We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Accounting

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a SOX Audit?

By Osmand Vitez
Updated: May 16, 2024
Views: 92,561
Share

Sarbanes-Oxley is legislation passed by the United States Congress that requires publicly held companies to undergo strict audits on financial information and internal controls. These audits — known as SOX audits — are quite common and do not necessarily mean a company is incorrect in its accounting processes. The audit provides information for investors and other stakeholders with information on how well the company maintains general accounting standards and has adequate management controls over business and financial information.

The SOX audit will start with a meeting between auditors and company management. During this meeting, the auditors will discuss the scope, length, purpose and expected results of the review process. Publicly held companies have some allowances when hiring an auditor for the SOX audit process. The accounting firm conducting the audit must be registered with government or accounting oversight agencies, however. This assures the public that auditors conducting the fieldwork and review have the adequate education and training necessary to conduct the audit. SOX auditors must also be separate from the company’s regular auditors. If the same auditors conduct both audits, this can be a conflict of interest.

A SOX audit tests for variances and misstatements in a company’s financial information, strength of internal controls and governance in the accounting department. When testing for variances and misstatements, auditors will review documents prepared by the company. Auditors may also recalculate the financial paperwork and compare the preparation instructions to standard accounting principles. While some variances are typically acceptable, variances or misstatements that exceed five percent are generally seen as significant.

Internal control reviews test which employees are responsible for certain activities, how many similar tasks one individual completes, which manager oversees various employees, who has access to the accounting software and what defaults are in place to discover errors in the accounting software. The SOX audit will focus heavily on internal controls, as these are the procedures specifically meant to limit errors and prohibit fraudulent activities relating to the company’s financial information.

The SOX audit will not generally provide a company’s management with corrective actions necessary to resolve accounting issues. While some guidance is certainly necessary, SOX auditors will quickly blur their independence by offering too many corrective actions, as this enters the field of consultation services. Under SOX laws, auditors cannot offer consulting services to their audit clients, as this will result in multiple accounting services offered through one accounting firm.

Failing a SOX audit will often result in a required remedial audit. Most auditors will score the audit on a 100 point scale, with anything less than 70 points resulting in a scheduled re-audit. The remedial audit will test the areas that the company failed during the initial audit, and will ensure the company’s corrections are effective and will continue in perpetuity for safeguarding the company’s information.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
By StealthyChamp — On Dec 09, 2013
The Sarbanes-Oxley Act got its name from the 2 U. S. sponsors, U. S. Senator Paul Sarbanes, (D-MD) and U. S. Representative Michael Oxley (R-OH). It was enacted as a direct result to major corporate scandals, such as those at Enron and Adelphia. It's nice to see what can happen when opposing parties come together for the greater good of America.
Share
https://www.smartcapitalmind.com/what-is-a-sox-audit.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.