SOX compliance refers to the Sarbanes-Oxley Act of 2002, which is legislation passed by Congress to protect the general public and shareholders from the possibility of corporate accounting errors and fraudulent activities. The legislation mandated reforms to prevent accounting fraud and improve transparency related to a corporation’s financial disclosures.
The Sarbanes-Oxley Act of 2002 was enacted by the U.S. Congress in response to several corporate accounting scandals, primarily those that occurred at Enron, Tyco and WorldCom. SOX compliance amended or supplemented a number of enforcement policies dealing with corporate accounting methods and security regulations. The primary provisions of the SOX Act are found in Section 302 and Section 404.
Section 302 of the SOX Act requires a company’s senior management to affirm the accuracy of all reported financial statements. Section 404 of the SOX Act requires auditors and corporate management to institute internal reporting methods and controls to ensure the delivery of transparent and accurate financial information.
In addition to reporting methods, SOX compliance requires companies to comply with stringent record keeping and storing practices. SOX compliance does not regulate how a company should store their financial documents, but instead states which documents must be stored and for how long. The legislation requires that all financial documents must be saved for at least five years.