SOX vs Operational Audit
As a reaction to the major financial scandals involving huge companies, government passed Sarbanes-Oxley Act of 2002. This was also done in response to assuage the fears of the common people and investors. This act is also known as Public Company Accounting Reform and Investor Protection Act. This act has many similarities with Operational Audit that is routinely carried out in huge companies and corporations as a tool to check company’s efficiency and effectiveness. However, there are some major differences that this article will bring forth.
Sarbanes-Oxley Act or SOX in short, as it is called in company circles is a stringent law that sets standards of financial regulations among public company boards and public accounting firms. It was set up in the aftermath of financial scandals that rocked the economy and also investor confidence in nation’s security markets across the country. The act that does not apply to privately held companies sets out responsibilities for corporate boards and also requires SEC to give rulings on financial irregularities under this law. This act led to the creation of a public agency called PCAOB that is required to oversee, regulate, inspect as well as discipline accounting companies when they carry out audits of public companies. There is both support as well as opposition to SOX with opponents claiming SOX has reduced the competitive edge that US enjoyed over financial service providers from other countries but proponents of the law say that SOX has reinstalled the confidence of the common man and investor in financial markets and financial statements of corporate houses.
It is a tool that that is put into operation to check a company’s financial systems and procedures. It gives objective opinions about the efficiency of the company. It is usually conducted by accountants from certified accounting firms and gives an idea to the company as to how well it is utilizing its resources. Operational audit is a deeper inspection and review of the working of the company than regular audits that are performed by financial analysts of the company itself. This is a tool that brings to light inefficient use of resources or wasted capital. Delays in business operations also get highlighted by operational audit that help a company overcome procedural delays.
Difference between SOX and Operational Audit
Talking of differences between SOX and operational audit, it is clear that while SOX is statutory in nature, whereas operational audit is not compulsory. While operational audit does not focus on internal controls, SOX brings out weaknesses in internal control. ‘SOX’ is designed to protect the interests of the investors and is mandatory for stock listed companies. On the other hand, operational audit is carried out for all companies, whether listed in stock exchange or not. Objectives of SOX are clearly defined and are carried out with clear cut guidelines. On the other hand, operational audit can have varied objectives depending upon the desire of the management of the company.