What is SOX compliance?
Let’s suppose a company runs subsidiaries or branch offices in different locations or even countries worldwide. With more and more local departments, business becomes increasingly complex, and fraudulent financial practices or accounting errors are more likely to happen unnoticed, even more so without intent.
In the early 2000s, this led to several accounting scandals in the United States. That is why former US President George W Bush signed a law in 2002 that set new requirements and expanded on existing rules for all US public company boards and public accounting firms officially named ‘Public Company Accounting Reform and Investor Protection Act. It is more commonly known as the Sarbanes-Oxley Act, short SOX. It was designed to protect the interests of investors since 2002.
The Sarbanes-Oxley Act has been gradually widened to apply to all companies that operate on the public capital market in the United States. Since 2006 a similar law pursues the same goals for all European Union members. Non-compliance will be met with punishment.
What is SOX control?
SOX control is a guideline that detects and prevents errors within the financial reporting cycle. This falls under the SOX act. The companies face challenges in their Information Produced by the Entity (IPE) approach and data supporting all critical controls for SOX compliance.
The best option for companies implementing these mandatory guidelines is to set up IPE SOX controls to verify financially relevant transactions that mean incorporating workflows that guarantee to adhere to the for eye principle and transparency for third parties. For example, an external auditor that one employed certifies that transactions have been checked by an in-house auditor before by triggering this process automatically. This ensures that no transaction is carried out without verification. This is where shared services come into play.
IPE SOX controls dictate that every verification of a financially relevant transaction can also be checked afterward to document your workflows an efficient system that registers information gapless is inevitable. While storing notes will also suit one’s purposes, setting up a supportive IT system is much more economically efficient and safe. It guarantees that every transaction and its review are comprehensible. Users now receive digital forms that can quickly be filled out with company internal knowledge. The forms react dynamically to the entries so that users are guided through the entire data collection, and no transaction gets lost in between the others. The reliable storage of data will also allow one to track any fraudulent practices that are being pursued within the company and ultimately get rid of them. This leads to fulfilling all the necessary compliance requirements economically and effectively and, therefore, leads to more trust between the investors and owners of the company.
How to ensure controls are IPE SOX compliant?
IPE SOX controls can be tested by using the following approach:
1. Creating an IPE inventory category wise
2. Categorising the IPE
3. Determining the testing approach
4. and Maintaining the IPE process!