Blog
October 3, 2024

What is SOX Compliance? Benefits, requirements and checklist

Understand the importance of SOX compliance for your organization. Learn about the key requirements, benefits, and potential risks of non-compliance.

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Key Points:

  • SOX Compliance ensures accurate financial reporting, protects investors, and prevents fraud within publicly traded US companies.
  • Benefits of Compliance include improving financial transparency, strengthening internal controls, enhancing investor confidence, and reducing operational risks.
  • SOX Requirements involve rigorous financial reporting, independent audit committees, strong internal controls, and protection for whistleblowers.

After multiple financial scandals in the early 2000s, the SOX Act was brought in to minimise the chances of fraud occurring within publicly-traded US organisations.

It tightened up reporting requirements so that companies were no longer able to hide the debts of subsidiaries; instead they had to declare anything that had an impact on the company’s financial status.

Since the implementation of SOX compliance, a study has found that accounting fraud scandals occur at a much reduced rate, showing the impact of accurate reporting.

In this article, we’ll take a look at the benefits and requirements of SOX compliance, and how you can get your organisation up to speed.

What is SOX compliance? What does it mean?

SOX stands for the Sarbanes-Oxley Act. Established in 2002, it’s a US law that protects investors from fraudulent financial reporting by corporations.

If a company is SOX compliant, it means they’ve aligned themselves with the regulations set by the law, and are being fully transparent in their reporting.

To become SOX compliant, an organisation must:

1. Ensure their reporting is accurate

Companies must maintain accurate and reliable financial records. This involves rigorous internal controls and procedures for financial reporting to prevent fraud and errors.

2. Establish internal controls

Organisations must establish and document internal control measures to ensure the integrity of financial data. These controls are subject to annual audits by external auditors.

3. Set an independent audit committee

SOX mandates that companies have an independent audit committee within the board of directors to oversee the accounting and financial reporting processes.

4. Maintain accountability

Senior executives, such as the CEO and CFO, are required to certify the accuracy of financial statements personally. They can face criminal penalties for non-compliance or fraudulent reporting.

5. Keep financial data secure

Ensuring the security and confidentiality of financial data is crucial under SOX. Companies must implement measures to protect data from unauthorised access and breaches.

6. Protect whistleblowers

SOX provides protections for employees who report fraudulent activities or violations within the company, encouraging a culture of transparency and accountability.

Who does it apply to?

All US companies whose shares are traded on US stock exchanges, such as the New York Stock Exchange, are required to comply with SOX, including any subsidiary or affiliate companies. Any foreign companies that are listed on US stock exchanges must also comply with SOX.

Private companies that are planning to go public, or are being acquired by a public company will also need to adhere to SOX standards. Financial institutions - whether they’re publicly traded or not - must also comply with SOX requirements to ensure transparency and accountability in their financial reporting.

Overall, SOX is designed to enhance corporate governance and financial disclosures.

Why is it important to be compliant? What are the benefits?

SOX compliance is legally mandatory for publicly traded companies in the US. If your company is found in violation of the requirements, you could find yourself facing hefty fines, or even imprisonment.

There are a number of other reasons that SOX compliance is beneficial for organisations:

  1. SOX ensures that financial records are accurate and reliable, making it easier for investors and other stakeholders to understand the state of the company.
  2. Companies that adhere to SOX must have internal controls in place to detect fraud, and prevent it from taking place, protecting sensitive financial data. This also helps create operational efficiencies, and allows security teams to address issues quickly.
  3. SOX boosts confidence from investors, who now receive transparent reporting and accurate revenue figures from company accountants.
  4. Demonstrating compliance with SOX can bring favour to organisations among investors and analysts, potentially leading to higher stock valuations and easier access to capital.
  5. When employees are aware of SOX compliance and their responsibilities within it, a culture of accountability is nurtured. Employees at all levels are more aware of their roles in maintaining accurate records and preventing misconduct.

For example, a company that adheres to SOX regulations might discover through an internal audit that it has been misallocating resources due to outdated financial tracking systems. With swift resolution, the company not only ensures compliance but also optimises resource allocation, leading to cost savings and improved operational efficiency.

In summary, SOX compliance is essential not just for meeting legal requirements but also for enhancing financial integrity, building investor confidence, reducing fraud risk, and improving overall corporate governance and operational efficiency.

Checklist of regulations for organisations to be SOX compliant

To be compliant with SOX, organisations will need to ensure they are aligned with all of these requirements:

1. Section 302: Corporate Responsibility for Financial Reports

  • Ensure that the CEO and CFO certify the accuracy and completeness of financial reports, particularly every annual and quarterly report filed with the SEC.
  • Confirm that the signing officers have reviewed the report.
  • Certify that the financial statements do not contain any untrue statements or omissions.
  • Establish and maintain effective disclosure controls and procedures to ensure timely and accurate reporting.

2. Section 404: Management Assessment of Internal Controls

  • Document all processes and controls related to financial reporting, ensuring that all documentation is up to date.
  • Conduct regular evaluations of internal controls over financial reporting, identifying any deficiencies or weaknesses.
  • Include a report on the effectiveness of internal control over financial reporting in the annual report.
  • Obtain an external auditor's attestation on the internal control assessment.

3. Section 409: Real-Time Issuer Disclosures

  • Implement systems to ensure timely disclosure of material changes in the financial condition or operations.
  • Establish procedures for real-time reporting of events affecting the company's financial status.

4. Section 802: Criminal Penalties for Altering Documents

  • Develop and enforce a policy for the retention of financial records and audit work papers.
  • Ensure that records are retained for the required period (typically five years).
  • Implement measures to prevent the alteration, destruction, or falsification of financial records.
  • Educate employees on the legal consequences of tampering with documents.

5. Section 806: Protection for Whistleblowers

  • Establish a whistleblower policy to protect employees who report fraudulent activities.
  • Ensure that there are secure and confidential channels for employees to report concerns.
  • Implement measures to prevent retaliation against whistleblowers.
  • Investigate and address any allegations of retaliation promptly.

6. Section 906: Corporate Responsibility for Financial Reports

  • Ensure that the CEO and CFO certify the financial reports under criminal penalty.
  • Verify that the reports comply with the requirements of the SEC and present a fair view of the company's financial condition.

Internal Controls Requirements for SOX IT Audits

Having the correct internal controls in place is a key component of compliance with SOX, so it’s important that organisations understand what controls they have in place, and whether they’re sufficient. As well as the typical security measures such as firewalls and antivirus software, there should be specific controls in place to ensure SOX compliance.

You should review your IT controls to ensure that systems, applications, and data are protected using Role-Based Access Control (RBAC) to determine whether an individual needs to be able to view or edit your assets in order to carry out their job. These should be reviewed at regular intervals to ensure that access is in line with an individual’s responsibilities.

There should also be a formal change management process in place for IT systems and applications, ensuring that any changes are properly documented (including details of who requested and approved the changes) and tested before they are implemented.

Ensuring regular backups of data can also be beneficial to protect against data loss. Training your employees on the importance of adhering to IT security policies and SOX compliance is also beneficial for maintaining accurate reporting, and minimising the risks of the organisation being in breach of SOX requirements.

What are the risks of not being compliant?

Non-compliance with the Sarbanes-Oxley Act (SOX) can pose significant risks for organisations. Here are some of the key risks associated with SOX non-compliance:

1. Financial Penalties

Organisations found to be non-compliant with SOX regulations can face substantial fines and penalties. These financial repercussions can be severe, affecting the organisation's profitability and financial stability.

Publicly traded companies may also see a decline in their stock price as a result of non-compliance, with investors losing confidence in the company's management and financial reporting, leading to a sell-off of shares. Additionally, business operations can be disrupted, resulting in a further loss of revenue.

2. Legal Consequences

Non-compliance can lead to lawsuits from shareholders, employees, or other stakeholders. Legal proceedings can be lengthy and costly, further straining the organisation's resources. In severe cases of non-compliance, executives and other responsible parties can even face criminal charges, leading to fines, imprisonment, or both.

3. Reputational Damage

Non-compliance can damage an organisation’s reputation, leading to a loss of trust among investors, customers, and partners. This loss of confidence can be difficult to recover from and can impact long-term business prospects. Public disclosure of non-compliance can result in negative media coverage, further harming the organisation's reputation.

4. Loss of Competitive Advantage

Organisations that fail to comply with SOX may find it difficult to compete with compliant companies. Non-compliance can be seen as a sign of poor management and governance, making it harder to attract investors, customers, and top talent. There may also be barriers when it comes to entering new markets or expanding operations.

How can Metomic help?

Metomic offers a comprehensive platform to assist organisations in achieving and maintaining SOX compliance. Here’s how Metomic can help:

  • ‍Automation of Compliance Processes: Metomic’s platform automatically identifies and classifies sensitive data across the organisation’s digital environment. This ensures that all critical data is accounted for and properly managed, a key requirement for SOX compliance.‍
  • Internal Controls Management: Our platform helps implement and enforce stringent access controls, ensuring that only authorised personnel can access sensitive financial data. This is crucial for maintaining the integrity of financial reporting.‍
  • Risk Mitigation: By identifying and eliminating redundant or unnecessary data, Metomic reduces the overall data footprint. This minimises the attack surface and helps in managing data more efficiently, reducing the risk of non-compliance.‍
  • Employee Education: Metomic provides tools to deliver ongoing education and training on data security best practices. This fosters a culture of compliance and ensures that employees are aware of their roles in maintaining SOX compliance.‍
  • Enhancing Operational Efficiency: By automating repetitive compliance tasks, Metomic helps reduce the workload on security and compliance teams. This can prevent burnout and ensure that staff remain focused and productive.

Get in touch with one of our data security experts today, to learn how Metomic can help your organisation ensure SOX compliance.

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Ben van Enckevort

CTO and Co-Founder

Ben van Enckevort is the co-founder and CTO of Metomic

Key Points:

  • SOX Compliance ensures accurate financial reporting, protects investors, and prevents fraud within publicly traded US companies.
  • Benefits of Compliance include improving financial transparency, strengthening internal controls, enhancing investor confidence, and reducing operational risks.
  • SOX Requirements involve rigorous financial reporting, independent audit committees, strong internal controls, and protection for whistleblowers.

After multiple financial scandals in the early 2000s, the SOX Act was brought in to minimise the chances of fraud occurring within publicly-traded US organisations.

It tightened up reporting requirements so that companies were no longer able to hide the debts of subsidiaries; instead they had to declare anything that had an impact on the company’s financial status.

Since the implementation of SOX compliance, a study has found that accounting fraud scandals occur at a much reduced rate, showing the impact of accurate reporting.

In this article, we’ll take a look at the benefits and requirements of SOX compliance, and how you can get your organisation up to speed.

What is SOX compliance? What does it mean?

SOX stands for the Sarbanes-Oxley Act. Established in 2002, it’s a US law that protects investors from fraudulent financial reporting by corporations.

If a company is SOX compliant, it means they’ve aligned themselves with the regulations set by the law, and are being fully transparent in their reporting.

To become SOX compliant, an organisation must:

1. Ensure their reporting is accurate

Companies must maintain accurate and reliable financial records. This involves rigorous internal controls and procedures for financial reporting to prevent fraud and errors.

2. Establish internal controls

Organisations must establish and document internal control measures to ensure the integrity of financial data. These controls are subject to annual audits by external auditors.

3. Set an independent audit committee

SOX mandates that companies have an independent audit committee within the board of directors to oversee the accounting and financial reporting processes.

4. Maintain accountability

Senior executives, such as the CEO and CFO, are required to certify the accuracy of financial statements personally. They can face criminal penalties for non-compliance or fraudulent reporting.

5. Keep financial data secure

Ensuring the security and confidentiality of financial data is crucial under SOX. Companies must implement measures to protect data from unauthorised access and breaches.

6. Protect whistleblowers

SOX provides protections for employees who report fraudulent activities or violations within the company, encouraging a culture of transparency and accountability.

Who does it apply to?

All US companies whose shares are traded on US stock exchanges, such as the New York Stock Exchange, are required to comply with SOX, including any subsidiary or affiliate companies. Any foreign companies that are listed on US stock exchanges must also comply with SOX.

Private companies that are planning to go public, or are being acquired by a public company will also need to adhere to SOX standards. Financial institutions - whether they’re publicly traded or not - must also comply with SOX requirements to ensure transparency and accountability in their financial reporting.

Overall, SOX is designed to enhance corporate governance and financial disclosures.

Why is it important to be compliant? What are the benefits?

SOX compliance is legally mandatory for publicly traded companies in the US. If your company is found in violation of the requirements, you could find yourself facing hefty fines, or even imprisonment.

There are a number of other reasons that SOX compliance is beneficial for organisations:

  1. SOX ensures that financial records are accurate and reliable, making it easier for investors and other stakeholders to understand the state of the company.
  2. Companies that adhere to SOX must have internal controls in place to detect fraud, and prevent it from taking place, protecting sensitive financial data. This also helps create operational efficiencies, and allows security teams to address issues quickly.
  3. SOX boosts confidence from investors, who now receive transparent reporting and accurate revenue figures from company accountants.
  4. Demonstrating compliance with SOX can bring favour to organisations among investors and analysts, potentially leading to higher stock valuations and easier access to capital.
  5. When employees are aware of SOX compliance and their responsibilities within it, a culture of accountability is nurtured. Employees at all levels are more aware of their roles in maintaining accurate records and preventing misconduct.

For example, a company that adheres to SOX regulations might discover through an internal audit that it has been misallocating resources due to outdated financial tracking systems. With swift resolution, the company not only ensures compliance but also optimises resource allocation, leading to cost savings and improved operational efficiency.

In summary, SOX compliance is essential not just for meeting legal requirements but also for enhancing financial integrity, building investor confidence, reducing fraud risk, and improving overall corporate governance and operational efficiency.

Checklist of regulations for organisations to be SOX compliant

To be compliant with SOX, organisations will need to ensure they are aligned with all of these requirements:

1. Section 302: Corporate Responsibility for Financial Reports

  • Ensure that the CEO and CFO certify the accuracy and completeness of financial reports, particularly every annual and quarterly report filed with the SEC.
  • Confirm that the signing officers have reviewed the report.
  • Certify that the financial statements do not contain any untrue statements or omissions.
  • Establish and maintain effective disclosure controls and procedures to ensure timely and accurate reporting.

2. Section 404: Management Assessment of Internal Controls

  • Document all processes and controls related to financial reporting, ensuring that all documentation is up to date.
  • Conduct regular evaluations of internal controls over financial reporting, identifying any deficiencies or weaknesses.
  • Include a report on the effectiveness of internal control over financial reporting in the annual report.
  • Obtain an external auditor's attestation on the internal control assessment.

3. Section 409: Real-Time Issuer Disclosures

  • Implement systems to ensure timely disclosure of material changes in the financial condition or operations.
  • Establish procedures for real-time reporting of events affecting the company's financial status.

4. Section 802: Criminal Penalties for Altering Documents

  • Develop and enforce a policy for the retention of financial records and audit work papers.
  • Ensure that records are retained for the required period (typically five years).
  • Implement measures to prevent the alteration, destruction, or falsification of financial records.
  • Educate employees on the legal consequences of tampering with documents.

5. Section 806: Protection for Whistleblowers

  • Establish a whistleblower policy to protect employees who report fraudulent activities.
  • Ensure that there are secure and confidential channels for employees to report concerns.
  • Implement measures to prevent retaliation against whistleblowers.
  • Investigate and address any allegations of retaliation promptly.

6. Section 906: Corporate Responsibility for Financial Reports

  • Ensure that the CEO and CFO certify the financial reports under criminal penalty.
  • Verify that the reports comply with the requirements of the SEC and present a fair view of the company's financial condition.

Internal Controls Requirements for SOX IT Audits

Having the correct internal controls in place is a key component of compliance with SOX, so it’s important that organisations understand what controls they have in place, and whether they’re sufficient. As well as the typical security measures such as firewalls and antivirus software, there should be specific controls in place to ensure SOX compliance.

You should review your IT controls to ensure that systems, applications, and data are protected using Role-Based Access Control (RBAC) to determine whether an individual needs to be able to view or edit your assets in order to carry out their job. These should be reviewed at regular intervals to ensure that access is in line with an individual’s responsibilities.

There should also be a formal change management process in place for IT systems and applications, ensuring that any changes are properly documented (including details of who requested and approved the changes) and tested before they are implemented.

Ensuring regular backups of data can also be beneficial to protect against data loss. Training your employees on the importance of adhering to IT security policies and SOX compliance is also beneficial for maintaining accurate reporting, and minimising the risks of the organisation being in breach of SOX requirements.

What are the risks of not being compliant?

Non-compliance with the Sarbanes-Oxley Act (SOX) can pose significant risks for organisations. Here are some of the key risks associated with SOX non-compliance:

1. Financial Penalties

Organisations found to be non-compliant with SOX regulations can face substantial fines and penalties. These financial repercussions can be severe, affecting the organisation's profitability and financial stability.

Publicly traded companies may also see a decline in their stock price as a result of non-compliance, with investors losing confidence in the company's management and financial reporting, leading to a sell-off of shares. Additionally, business operations can be disrupted, resulting in a further loss of revenue.

2. Legal Consequences

Non-compliance can lead to lawsuits from shareholders, employees, or other stakeholders. Legal proceedings can be lengthy and costly, further straining the organisation's resources. In severe cases of non-compliance, executives and other responsible parties can even face criminal charges, leading to fines, imprisonment, or both.

3. Reputational Damage

Non-compliance can damage an organisation’s reputation, leading to a loss of trust among investors, customers, and partners. This loss of confidence can be difficult to recover from and can impact long-term business prospects. Public disclosure of non-compliance can result in negative media coverage, further harming the organisation's reputation.

4. Loss of Competitive Advantage

Organisations that fail to comply with SOX may find it difficult to compete with compliant companies. Non-compliance can be seen as a sign of poor management and governance, making it harder to attract investors, customers, and top talent. There may also be barriers when it comes to entering new markets or expanding operations.

How can Metomic help?

Metomic offers a comprehensive platform to assist organisations in achieving and maintaining SOX compliance. Here’s how Metomic can help:

  • ‍Automation of Compliance Processes: Metomic’s platform automatically identifies and classifies sensitive data across the organisation’s digital environment. This ensures that all critical data is accounted for and properly managed, a key requirement for SOX compliance.‍
  • Internal Controls Management: Our platform helps implement and enforce stringent access controls, ensuring that only authorised personnel can access sensitive financial data. This is crucial for maintaining the integrity of financial reporting.‍
  • Risk Mitigation: By identifying and eliminating redundant or unnecessary data, Metomic reduces the overall data footprint. This minimises the attack surface and helps in managing data more efficiently, reducing the risk of non-compliance.‍
  • Employee Education: Metomic provides tools to deliver ongoing education and training on data security best practices. This fosters a culture of compliance and ensures that employees are aware of their roles in maintaining SOX compliance.‍
  • Enhancing Operational Efficiency: By automating repetitive compliance tasks, Metomic helps reduce the workload on security and compliance teams. This can prevent burnout and ensure that staff remain focused and productive.

Get in touch with one of our data security experts today, to learn how Metomic can help your organisation ensure SOX compliance.

Key Points:

  • SOX Compliance ensures accurate financial reporting, protects investors, and prevents fraud within publicly traded US companies.
  • Benefits of Compliance include improving financial transparency, strengthening internal controls, enhancing investor confidence, and reducing operational risks.
  • SOX Requirements involve rigorous financial reporting, independent audit committees, strong internal controls, and protection for whistleblowers.

After multiple financial scandals in the early 2000s, the SOX Act was brought in to minimise the chances of fraud occurring within publicly-traded US organisations.

It tightened up reporting requirements so that companies were no longer able to hide the debts of subsidiaries; instead they had to declare anything that had an impact on the company’s financial status.

Since the implementation of SOX compliance, a study has found that accounting fraud scandals occur at a much reduced rate, showing the impact of accurate reporting.

In this article, we’ll take a look at the benefits and requirements of SOX compliance, and how you can get your organisation up to speed.

What is SOX compliance? What does it mean?

SOX stands for the Sarbanes-Oxley Act. Established in 2002, it’s a US law that protects investors from fraudulent financial reporting by corporations.

If a company is SOX compliant, it means they’ve aligned themselves with the regulations set by the law, and are being fully transparent in their reporting.

To become SOX compliant, an organisation must:

1. Ensure their reporting is accurate

Companies must maintain accurate and reliable financial records. This involves rigorous internal controls and procedures for financial reporting to prevent fraud and errors.

2. Establish internal controls

Organisations must establish and document internal control measures to ensure the integrity of financial data. These controls are subject to annual audits by external auditors.

3. Set an independent audit committee

SOX mandates that companies have an independent audit committee within the board of directors to oversee the accounting and financial reporting processes.

4. Maintain accountability

Senior executives, such as the CEO and CFO, are required to certify the accuracy of financial statements personally. They can face criminal penalties for non-compliance or fraudulent reporting.

5. Keep financial data secure

Ensuring the security and confidentiality of financial data is crucial under SOX. Companies must implement measures to protect data from unauthorised access and breaches.

6. Protect whistleblowers

SOX provides protections for employees who report fraudulent activities or violations within the company, encouraging a culture of transparency and accountability.

Who does it apply to?

All US companies whose shares are traded on US stock exchanges, such as the New York Stock Exchange, are required to comply with SOX, including any subsidiary or affiliate companies. Any foreign companies that are listed on US stock exchanges must also comply with SOX.

Private companies that are planning to go public, or are being acquired by a public company will also need to adhere to SOX standards. Financial institutions - whether they’re publicly traded or not - must also comply with SOX requirements to ensure transparency and accountability in their financial reporting.

Overall, SOX is designed to enhance corporate governance and financial disclosures.

Why is it important to be compliant? What are the benefits?

SOX compliance is legally mandatory for publicly traded companies in the US. If your company is found in violation of the requirements, you could find yourself facing hefty fines, or even imprisonment.

There are a number of other reasons that SOX compliance is beneficial for organisations:

  1. SOX ensures that financial records are accurate and reliable, making it easier for investors and other stakeholders to understand the state of the company.
  2. Companies that adhere to SOX must have internal controls in place to detect fraud, and prevent it from taking place, protecting sensitive financial data. This also helps create operational efficiencies, and allows security teams to address issues quickly.
  3. SOX boosts confidence from investors, who now receive transparent reporting and accurate revenue figures from company accountants.
  4. Demonstrating compliance with SOX can bring favour to organisations among investors and analysts, potentially leading to higher stock valuations and easier access to capital.
  5. When employees are aware of SOX compliance and their responsibilities within it, a culture of accountability is nurtured. Employees at all levels are more aware of their roles in maintaining accurate records and preventing misconduct.

For example, a company that adheres to SOX regulations might discover through an internal audit that it has been misallocating resources due to outdated financial tracking systems. With swift resolution, the company not only ensures compliance but also optimises resource allocation, leading to cost savings and improved operational efficiency.

In summary, SOX compliance is essential not just for meeting legal requirements but also for enhancing financial integrity, building investor confidence, reducing fraud risk, and improving overall corporate governance and operational efficiency.

Checklist of regulations for organisations to be SOX compliant

To be compliant with SOX, organisations will need to ensure they are aligned with all of these requirements:

1. Section 302: Corporate Responsibility for Financial Reports

  • Ensure that the CEO and CFO certify the accuracy and completeness of financial reports, particularly every annual and quarterly report filed with the SEC.
  • Confirm that the signing officers have reviewed the report.
  • Certify that the financial statements do not contain any untrue statements or omissions.
  • Establish and maintain effective disclosure controls and procedures to ensure timely and accurate reporting.

2. Section 404: Management Assessment of Internal Controls

  • Document all processes and controls related to financial reporting, ensuring that all documentation is up to date.
  • Conduct regular evaluations of internal controls over financial reporting, identifying any deficiencies or weaknesses.
  • Include a report on the effectiveness of internal control over financial reporting in the annual report.
  • Obtain an external auditor's attestation on the internal control assessment.

3. Section 409: Real-Time Issuer Disclosures

  • Implement systems to ensure timely disclosure of material changes in the financial condition or operations.
  • Establish procedures for real-time reporting of events affecting the company's financial status.

4. Section 802: Criminal Penalties for Altering Documents

  • Develop and enforce a policy for the retention of financial records and audit work papers.
  • Ensure that records are retained for the required period (typically five years).
  • Implement measures to prevent the alteration, destruction, or falsification of financial records.
  • Educate employees on the legal consequences of tampering with documents.

5. Section 806: Protection for Whistleblowers

  • Establish a whistleblower policy to protect employees who report fraudulent activities.
  • Ensure that there are secure and confidential channels for employees to report concerns.
  • Implement measures to prevent retaliation against whistleblowers.
  • Investigate and address any allegations of retaliation promptly.

6. Section 906: Corporate Responsibility for Financial Reports

  • Ensure that the CEO and CFO certify the financial reports under criminal penalty.
  • Verify that the reports comply with the requirements of the SEC and present a fair view of the company's financial condition.

Internal Controls Requirements for SOX IT Audits

Having the correct internal controls in place is a key component of compliance with SOX, so it’s important that organisations understand what controls they have in place, and whether they’re sufficient. As well as the typical security measures such as firewalls and antivirus software, there should be specific controls in place to ensure SOX compliance.

You should review your IT controls to ensure that systems, applications, and data are protected using Role-Based Access Control (RBAC) to determine whether an individual needs to be able to view or edit your assets in order to carry out their job. These should be reviewed at regular intervals to ensure that access is in line with an individual’s responsibilities.

There should also be a formal change management process in place for IT systems and applications, ensuring that any changes are properly documented (including details of who requested and approved the changes) and tested before they are implemented.

Ensuring regular backups of data can also be beneficial to protect against data loss. Training your employees on the importance of adhering to IT security policies and SOX compliance is also beneficial for maintaining accurate reporting, and minimising the risks of the organisation being in breach of SOX requirements.

What are the risks of not being compliant?

Non-compliance with the Sarbanes-Oxley Act (SOX) can pose significant risks for organisations. Here are some of the key risks associated with SOX non-compliance:

1. Financial Penalties

Organisations found to be non-compliant with SOX regulations can face substantial fines and penalties. These financial repercussions can be severe, affecting the organisation's profitability and financial stability.

Publicly traded companies may also see a decline in their stock price as a result of non-compliance, with investors losing confidence in the company's management and financial reporting, leading to a sell-off of shares. Additionally, business operations can be disrupted, resulting in a further loss of revenue.

2. Legal Consequences

Non-compliance can lead to lawsuits from shareholders, employees, or other stakeholders. Legal proceedings can be lengthy and costly, further straining the organisation's resources. In severe cases of non-compliance, executives and other responsible parties can even face criminal charges, leading to fines, imprisonment, or both.

3. Reputational Damage

Non-compliance can damage an organisation’s reputation, leading to a loss of trust among investors, customers, and partners. This loss of confidence can be difficult to recover from and can impact long-term business prospects. Public disclosure of non-compliance can result in negative media coverage, further harming the organisation's reputation.

4. Loss of Competitive Advantage

Organisations that fail to comply with SOX may find it difficult to compete with compliant companies. Non-compliance can be seen as a sign of poor management and governance, making it harder to attract investors, customers, and top talent. There may also be barriers when it comes to entering new markets or expanding operations.

How can Metomic help?

Metomic offers a comprehensive platform to assist organisations in achieving and maintaining SOX compliance. Here’s how Metomic can help:

  • ‍Automation of Compliance Processes: Metomic’s platform automatically identifies and classifies sensitive data across the organisation’s digital environment. This ensures that all critical data is accounted for and properly managed, a key requirement for SOX compliance.‍
  • Internal Controls Management: Our platform helps implement and enforce stringent access controls, ensuring that only authorised personnel can access sensitive financial data. This is crucial for maintaining the integrity of financial reporting.‍
  • Risk Mitigation: By identifying and eliminating redundant or unnecessary data, Metomic reduces the overall data footprint. This minimises the attack surface and helps in managing data more efficiently, reducing the risk of non-compliance.‍
  • Employee Education: Metomic provides tools to deliver ongoing education and training on data security best practices. This fosters a culture of compliance and ensures that employees are aware of their roles in maintaining SOX compliance.‍
  • Enhancing Operational Efficiency: By automating repetitive compliance tasks, Metomic helps reduce the workload on security and compliance teams. This can prevent burnout and ensure that staff remain focused and productive.

Get in touch with one of our data security experts today, to learn how Metomic can help your organisation ensure SOX compliance.

Ben van Enckevort

CTO and Co-Founder

Ben van Enckevort is the co-founder and CTO of Metomic

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