Since the Sarbanes-Oxley Act (SOX) of 2002, banks have re-established their reporting process to avoid unnecessary penalties. They have also repurposed their operations to reap SOX attestation and compliance benefits. The latest approach that SOX brings to banks is the trust level created in the market. For the banks that plan to go public, SOX brings a significant hike to their IPO.
Despite the initial costs of the internal control mandate, the evidence shows significant benefits to banking systems. In short, strengthening of banking compliance, reporting, and public market trust happened due to SOX implementation. A bank's SOX compliance provides the basis of financial assurance for publicly trading companies, and it not only inspires customer confidence and ensures market certainty. SOX compliance has enabled the banking sector to empower their certainty without compromising their service while new entrants can command a higher IPO in the market.
The benefits offered by SOX implementation represent a macro-level improvement on a broader level. Here are a few advantages that individual companies can get from SOX compliance.
Benefits of SOX Attestation for Banks
Not every risk identified by banks is equal. Implementation of SOX grants banks a starting point for risk assessment and analysis. Through this act, banks can predict their standard to follow. Understanding the risks means effective targeting of control features.
The most effective risk assessment method is to focus on the ones that fit the specifications of ITGC. Risk assessment is not a new phenomenon, but the experts associated with the principal know that confidentiality and integrity are the key points of risk assessment.
Focused risk assessment means understanding the organization's risk controls and exposure. The company can focus on the in-scope areas by taking care of the assessments that do not fall into SOX attestation.
Strengthening Control Structure
SOX compliance sections require strengthening of the control structure and its documentation, including operation manuals, policies, and control processes. Many organizations find the process a bit too overwhelming due to excessive documentation; however, these can prove productive.
An added advantage of SOX compliance is its awareness of better control and how they fit to become transparent. When audit teams become more focused on SOX activities, organizations become aware of the importance of the following compliance. The scrutiny that comes with SOX assessment encourages banks to ensure the proper execution of activities necessary for financial reporting and control.
As the company matures, organic changes start to take effect during the transition. Banks that prioritize compliance sooner reap the benefits of SOX compliance in the beginning.
Better Audit Quality
While the perfect audit is a vague term, the quality of audits, Thanks to SOX attestation and compliance, banks can make their audit as transparent as possible.
For most banks and financial institutions, an audit committee carries out audit duties. They take care of all the necessary functions under SOX compliance, and executive management ensures accuracy and completion of internal control for final reporting.
Effective audit operations significantly improve the process's quality, producing better results. Better internal audits mean a more efficient internal audit process. Streamlining audit operations streamlines all the necessary details and lowers the results of requests and audit report results.
Financial Reporting Efficiency
The most crucial point of SOX compliance is its transparency in final reporting. Management must follow a high-level financial objective for reporting and set sub-objectives for statements and disclosures. During the process, identification of financial accounts based on risk materials.
For each account identified, management must assert separate risk assessments, including valuation, existence, rights, and obligations. The result is mapping the bank's internal control department that displays all the evidence control activities correctly for reporting. If there are any gaps present, they can be rectified immediately.