What is the Sarbanes-Oxley (SOX) act?
The Sarbanes-Oxley Act (SOX) of 2002, a U.S. federal legislation, was created to protect investors by increasing transparency in financial reporting by corporations. It was enacted in response to high-profile financial scandals such as Enron, WorldCom, and Tyco.
What are the key goals of SOX?
The controls that govern SOX ensure the accuracy, reliability, and security of financial data, and apply to both business and IT domains. The objective of these controls is to ensure that systems are accurate, complete, and error-free to avoid potential impacts on financial reporting.
The measures within the act are aimed at increasing accountability and transparency for corporations, protecting investors and the public from fraudulent activity. They include a combination of increased regulatory oversight, stricter penalties for violations, and additional protections for individuals who help in the identification and prosecution of such violations.
The SOX act is rather comprehensive, but these are they key goals of the act you should know about:
- Enhances the reliability of corporate disclosures and financial statements
- Promotes auditor independence
- Increases corporate responsibility
- Increases transparency in financial reporting
- Increases penalties for fraudulent financial activities
Who does SOX apply to?Â
SOXÂ primarily applies to all publicly traded companies, their wholly owned subsidiaries, and foreign firms trading publicly in the U.S. Accounting firms auditing these companies are also regulated by SOX.
While private companies, nonprofits, and charities are not generally bound by all SOX requirements, those that destroy or falsify financial data can face penalties.
SOX also requires companies to implement internal controls impacting financial reporting.Â
What are some recent examples of SOX violations?
Over the least year, numerous significant data breaches have occurred that are examples of SOX violations, particularly as they pertain to the protection of financial data and the timely disclosure of cybersecurity incidents.
MOVEit Data Breach (2023)
In 2023, a vulnerability in the MOVEit file transfer software, owned by Progress Software, was exploited, leading to a widespread data breach affecting numerous organizations, including publicly traded companies. The cybercriminal group Clop claimed responsibility for the attacks, which compromised sensitive data across various sectors. In November of 2024, Amazon confirmed employee data was exposed as a result of the breach.
SEC Enforcement Action Against Intercontinental Exchange (2024)
In May of 2024, the Securities and Exchange Commission (SEC) fined Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange, $10 million for failing to promptly disclose a 2021 cyber breach that affected multiple subsidiaries. The delay in reporting the incident was considered a violation of SEC regulations, as it failed to address the timely disclosure of material cybersecurity incidents as required under SOX.
National Public Data Breach (2024)
In April 2024, Jerico Pictures Inc., operating as National Public Data, suffered a massive data breach that exposed the personal information of approximately 2.9 billion individuals. The breach, executed by the cybercrime group USDoD, involved the release of sensitive data, including social security numbers and addresses. This breach, considered one of the largest data breaches in history, underscores the imperative for organizations to implement stringent data protection measures and comply with SOX requirements to protect financial and personal information.
What potential compliance issues does SOX address?
Designed to protect investors from fraudulent practices within corporations, SOX encompasses a broad range of potential compliance issues. These include inadequate internal controls over financial reports, lack of proper documentation, insubstantial external audit inspections, failure to uphold data integrity, weak whistleblower protections, and more.Â
The following list delves into these potential SOX compliance issues in more detail to drive home the importance of avoiding corporate mishaps and achieving a high level of transparency in financial reporting.
- Inadequate internal controls over financial reporting, leading to material misstatements or errors in financial statements. This could involve lack of proper segregation of duties, insufficient documentation, or ineffective monitoring controls.
- Failure to maintain accurate and complete audit trails or records related to financial transactions, potentially obstructing audits or investigations.
- Lack of independence or skepticism from external auditors, resulting in failure to identify or report material weaknesses or fraud.
- Unauthorized access, alteration, or destruction of financial data, compromising data integrity and reliability.
- Ineffective whistleblower protections, discouraging employees from reporting potential violations or fraud.
- Inadequate disclosure controls, leading to failure to properly disclose material events, risks, or changes that could impact financial conditions.
- Weak cybersecurity measures, leaving financial systems and data vulnerable to breaches or cyber attacks.
- Lack of proper training and awareness programs, resulting in employees being unaware of SOX requirements or their responsibilities.
How Concentric AI can help your SOX Compliance
Concentric AI is designed to enhance a company’s ability to comply with regulations like the Sarbanes-Oxley Act (SOX). By leveraging advanced AI, our solution provides valuable insights into data management, privacy, and security practices to ensure data integrity— an essential element of SOX compliance.
Assess risk
One of the primary requirements of SOX is to maintain accurate and reliable business records. Concentric AI uses deep learning to categorize and assign risk profiles to business-critical data. You get a comprehensive view of all your sensitive unstructured data, which may include financial spreadsheets and internal audit reports. With a clear understanding of your data’s risk, you can identify data accuracy issues, avoid data manipulation, and maintain a high level of data integrity.
Understand context
Data context is equally important. Concentric AI understands the context of business-critical data and can recognize when the data is at risk or out of compliance. By identifying sensitive data, understanding its risk, and automating its protection, Concentric AI effectively secures data against unauthorized access or alteration, a key aspect of SOX regulations that require financial data to be protected.
Improve financial controls
SOX compliance also requires maintaining transparent and effective internal controls over financial reporting. Concentric AI enhances visibility into data handling and access procedures, identifying overexposed or overshared sensitive data, improper access controls, and abnormal data access or interactions. This enhanced visibility allows you to better understand and control your data for improved internal controls.
Maintain data trails
With Concentric AI, your ability to maintain data access logs is improved, which can be a valuable resource during SOX audits. Our solution enables you to identify patterns or irregularities in data access that may indicate a security concern, helping you proactively manage potential risks.
Ensure transparency
Under SOX, companies are required to disclose any material changes in their financial condition or operations. By continuously monitoring and profiling data, Concentric AI can detect significant deviations or changes in data trends that may require disclosure — a great help for maintaining transparency.
Data accountability
Finally, Concentric AI supports the SOX principle of accountability. By tracking all interactions with sensitive data and recording who has accessed what information and when, our solution helps enforce individual accountability for data handling and compliance.
Concentric AI and SOX: the bottom line
With our deep learning capabilities, Concentric AI helps you meet SOX compliance requirements by:
- Ensuring data integrity
- Enhancing internal controls
- Providing transparency
- Supporting accountability
- Reducing the risk of financial fraud
Customers are successfully using our product in production for petabytes of data for:
