How does Sarbanes-Oxley impact you?

Find out how to stay compliant with the anti-fraud law.


Many workers are under the misunderstanding that Sarbanes-Oxley (or SOX as it is commonly known) is only important to people involved in the financial departments of their company. And while it is true that financial professionals do bear most of the burden, you don't need to be a CFO to feel the effects of SOX.

In fact, thanks to its emphasis on procedural issues and both internal and external disclosure requirements, SOX impacts people in all departments. Fortunately, we've put together an easy-to-understand breakdown of SOX best practices.

What is Sarbanes-Oxley?

Passed in 2002 in response to widespread accounting and auditing scandals, the Sarbanes-Oxley Act mandated stringent reforms design to improve financial disclosures from corporations and prevent accounting fraud.

Checks and balances.

In the wake of high-profile corporate scandals, SOX established a code of ethics that executives and businesses must stick to – or risk jail time. As a result, every effort must be made to implement a set of checks and balances that ensures the opportunity for improper behavior – and even the very appearance of impropriety – is removed. And, while SOX compliance was a challenging process for many companies, most found that the end result – a standard of business that places a strong emphasis on ethics – is certainly worth the effort and expense.

The 3 steps of SOX.

SOX essentially mandates a system of checks and balances that all public companies must follow – a three-step system comprised of controls, documentation and testing. “Controls,” for those unfamiliar with the term, is the name given to the procedure used to ensure that a transaction is processed correctly. “Documentation” is the written description of the control, while “testing” is the physical act of checking that the documentation and the control exist.

Sound complicated? Trust us; it's not. Here's an example: Prior to SOX, a CEO may have verbally provided a department head with the authority to approve expense reports. Under SOX regulations, companies must be able to prove – through written documentation – that the department head does indeed have the permission of the CEO to approve expense reports.

As such, the signature of the CEO granting sign-off privileges is the “control;” a written job description detailing the sign-off authority and the signature of approval from the CEO included in the personnel file of the department head is the “documentation”; and the ability of the CFO or other financial professional to walk over to HR, take a look at the job description and CEO signature to verify that the department head does indeed have the authority to sign expense reports is the “test.” The test must, of course, be documented as well.

This example is applicable throughout every level of the organization – not just between the CEO and management. While the specifics may differ, SOX plays a crucial role in nearly all company procedures – thereby affecting everyone in the corporation.

Protecting the process.

In addition to the compliance process, a crucial element of SOX is the existence of the whistleblower policy. Prior to SOX, employees who reported unethical or illegal activity within the corporation were not protected by the company. Under SOX, however, not only are companies now required to craft policies protecting from retribution any employee who reports wrongdoing in the workplace; strict adherence to these policies is an absolute must. This provides employees with a forum to anonymously voice their concerns without fear of retribution.

And, thanks to SOX, the stakes are higher than ever before – a complaint by a whistleblower claiming discrimination or reprisal in any form now carries with it the potential of a steep fine and even the possibility of jail time for company executives. As incentives go, this one is tough to beat and has HR teams tenaciously enacting and enforcing these new policies.

From the boardroom to the mailroom.

Every department – from the boardroom to the mailroom – is impacted by SOX. Many corporations are taking a closer look at their staff in an effort to ensure they are hiring people who meet the highest quality control criterion. And, in their efforts to comply with SOX, many companies have brought on consultants to assist in the integration of new policies that adhere.

Be sure to speak with your local Adecco representative to learn more about how SOX impacts you and the work you perform on a daily basis.

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