What is SOX Audit & On Whom is it Applicable in India
A SOX compliance audit is intended to verify the financial statements of the company, and the processes involved in creating them. During the audit, the financial statements and management of internal controls are analyzed and assessed by an external auditor. The audit report must be made available to relevant parties.
A SOX compliance auditor must be an impartial party. During the audit, they compare past statements with those of the current year, and analyze the information. Additionally, the auditor interviews people from the compliance department, and possibly members of other departments, to ensure that compliance measures are sufficient to meet SOX standards.
What Types of Organizations Need SOX Auditing?
SOX compliance helps protect investors, staff, clients, accounting firms, and any relevant party. To do this, SOX asks a wide range of companies to comply with its standards, including:
Publicly traded companies based in the US, including wholly-owned subsidiaries
Publicly traded non-US companies conducting business in the US
Private companies preparing for an initial public offering (IPO)
Accounting firms and third-party companies that offer services to any of the above companies
SOX was created primarily to keep public companies and their accounting firms in check. However, during certain scenarios, SOX also applies to private companies as well as nonprofits. Here are several scenarios during which a private company might need to perform a SOX audit:
A third-party’s insistence—some business partners might require private companies to undergo a SOX audit. Lenders, for example, may ask companies to provide an independent audit when requesting a loan. Insurance companies may also ask for financial statement certifications before they approve Directors & Officers (D&O) liability insurance.
Due diligence for prospective investors and buyers—potential buyers and investors might ask to see audited financials as well as assurances regarding the internal controls of the company. They request this information so they could make an informed decision on acquisitions, loans, and coverage to mitigate risk.
State requirements—certain state security regulators might extend SOX compliance requirements to include certain private companies.
Additionally, companies with a large external shareholder base may be asked to conduct a SOX audit, as well as companies with registered debt securities.
Created & Posted By Aashima
Accounts Executive at TAXAJ
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