It is a business owner’s responsibility to make sure their organization complies with the law. While it may seem tedious, there are several important reasons why taking time to focus on SOX Compliance can be worth it for any company. There are many ways that the Sarbanes-Oxley Act (SOX) protects investors and helps companies succeed. Whether your company does not have public stock or simply wants to protect yourself from scrutiny from regulators, being aware of what SOX compliance means for your business and how it can affect you as a business person is key.
What is Sarbanes-Oxley?
The Sarbanes-Oxley Act was passed in 2002 due to the Enron scandal. This legislation aims to protect investors by improving financial disclosures from public companies and creating new criminal penalties for committing fraud against shareholders. SOX helps ensure that executives are not pressuring auditors into providing false or misleading information about corporate assets, income, and liabilities.
A key portion of the legislation requires chief executive officers (CEOs) and chief financial officers (CFOs) to sign off on their yearly reports personally – it is illegal to pass the responsibility onto lower-level employees. Also, if an outside auditor is hired, they must affirm the CEO’s statement for any company with more than 500 shareholders or whose shares are traded on a major stock exchange.
The Treasury Department’s Office of Compliance Inspections and Examinations (OCIE) handles regular compliance inspections to ensure that public companies are complying with the rules set out by SOX. The penalties for non-compliance can be severe, as those who do not comply can face civil or criminal charges as well as fines up to $5 million.
Why is Compliance Important?
A huge amount of financial fraud has happened in the past because investors have lost trust in a company’s financial statements. By looking into possible violations of the law, regulators may uncover fraudulent behavior that would otherwise never have been known about if a company had done a good job at conducting their business affairs appropriately. In addition, proving that you are following all of the rules set out by SOX can lead to a more positive perception by investors and other stakeholders.
What Businesses Are Affected?
Any public company that has more than $75 million in assets, is either traded publicly, or has more than 500 shareholders who own at least one percent of their common stock will be affected by this legislation. Private companies may pass through portions of the legislation by registering their stock with the Securities and Exchange Commission (SEC). All businesses can benefit from understanding what it means for them and making sure they comply with any requirements. The same goes for anyone who works as an accountant, auditor, financial executive, or lawyer – these workers must know how this legislation affects them and what they can do to comply as well.
The Benefits of SOX Compliance
Helps Small Businesses Understand Finances
By making sure that there is no wrongdoing regarding their finances, a business can be confident that they are on the right track and will be rewarded for their hard work.
Protects Investors and Other Stakeholders
Without this legislation, there is no way to prove that anyone has acted illegally within the company. With SOX Compliance, potential problems can be prevented before they become issues that affect your investors or other stakeholders.
Puts More Confidence in Your Company
There are many ways that an investment into your company can benefit both of you – the first step should be to understand what all needs to happen behind the scenes to continue operating as successfully as possible. Knowing what rules apply to your business and familiarizing yourself with them puts everyone at ease when making decisions for your business’s future. Focusing on SOX Compliance shows everyone involved that you value transparency and accountability above profits.
Final Thoughts
By focusing on SOX Compliance, you are setting a good example for any future investors or other stakeholders who want to know what they are getting into. As these people are crucial in allowing your business to grow, you only make sense to put in the time and effort needed to ensure that everything is being run legally and responsibly.
