802 (a) (2) specifies the type of documents that need to be preserved, and to what kind of scrutiny they can be subjected to by public accounting authorities. CLICK HERE
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