Regulatory Compliance Goverance: Compliance with SOX Act example

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Compliance with SOX Act

The following paper is devoted to the development of a working proposal regarding the way to ensure SOX compliance once the company goes public. Sarbanes-Oxley Act, commonly referred as SOX, was released in 2002. It regulates financial reporting and audit and, therefore, creates the new approach to financial controlling and regulation of the financial activity of the company. When going public, it would be beneficial for the company to function in compliance with SOX as companies with higher earning management avoid financial manipulation and are more liquid (Chung, Sheu & Wang, 2009). Therefore, the paper is focused on the development of recommendations regarding SOX compliance.

The first step of the strategy is an implementation of section 302 and 404 of SOX act. The sections aim at protecting investors through the higher accuracy of corporate disclosures. It would make a company more transparent and open for investment. In order to make the financial data disclosure faster, the company needs to use Electronic Data Gathering, Analysis and Retention System (EDGAR) (Tarantino, 2015). Section 302 of SOX recognizes the responsibility of company’s management for implementing a system of internal control. Then, the paper recommends educating the personnel of the company as well as signing officers on the importance of properly filled in and disclosed financial reports of the company, fraud of which can cause criminal responsibility. Section 404 of SOX further strengthens the responsibility of CEOs for internal control systems and necessitates the assessment of the effectiveness of it. It is possible to suggest defining and establishing the basis of internal control systems and starting the assessment of them.

Before disclosing company’s financial data, it is worth recommending to conduct a profound macro level analysis of risks and controls, which can be conducted via self-assessment methods (Leech, 2003). Once the risk factors have been identified, a company should look for the possible controls to mitigate risks. Then, after the company has identified and clearly documented possible risks and controls, it is worth utilizing the technological opportunities as it “ helps integrate the efforts of all assurance providers, facilitates preparation, analysis and quarterly monitoring of the consolidated risk and control position” (Leech, 2003, p.17). Thus, for example, a company can replace the variety of previously used resource planning systems with a Tier-One ERP. Section 404 is associated with high audit costs (Foster, Ornstein & Shastri, 2007), which needs to be taken into account when developing the company’s budget.

Section 401 of Sarbanes-Oxley Act regulates disclosures in periodic reports. Compliance with it is connected with the previous step recommended. Section 401 requires financial reports to be written the way it “reconciles it with the financial condition and results of operations of the issuer under generally accepted accounting principles.” (SOX, 2002, n.a.). In order to comply with this section of SOX, it is necessary to ensure the internal control of all the off-balance sheet transaction, which are being conducted. The management of the …

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