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SOX is an abbreviation for the Sarbanes-Oxley Act of 2002. Now is the time to learn more about SOX and SOX compliance for publicly listed firms.

 SOX Compliance

What exactly is SOX?

SOX is an abbreviation for the Sarbanes-Oxley Act of 2002, a piece of law enacted to safeguard investors against accounting fraud, especially that connected to shares offered by publicly listed firms.

The Sarbanes-Oxley Act is a deliberate effort to impose severe rules on how firms make financial statements. The legislation requires heightened care when it comes to disclosures about the company’s financial status, especially when it comes to profits and profitability.

It is vital to understand that this regulation only applies to publicly listed firms, or those that offer stock to the general public and institutional investors. Investors and prospective shareholders will only agree to the stated price of the company’s shares if the company’s worth is based on factors such as future profits and present performance. As a result, CEOs and financial officers have a strong incentive and opportunity to alter statistics in order to demonstrate to the world that it is more advantageous to invest in their firm rather than their rivals.

The Sarbanes-Oxley Act of 2002 was enacted in reaction to the early-twentieth-century accounting scandals that took down well-known corporations such as Enron, Tyco, and WorldCom. The acts of dishonest personnel working for the aforementioned firms resulted in a major loss of investor trust in financial accounts.

In other words, unless the system could be revamped and controlled to the point where investors are fully certain of the veracity of the information supplied to the general public, all CEOs and business leaders’ declarations had no more significance.

What Action Should Publicly Traded Companies Take?

It is vital that organisations follow SOX and alter their operations to ensure compliance with SOX.

Some of the most significant things a firm might perform are as follows:

Enforce a stringent code of ethics that addresses a broad range of ethical concerns that may occur, and ensure that everyone in the company understands the standards. In this manner, the company’s bases will be covered in the case of disloyalty.

Understand who your board members are. Your board members must answer to outside parties, as well as shareholders who depend on the company’s financials. Shareholders want board members to be financially savvy, particularly because they may face lawsuits from creditors. Any dishonest behaviour by a board member may cost the firm millions of dollars, therefore make sure there is no current conflict of interest.

Form the appropriate committees. A number of committees guarantee that financials are flowing legitimately and that no fraudulent actions are taking place in well-governed firms. To begin, establish a salary committee, an audit committee, a transparency committee, and a nomination committee.

Keep note of the methods you use to raise funds. When your organization’s SOX compliance is documented, investors will be more eager to spend their time and money in your company. This demonstrates to investors that the firm has a high likelihood of growth since it works in an ethical and well-controlled way.

Maintain the organisation of your electronically recorded data. In the event that the firm needs be probed, companies must be able to provide investigators with email communications and other relevant electronic data. Because they would be regarded evidence, any missing electronic data might give the appearance that the evidence has been tampered with.

Check to see whether SAS 70 applies to your firm. If your customers are publicly listed corporations, they may request an SAS 70 report from you. They may want this paperwork to demonstrate that they exclusively outsource to service providers with adequate internal controls, such as yourself.

When it’s time to submit an 8-K report, you’ll know. The 8-K form is used by public corporations to record the occurrence of important corporate events, often transactions or big occurrences. The following are some instances of occurrences that may necessitate a filing:

Creating or Terminating a Material Agreement


Asset acquisition

Directors are elected.

Articles of Incorporation Amendments

Many more circumstances may necessitate a file, so be sure you consult an 8-K form for additional information.

Compliance with the above will aid in combating corporate corruption and repelling litigation. These best practises will not only allow organisations to keep rigorous financial records, but will also contribute to significant development potential while preserving a clean reputation.