Why SOX Compliance Programs are required for Private Businesses?
Sarbanes-Oxley Act of 2002 (SOX) was introduced in the USA to protect the general public and shareholders from fraudulent practices and accounting errors which was going on in several enterprises, and to improve the accuracy of corporate disclosures. The act sets deadlines for compliance and publishes rules on requirements of compliance in the business sector. But it has been completely misunderstood that the auditing and financial regulations of the SOX compliance solely apply to public companies. There are many private companies that haven’t implemented a SOX compliance program because of the less awareness among them. They are completely unaware that there are several provisions in the SOX that completely apply to private companies as well. Apart from this several private companies also think of implementing SOX as a burden and might not realize the benefits. There are severe consequences for not applying SOX compliance to the business. It adds value to the organization as well as enhances the reputation of the firm.
Some of the advantages of opting for SOX Compliance programs by Private businesses include:
- Mitigates the risk of Rapid Growth- There are several private companies that grow rapidly. The growth can be either organic or through acquisition and is always suspected of fraud or errors. The sophistication of these organizations often outpaces the skills and capacity of their support functions, including accounting, finance, and tax. Following the SOX compliance with preventive and detective controls measures can help mitigate the risk that comes with the rapid growth of the organization.
- Provides assurance to private banks and investors- There are many users other than public shareholders who rely completely on financial information which is very important to save from getting leaked. The added security and accountability that comes with SOX Compliance of having controls in place is an added benefit to these users after incorporating the SOX compliance program.
- Helps to strengthen the control structure- Sections 302 and 404 of the SOX Compliance require documentation of several controls, including personnel policies, operations manuals, and recorded control processes. When the auditors and management of the organization focus on internal controls of the company through a SOX assessment. In this way, the organization becomes more aware of the importance of control activities for financial success. The added scrutiny that comes along with a SOX assessment instigates participants to put extra effort in order to ensure that activities happening in the organization which is important for the financial growth of the company are reported and well-executed.
- Improves Audit- More effective and efficient operations of the company lead to a better outcome of the audit. And once the internal outcomes of the audits become better, the external process of audit becomes more efficient. Streamlining all the external audits helps in lowering the overall audit costs by lowering the cost of time spent by employees on responding to external audit requests and report results. Creating a better audit evidence collection helps in smoothing the experience of users by supporting auditors. Specifically, executive management is responsible for the completeness and accuracy of the internal control of the organization over financial reporting. It is the key component of the SOX requirements.
- Helps the organization become more transparent- The main goal of implementing SOX Compliance was to bring transparency in the financial reporting of the organization. For more reliable and efficient financial reporting efforts must be put in gathering documentation and strengthening controls. Once the effort has been applied the organization grapples with the requirements of SOX compliance. This is very much useful for making reporting easier as the organization matures. More accurate financial reporting means the organization has to spend less time correcting mistakes.
- Helps manage operational performances- Early incorporation of SOX compliance benefits companies by instilling a process which helps in smoothing the processes of the company and position it for future growth. SOX Compliance utilises a top-down approach to drive effectiveness and efficiency in the organization. Helps focus on areas of significant accounts, high risk, processes, and locations. It takes a practical approach to “right-sizing” documentation. SOX Compliance helps integrate IT and business processes to maximize the benefits of SOX controls.
- Helps in managing the team work of the company- SOX compliance requires deeper and more frequent talks between the stakeholders of the organization. Internal auditors must collaborate with the ones who oversee SOX assessments across business lines so that they can work with those who own or contribute to the financial and information controls, such as control owners, IT, or HR. SOX requirements give emphasis to working with the team and building a strong relationship with them.
A company’s SOX compliance talks about financial assurance, team work, transparency, audit, control structure, etc. This inspires both investor confidence and market certainty. NSKT Global is one of the top SOX Compliance and testing firms which deals in SOX Compliance requirements. It helps private companies comply with all the requirements of the SOX Compliance and how to deal with it in a positive way.