In an era of rapid technological advancements and economic complexity, understanding regulatory compliance, particularly SOX compliance, has become a critical need for businesses. This blog post offers a comprehensive overview of SOX compliance, its significance, and recent changes in 2023.
SOX compliance refers to adherence to the Sarbanes-Oxley Act, a piece of legislation instituted by the United States Congress in 2002. This act was established to protect shareholders and the public from accounting errors and fraudulent activities in enterprises, thereby improving the accuracy of corporate disclosures.
Every public company is required to comply with SOX, which significantly influences how IT departments store corporate electronic records. The act outlines which records should be stored and for how long – not less than five years. Noncompliance carries severe consequences, including fines, imprisonment, or both.
SOX compliance is also concerned with three management rules for electronic records. These rules address the destruction, alteration, or falsification of records, the retention period for records storage, and the type of business records that need storage.
The Sarbanes-Oxley Act has undergone significant changes under the leadership of the new Chair of the PCAOB, Erica Williams. She has set forth an ambitious standards-setting agenda that aims to modernize standards, enhance inspections, and strengthen enforcement. Public companies should be aware of the new regulations and their resulting changes in external audits’ approach, foster a consultative relationship with their external audit firm, focus on the most complex areas of their financial statements, and strengthen their ICFR compliance programโ.
Data classification tools have proven to be extremely beneficial in automating SOX compliance and reducing management costs. These tools can spot and classify data as soon as it’s created, applying persistent classification tags to the data. They can classify and tag various forms of data, including financial data, confidential design documents, social security numbers, PHI, PII, and other regulated data types.
Section 906 of the SOX Act mandates a written statement from the CEO and CFO of publicly-traded companies. This statement, submitted with a periodic report, should certify that the report fully complies with the Act’s requirements and accurately presents the financial condition and results of operations of the issuer. Penalties for violations are explicitly stated, with significant fines and potential prison terms for knowing or willful violations.
It’s crucial to note that compliance with SOX is not a one-time effort but a continuous process requiring the correct security solutions. Security solutions should be able to safeguard shared data, prevent unauthorized access, and provide evidentiary-quality trails. With the right solutions, companies can confidently prove their compliance to independent auditors and protect their businessโโ.
As we navigate through 2023, it’s clear that SOX compliance will continue to evolve with the changing economic landscape. Companies must stay informed, vigilant, and proactive in their compliance efforts to ensure their operations align with the requirements of the Sarbanes-Oxley Act.
