Adrian's KB

SOX

2 min read

Overview

Info

The Sarbanes-Oxley Act (SOX) is a U.S. federal law enacted in 2002 in response to major corporate accounting scandals (e.g., Enron, WorldCom). It aims to protect investors by improving the accuracy and reliability of corporate financial disclosures.

SOX imposes strict requirements on public companies and their executives, auditors, and financial systems. It also has implications for IT and cybersecurity due to its focus on data integrity and internal controls.

Key Objectives

  • Increase corporate accountability and transparency in financial reporting
  • Prevent fraudulent accounting practices
  • Establish strong internal controls over financial data
  • Protect shareholders and the public from deceptive corporate activities

Key Sections

Note

These SOX sections are especially relevant for compliance and IT teams:

  • Section 302 – Corporate responsibility for financial reports
    • Executives must certify the accuracy of financial statements
  • Section 404 – Management assessment of internal controls
    • Requires documentation, testing, and auditing of controls over financial reporting
  • Section 409 – Real-time disclosures of material changes in financial conditions

SOX and IT

Tip

SOX doesn’t prescribe specific technical controls—but it requires that financial systems are secure, accurate, and auditable.

  • Secure access control over financial data systems
  • Logging and monitoring of transactions and changes
  • Backup, disaster recovery, and data integrity measures
  • Change management processes

Who Must Comply

  • Public companies listed in the U.S.
  • Foreign companies listed on U.S. stock exchanges
  • Accounting firms and auditors
  • Private companies may adopt SOX-aligned practices to improve governance

Penalties for Non-Compliance

  • Civil and criminal penalties for false certifications or fraud
  • Up to 20 years in prison and millions in fines for willful violations
  • Revocation of exchange listing or delisting risk

Summary

Tip

SOX is a financial compliance law with significant IT implications, especially in the areas of access control, audit trails, and system integrity. It’s essential for public companies and a strong signal of governance maturity.

  • Strengthens investor confidence
  • Aligns financial and IT controls
  • Influences internal audit, security, and data governance practices

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