Why You Must Have Sarbanes Oxley Testing In Place
Compliance to the Sarbanes-Oxley Act is mandatory for some companies and all companies have systems in place to make sure that they comply with the act. However it is also important to have a Sarbanes Oxley testing procedure in place to ensure that the systems in place are actually working smoothly.
The Sarbanes-Oxley Act came into being in the year 2002 in the United States in order to protect the interests of shareholders and others who are in contact with a company. This legislation was seen as essential, keeping in mind the financial scandals (such as Enron) that rocked the business community. The Sarbanes-Oxley Act has stringent laws to prevent fraudulent activities and errors in accounting which are problems which plague many companies.
The Sarbanes-Oxley Act incorporates issues such as public accounting, financial disclosure and corporate governance. The aim of the act is to introduce the best corporate practices into every company so that the self interest or the errors of a few individuals do not end up affecting the lives of the many people who are associated with the company. The act comes under the Securities and Exchange Commission or the SEC which is the body that is responsible for setting the deadlines for compliance and publishing the rules.
The organizations which get affected by the Sarbanes-Oxley Act are: Publicly traded companies which file reports with the Securities and Exchange Commission; Public accounting firms which audit such companies and the IT and corporate finance departments. The effect of the act has been that in the United States, the CEOs and CFOs are held personally responsible for the accuracy and completeness of the financial reports of their organizations. The penalties for non compliance are heavy and the management could face fines or even imprisonment. In order to check the effectiveness of the measures you have taken for compliance with the Sarbanes-Oxley Act, it is recommended that there is a Sarbanes Oxley testing and check whether the organization has been able to stick to the guidelines. In fact the Sarbanes-Oxley Act has provided many companies to streamline their operations and reducing the costs for compliance. The financial systems can be upgraded because of the pressure to comply with the act. There are many ways in which companies seek to comply with the act. However, it is also important to have a Sarbanes Oxley testing in order to be double sure about the systems in place. It has to be remembered that not having Sarbanes Oxley testing procedures could cost a lot. At stake is not just the reputation of the company but also the well being of the senior management. So, having a reviewing system in place is a good idea. Sarbanes Oxley testing would help you not just identify and strengthen the controls already in place but also to weed out the systems which do not seem to work. Once the systems ate in palace another Sarbanes Oxley testing feature would be to cress-check whether the measures help the organization achieve compliance. Since this can be an expensive option, the organization can choose to stagger the testing over a period of time. External auditors may be called in to review the systems.
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