The recent spate of corporate scandals have had a highly adverse reaction in U.S. investor confidence. This was one of the factors that resulted in significant slowdown in the economy and capital markets in the past few years. In order to prevent such dire business scenarios in the future, the United States Congress enacted the Sarbanes-Oxley Act of 2002 (SOX). Named after two congressmen, Sen. Paul Sarbanes and Congressman Michael Oxley, SOX was established to drive corporate governance and financial reporting practices to new heights. The system of checks and balances and public financial disclosure were seen as a stepping stone to renewed investor confidence.
A key component of SOX is that the officers of the corporation have to attest to and sign off on the veracity of financial reports and efficacy of key financial controls. The penalties for falsifying financial statements can be very harsh, up to an including imprisonment for fraudulent activity. As a result, a corporation’s board of directors and executive management team has a great deal of responsibility to authenticate and certify financial statements on an ongoing basis.
The crux of the Sarbanes-Oxley act is Section 404 around the establishment and certification of key internal controls around accounting practices such as A/R and A/P. The audit process actually involves two different teams – one for the first initial audit to check Readiness for the SOX audit, and the second external audit partner which actually carries out the audit. The result of the audit is a full testing, evaluation and documentation of internal controls with an eye towards full disclosure. Certification and documentation of gaps in internal controls are published in a company’s public financial statements (e.g. SEC filings). This process requires a robust cash flow management platform like Emagia to ensure compliance, financial control, and improved cash flow from operations.
Emagia helps companies achieve SOX readiness and compliance for the following cash flow processes:
- SOX compliance for Accounts Receivable processes
- SOX compliance for Accounts Payable processes
- SOX compliance for end-to-end cash flow management
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