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What is SOX Compliance Checklist

What is SOX Compliance Checklist

If you are a business owner, then you have likely heard of the Sarbanes-Oxley Act. Companies must comply with this set of legal requirements to prevent fraud and misinterpretations in financial reporting. The act emerged as a response to financial scandals, so business owners need to understand what it is and how to comply with it. 

One way to make sure your company is SOX-compliant is through a SOX compliance checklist. But what exactly is this type of checklist, and how do you make one? This article will answer all of these questions as we talk about SOX compliance and why you should use a SOX compliance checklist.

 

What is SOX?

SOX is a shortened term for the Sarbanes-Oxley Act of 2002. It is a set of regulations that companies must follow to ensure the accuracy of their financial reporting. This act was put into place in response to the infamous corporate scandals at Enron and WorldCom. The aftermath of these scandals saw investors losing billions of dollars because the companies had misrepresented their financial statements. 

In order to prevent something like this from happening again, SOX was created. This act imposes stricter requirements on publicly-traded companies regarding accounting and financial reporting. For example, SOX requires that all companies have an internal control system in place. This system is designed to prevent and detect errors in financial reporting.

The latest expanded SOX compliance requirements apply to every US-based public company board, management, and accounting firm. Among other provisions, SOX also mandates the following:

  • All financial reports should include an Internal Controls Report
  • Accurate controls should be in place to protect financial data.
  • Issuance of year-end financial disclosure reports.
  • Disclosure of corporate fraud by protecting whistleblower employees.

 

Requirements for SOX Audit

The SOX audit necessitates the review of a company’s controls, policies, and procedures. This audit will also look into the staff, their duties and responsibilities, their respective job descriptions, and whether they have received appropriate training to access financial information safely. According to SOX sections 302, 404, and 409, the following conditions should be monitored, audited, and logged:

  • Internal controls
  • Database activity
  • Network activity
  • Account activity
  • Login activity
  • Information access
  • User activity

 

If you fail a SOX compliance audit, you will potentially face hefty fines and steep penalties that can also hinder your company’s reputation.

 

SOX Vs. J-SOX: What’s the Difference?

Five years after the release of the Sarbanes Oxley Act, Japan also released a similar law called “J-SOX.” Both Acts are quite similar: they aim to evaluate internal control systems in relation to financial reporting. The key difference between the two lies in their internal control framework, evaluation approach, the scope of the process, the scope of entities, and more.

In addition, J-SOX is costlier and more time-consuming than SOX. This is because Japanese businesses are required to submit an attestation report from both their auditor and an outside assessment organization.

 

What are SOX Compliance Requirements?

SOX compliance is important to keeping your company running. The requirements that you need to comply with are all on key sections within this act, so it’s crucial that you read and familiarize yourself with it. So here’s a quick overview of the key sections and what they entail:

Corporate Responsibility for Financial Reports (SOX Section 302)

Section 302 of the SOX Act requires all officers and directors—namely the Chief Executive Officer (CEO) and Chief Financial Officer (CFO)—be directly responsible for the accurate certification and documentation of all financial reports that the company submits to the Security and Exchange Commission (SEC). 

In addition, the company should create audit committees, disclosure committees, and compensation committees composed of board members. Good legal counsel is also required to help limit corporate liability and reinforce internal controls.

Disclosures in Periodic Reports (SOX Section 401)

For periodic reports, section 401 of the SOX Act requires companies to make financial statements with all material obligations, off-sheet liabilities, or transactions. It should also be audited by a certified public accountant or registered public accounting firm. In addition, the numbers should also be published to the public.

Disclosures for Real-time Issuer (SOX Section 409)

Section 409 of the SOX Act states that any alterations in a company’s operations or financial conditions should be reported on a real-time basis using qualitative and trend-based information, as well as graphic representations to safeguard investors and the interest of the public.

Criminal Penalties for Altering Document (SOX Section 802)

Section 802 of the SOX Act states that anyone who alters, falsifies, destroys, conceals, mutilates, or covers up any document or record with the intent to influence, impede or obstruct a legal investigation will face penalties of up to 20 years imprisonment. In addition, any auditor who fails to maintain review papers for five years will be penalized with a hefty fine or more than ten years of imprisonment.

Corporate Responsibility for Transparent Financial Reports (SOX Section 906)

Section 906 of the SOX Act requires the CEO and CFO to certify all financial statements in periodic reports with a written statement, on top of the one from the Section 302 requirement. The written statement should reflect their full compliance with the requirements and that the information in said statement fairly presents the financial conditions and results of the company’s operations.

 

What is a SOX Compliance Checklist?

Now that you know what SOX is all about and why you should comply with its requirements, it’s time to learn how you can do so. So this is where a SOX compliance checklist comes in. A SOX compliance checklist is simply a document that contains all the requirements that you need to comply with the SOX Act, and the steps on how to do it.

 

Create a SOX Compliance Checklist with DataMyte Digital Clipboard

Creating a SOX compliance checklist is important to ensure that your company adheres to all the necessary requirements. That’s why you need to choose the right software to help you create a convenient and effective digital SOX compliance checklist. The DataMyte Digital Clipboard is up for the challenge of streamlining your SOX compliance needs.

DataMyte’s workflow automation software will help you create awesome workflows for maximizing productivity and carrying out ideal processes easily and quickly. It also comes with an intuitive form builder that lets you create digital SOX compliance checklist forms in a snap.

With DataMyte, you’ll be able to create a comprehensive checklist that will literally check all the boxes of your SOX compliance needs. So what are you waiting for? Get started today! Visit our website to learn more.

 

Conclusion

If you want to keep your business afloat, you need to comply with SOX. The best way to do so is by having a SOX compliance checklist. This will help ensure that your company adheres to all the necessary requirements. And with DataMyte, you can create an effective and convenient digital SOX compliance checklist in no time. Try DataMyte now!

 

 

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