SOX Compliance

Cracking the Code: Streamlining SOX Compliance

Mar 19, 2024 Katie Thomas, CPA

About the Author: Katie Thomas, CPA, is a content creator, 2021 & 2022 40 under 40 CPA Practice Advisor recipient, Top 50 Women in Accounting recipient, and the owner of Leaders Online, where they help accounting professionals increase their impact, influence, and income through thought leadership and digital marketing. Feel free to visit Leaders Online or connect with her on LinkedIn to get in touch with Katie.

Bipartisan approval of the Sarbanes-Oxley (“SOX”) Act in 2002 changed the compliance landscape, offering business operation integrity and financial transparency of publicly traded companies. 

While SOX primarily affects public companies, it’s also relevant to private companies preparing to go public. And, although smaller public companies may not always be mandated to conduct an integrated audit, they are still required to present their auditors with a framework of their controls. Companies must be prepared for an integrated audit as they grow and expand.

While maintaining SOX compliance is a deterrent to stop another Enron from occurring, it also strengthens compliance controls, reduces business risk, and when done correctly, increases investor confidence.

Compliance is never static but constantly evolves, presenting challenges and high costs due to the inefficiencies in many SOX programs today.

To navigate this ever-changing environment, you’ll need to establish and maintain strong internal controls, which means you’ll need to:

  • Choose your internal control framework
  • Identify compliance risks both internally and externally
  • Implement your controls (financial reporting duties, code of conduct, etc.)
  • Put governance policies in place
  • Test controls regularly
  • Plan and schedule external audits

While a compliance checklist will help you keep compliance in check, the process is not without its challenges. Even with strong internal controls, businesses face dynamic compliance difficulties. These challenges are often intricate, multifaceted, and require diligent attention from both the accounting and finance departments and upper management. 

Challenges Companies Face With SOX Compliance

Compliance costs continue to swell. Some companies are spending $10K per employee to remain compliant.

The risk?

Non-compliance costs can be $4M or more. Burdens, especially with 404 compliance, are often due to a lack of modernized and/or automated compliance programs. As demands to follow policies and procedures rise, it turns into a spiral of enterprises, adding one inefficiency on top of another.

Businesses face many challenges when trying to maintain SOX compliance, including:

High Upfront Costs

Time and money are linked to compliance. The more time spent on inefficient compliance adherence, the more money spent. Accounting teams must review controls, and on top of these costs, many enterprises will spend money on:

  • Implementation management
  • Consultants
  • Integrated audits
  • Much more

Changes in the market or a business can quickly add additional costs to compliance because upgrades must be made to manage new risks.

Out-of-Sync SOX Documents

Only 25% of companies are using technology tools for compliance programs. A lack of stable processes that continuously evolve leads to documents being out-of-sync. Manual adjustments lead to higher error rates and version control issues.

Accounting teams are often left spending resources on manually syncing these documents prior to an audit.

Ineffective implementation of these controls will make it challenging for owners to maintain compliance and know what’s going on internally in the business.

Lack of Centralized Collaboration and Real-Time Control Visibility

Centralized evidence and controls allow for cross-function between teams inside and outside of accounting. Audits become increasingly more expensive when a lack of collaboration impacts control execution.

Companies often have outdated infrastructure in place that makes it time- and resource-intensive to capture centralized evidence.

Real-time control visibility is crucial to allowing teams to work in unison on control execution and eliminating friction if an audit occurs. Approval of SOX controls is challenging when there’s no centralized location in place, requiring excessive resources to manage compliance in an efficient, cost-effective manner.

Spending the time and resources to optimize compliance will provide cost savings and allow for stricter control.

The Value of Optimizing Compliance

Businesses face several challenges when it comes to SOX compliance, but optimization can provide a wealth of benefits, starting with one of the most important things: a reduced risk of errors.

  • Reduced Risk of Errors: One of the main benefits of optimizing and streamlining SOX compliance is that it ensures your financial reports are reliable. How? By reducing the risk of errors. Compliance errors can be costly. As mentioned previously, the cost of a single non-compliance event averages $4M or more. Reducing the risk of financial errors, misconduct and fraud should be a priority for every business. Optimization can help.
  • Time and Cost Savings: Along with the potential cost savings of avoiding non-compliance events, businesses can also reduce the time and resources spent on audits.
  • Streamlined Operations: A streamlined SOX compliance program will improve the transparency and financial health of your business – two things that stakeholders and investors value.

Along with these benefits, taking a streamlined approach to SOX compliance will also help cultivate a culture of compliance. When everyone in the organization is committed to compliance, internal controls are more effective and you build a stronger ethical foundation. 

A culture of compliance that permeates through all levels of the organization will foster long-term success and integrity. 

It’s easy to see the value of optimizing SOX compliance, but how do you go about doing it? What is the solution?

The Path Forward

Streamlining SOX compliance starts with one important step: staying informed. Businesses must be diligent in staying on top of compliance trends and the solutions that will empower them to be proactive rather than reactive.

For example, there are solutions on the market today that can streamline end-to-end compliance and provide the real-time visibility that traditional methods lack. These solutions contain advanced workflows and integrate with your other platforms as a whole to ensure everyone is always on the same page when it comes to accounting operations. 

Focusing on broader accounting and finance (“A&F”) platform integration can solve many of the challenges of SOX compliance and allow businesses to reap the benefits of an optimized process. After all, SOX compliance is not an isolated process but an integral part of the Accounting and Finance framework as a whole.

For businesses preparing for IPOs or acquisitions, having a solid SOX compliance framework is essential and will help demonstrate your organization’s financial integrity.

Taking a big-picture approach by focusing on broader A&F integration will allow your business to remain agile and adapt to ever-changing regulations. Integration doesn’t have to be disruptive, either. In fact, with careful planning and integration of user-friendly technologies, compliance transformation can often be achieved with minimal disruption to existing workflows.

Conclusion

SOX compliance is constantly evolving and changing. Businesses must commit to staying on top of these changes and be quick to adapt if they hope to remain compliant. Leveraging the power of technology and focusing on a broader accounting and finance platform integration for SOX compliance will help businesses remain agile.