SOX Compliance: Benefits and Penalties

The Sarbanes-Oxley Act of 2002 mandates companies to complete yearly audits and make those results easily available to any shareholders. Companies hire independent auditors, like FPV & Galíndez to complete the SOX audits, which must be separate from any other audits to prevent a conflict of interest. The primary purpose of the SOX compliance audit is the verification of the company’s financial statements. Auditors analyze past statements with the current year and determine if everything is up to code. Auditors can also interview personnel and verify that compliance controls are sufficient to maintain SOX compliance standards. SOX compliance results in good business practices for your organization, but failure to comply can bring unnecessary challenges. FPV&G breaks down both of these situations for you.

Benefits of SOX Compliance

A quick summary of the overall benefits of a company adhering to SOX requirements are:

  • A reinforced control environment
  • Enhanced documentation system
  • Expanded Audit Committee involvement
  • Convergence alternatives
  • Standardized procedures
  • Minimized complexity
  • Bolstering your weak links
  • Reduction of human error

These benefits are achievable since SOX compliance provides a basic level of financial assurance, stimulates investor confidence, and boosts market certainty for all publicly-held companies. It also allows corporate officials to redirect a percentage of the organizations’ profits toward developing better financial management processes and proficiencies that result in a reduction of the threat of lawsuits, give shareholders a greater sense of security, and aids the overall company operations by assisting executives to avoid poor decisions. This piece of legislation known as SOX has proved to support the standardization of crucial financial processes, remove unnecessary information systems, reduce inconsistencies in data loss prevention policy, computerize manual processes, and clear out nonessential controls.

Penalties

If there is found any type of altering of documents during the auditing process, this can result in penalties that include up to 20 years imprisonment. This includes altering, destroying, mutilating, concealing, falsifying financial records, documents, or tangible objects with the intent to obstruct, impeded, or influence legal investigations. Additionally, it imposes penalties of up to 10 years on any accountant, auditor, or other who knowingly and willfully violates the requirements of maintenance of all audit or review papers for a period of 5 years. Formal penalties for non-compliance with SOX can include fines, removal from delistings from public stock exchanges, and invalidation of D&O insurance policies. Under the Act, CEOs and CFOs who willfully submit an incorrect certification to a SOX compliance audit can face fines of $5 million and up to 20 years in jail.

 

With benefits fully outweighing the adjustments that companies need to make to comply, the SOX does not have to feel like a burden to your organization. FPV&G’s experts will introduce you fully to what the SOX act is and how to get the framework in place that your business needs to comply with and benefit from the adjustments.

 

 

About the author: Amir Y. López Ortiz, CPA, MBA

López is our firm expert in the Sarbanes-Oxley Act (SOX) and is an accomplished CPA. He holds a BBA in Accounting from the University of Puerto Rico and a Master’s in Accounting from Turabo University. As a Semi-Senior Consultant with FPV & Galíndez, he uses his expertise and his vast experience in Banking and Internal Controls with our vast clientele such as Banco Popular.