SOX compliance: a complete overview

What is SOX?

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.

Who does SOX apply to? 

SOX 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. 

What are the key goals of SOX?

These controls, which ensure the accuracy, reliability, and security of financial data, encompass 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.

Essentially, 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 aid in the identification and prosecution of such violations.

SOX is quite 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

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. 

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’s solution is designed to enhance a company’s ability to comply with regulations such as the Sarbanes-Oxley Act (SOX). By leveraging advanced AI, Concentric 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 uses deep learning to categorize and assign risk profiles to business-critical data. In doing so, 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 also 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 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’s solution 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, resulting in improved internal controls.

Maintain data trails

With Concentric, your ability to maintain data access logs is boosted, 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 can detect significant deviations or changes in data trends that may require disclosure — a great help for maintaining transparency.

Data accountability

Finally, Concentric supports the SOX principle of accountability. By tracking all interactions with sensitive data and recording who has accessed what information and when, Concentric helps enforce individual accountability for data handling and compliance.

Concentric and SOX: the bottom line

With our deep learning capabilities, Concentric 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:

• Data Security Posture Management
• Data Access Governance with Remediation
• Data Classification
• Privacy Data Protection