The Sarbanes-Oxley Act (SOX) has demanded more auditing and
increased financial regulations since 2002. The main goal of the
Sarbanes-Oxley Act is to reduce any possibilities of corporate fraud by
increasing the number of requirements and various procedures
involved in financial reporting.
One such important requirement is section 404 of SOX. Section 404
states that an annual report should contain a report of the company's
internal controls. This is known as an Internal Controls Report. This
report and others are still subject to being audited at any given time.
The other basic requirements of SOX are as follows:
1. All publically traded companies, fully owned subsidiaries, and any
foreign companies that are publically traded and do business with
the USA are subject to comply with the Sarbanes-Oxley Act.
2. Any and all financial reports are to include an Internal Controls
Report. This report shows that the company's financial data is
correct and that there are multiple controls in place to help
prevent fraud.
3. A specialized auditor, known as a SOX auditor, must review all the
procedures and policies during a section 404 audit.
4. SOX allows any possible disclosure of corporate fraud by
providing employees with protections, such as whistleblower
protections. Whistleblower protections help to keep the
employee's identity covered and help keep the employee safe
when disclosing potential corporate fraud.
That said, one of the biggest current criticisms of SOX is its overall cost
versus benefits. For this discussion, I chose to focus on the cost versus
benefits argument as I can agree that the Sarbanes-Oxley Act does
come with a lot of extra costs, especially for smaller firms and small
businesses. The article I chose to focus on is one that complains about
how heavy the costs of SOX compliance actually are.
In the article, the author, Michael Cohn, talks about how the number of
hours spent on SOX compliance keeps rising, no matter how big the
company is. This then leads to more costs incurred per each additional
hour spent. These rising costs eventually begin to end up hurting
companies and leading into the whole argument that the costs do not
outweight the benefits of SOX compliance.
While the author agrees that costs are rising, I think the author's main
point is that if companies are able to streamline and perhaps create
leaner processes for handling SOX compliance, then they will be able to
reduce the costs involved and possibly see more of the benefits this
compliance provides them with!
References:
Cohn, M. (2017, June 12).
SOX compliance still costs companies
heavily
. Accounting Today.
https://www.accountingtoday.com/news/sox-compliance-still-costs-
companies-heavily
Hanna, K. T. (2022, March 21). What is Sarbanes-Oxley Act (SOX)
Section 404? SearchCIO.
https://www.techtarget.com/searchcio/definition/Sarbanes-Oxley-
Act-SOX-Section-404#:~:text=Sarbanes-
Oxley%20Act%20(SOX)%20Section%20404%20mandates%20that%
20all,procedures%20to%20ensure%20their%20effectiveness.
2022 Sarbanes Oxley Compliance Requirements for Sections 302, 404,
409, 806, 902, 906
. (2022). Sarbanes Oxley 101.
https://www.sarbanes-oxley-101.com/
