SOX Compliance: Challenges and Benefits

Exploring the challenges and benefits of SOX compliance through the use of spreadsheets, auditor independence to technology


As surprising as it may sound, the Sarbanes-Oxley Act (SOX) has been around longer than cryptocurrencies, and yet publicly listed corporations and those considering going public are still grappling with the financial services compliance law. So much so that the 2020 Protiviti survey states that 65% of the 650 audit, compliance, and finance leaders polled reported a 10% increase in SOX compliance hours over the previous year. Increased demands, regulatory requirements, and shifting market dynamics have all made SOX compliance processes an unstable target. And, when you add a corporate activity like entry into new markets, mergers and acquisitions, and digital transformation to the mix, it is easy to see why SOX internal controls remain a costly and challenging undertaking. Here are some key challenges that come with SOX compliance. 


Excessive Use of Spreadsheets

Spreadsheets have been a vital component of the SOX compliance audit process since 2002, and it still is, thanks to their ability to link data across multiple documents and automate routine tasks. However, modern audit projects now demand more attributes and information regarding controls, and the labor-intensive, error-prone manual methods can result in version control difficulties, partial or missing data, errors, lost data, analysis of incomplete data sets, and process owners being kept in the dark. This, according to the survey alone, contributes majorly to the increase in SOX compliance hours.


Minimum Usage of Technology

According to the survey, technology is primarily used in testing the accounts payable process by 48%, financial reporting process by 43%, and account reconciliations process by 43% of the survey respondents for SOX compliance while leaving a vacuum for other areas of the process. This signifies that the lack of automated processes and controls and technological tools to evaluate controls that can help achieve long-term efficiency, greater accuracy, and significant time and cost savings are either not adopted or not apt enough for most businesses. As a result, many organizations still need to embrace automation in various aspects of the SOX compliance process, including for all internal SOX compliance activities and those performed by external auditors, to reduce their costs and challenges. 


Ever-changing Regulations

The Public Company Accounting Oversight Board (PCAOB), created by the Sarbanes-Oxley Act, monitors audits of public corporations and other issuers to safeguard investors' interests. However, according to the Harvard Law School Forum on Corporate Governance, many people are concerned about the PCAOB's ever-expanding supervision and reforms. The forum also claims that external auditors' monitoring has also increased the amount of effort and money required to comply with SOX.


Despite the challenges, organizations are recognizing the benefits of SOX compliance in a variety of ways:

  • Increased Corporate Governance – According to a Securities Exchange Commission (SEC) study, prior to SOX, just 51% of public companies had audit committees utterly independent of management. Then, SOX mandated all publicly traded firms to establish an audit committee with independent members and include at least one financial expert. As a result, today's audit committees are better prepared to produce accurate and fair financial reports, thus enhancing corporate and information governance solutions by forcing audit committees to be more regulated.

  • Increased Responsibility – SOX compliance protects investors by holding CEOs to a higher standard of accountability and expecting them to personally certify financial reports. And since fraud is penalized severely, the self-responsibility amongst the executives has grown.

  • Auditor Independence – Sarbanes-Oxley compliance enhances auditor independence by prohibiting audit firms from performing financial, actuarial, or managerial activities for the corporations they audit.

Fewer Financial Restatements – According to a Protiviti survey, since the Sarbanes-Oxley Act, the number of financial restatements has steadily decreased, from 1,851 in 2006 to just 737 in 2015.

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