The main reasons why companies need to comply with Sarbanes-Oxley are because of transparency. With all the scandals and fraud that have occurred in big name corporations that have made headlines and brought awareness to fraudulent activity, the U.S. government has passed laws as an attempt to try and combat these problems.

Laws such as the Sarbanes-Oxley Act (SOX), enacted in 2002 after the Enron and Worldcom scandals, were passed in order to increase levels of transparency and reduce instances of financial deception.

Since the additions the Sarbanes-Oxley governance law, it is in a company's best interest to comply with SOX, here's why:

*Legal Reasons to Comply

Primarily, the main reasons why companies need to comply are due to fines and lawsuits. If they don't comply with SOX, this noncompliance will cost them dearly and can even include jail sentences. Even unintentional mistakes in financial reporting can be punishable by law, so it is to the company's best advantage to exercise stringent controls in order to comply.

For instance, if companies do not exhibit levels of careful attention in financial record keeping they will fall into problems with complying with SOX and then experience the above scenarios. In cases of intentional fraud, this will increase the level of punishment allowable by law and it is of value to be proactive when it comes to compliance with governance laws.

*Using Due Care with IT

Due care is an important consideration for IT services and management. While SOX does not specifically make any notations in regards to how a company should manage its information technology, it is a given that IT is a part of compliance when it comes to SOX.

If a breach or other IT mishap were to occur, in a court of law a company can be found guilty with due care negligence. A company would have to prove they've gone to lengths to instill controls in order to protect and safeguard data. If not, they could be found guilty of due care negligence.

Due care implies professionalism in handling IT which includes the level of diligence used to maintain systems, monitor, audit and implement controls. It also relates to professional judgment and work performance; poor judgment in due care or lazy practices when it comes to safeguarding IT and the data contained within can equate to due care negligence which would be punishable in accordance with the legal reasons why companies need to comply with SOX.

Since IT is an integral part of most businesses and organizations, it spans over several areas of business since it runs many different operational processes; due care with technology is directly tied into corporate governance.

*Competitive Advantage

In addition to the law related issues associated with SOX, it is beneficial to companies who can use these compliance methods to gain a competitive advantage in their industry; for those that recognize the advantages, this can be another strong driver to comply. Combining compliance with gaining a competitive advantage can be a winning combination.

There are many reasons why companies need to comply with Sarbanes-Oxley and in addition to the obvious compliance factors, using a structured framework of control is a great way to eliminate other deficiencies in the business and increase the organization's ability to be competitive.

Learn more about this author, Leigh Goessl.
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