What is Sarbanes-Oxley (SOX) Act compliance?

SOX compliance is the act of adhering to the financial reporting, information security and auditing requirements of the Sarbanes-Oxley (SOX) Act, a US law that aims to prevent corporate fraud. 

To be SOX compliant, public companies doing business in the US must:

• Implement internal controls to protect financial data from tampering.
• File regular reports with the Securities and Exchange Commission (SEC) attesting to the effectiveness of security controls and the accuracy of financial disclosures.
• Pass an annual independent audit of their financial statements and controls.

The SOX Act also sets rules for the accounting firms that audit public companies and the analysts who publish research on securities. The act imposes significant fines and criminal sentences for fraudulent activities and certain forms of noncompliance.

Though SOX is a financial regulation, stakeholders across the organization are involved in achieving compliance. IT departments and cybersecurity teams have become especially critical as companies turn to technologies like artificial intelligence (AI) to reshape how financial information is analyzed, monitored and reported. 

According to a 2024 report by consulting firm Protiviti, a majority of respondents said the scope of SOX compliance has significantly or moderately expanded over the past two years. More than half reported increased internal costs during that time, with organizations spending more than USD 1 million on SOX compliance efforts every year.

And while that may seem steep, the cost of failure can be far greater: recent collapses like Wirecard in 2020 and Silicon Valley Bank in 2023 show how weak financial controls and poor risk management can ultimately lead to catastrophic outcomes.

The Sarbanes-Oxley Act of 2002 is a US federal law co-sponsored by Senator Paul Sarbanes and Representative Michael Oxley. Congress enacted the law in the wake of several financial scandals at the start of the 21st century, including the fall of Enron, WorldCom and Tyco. 

In these and other instances, public companies used a mix of accounting loopholes and outright fraud to inflate their values, causing investors to lose billions. When Enron's deceptions were uncovered, its stock price fell from USD 90.75 to USD 0.26 per share.¹

In some instances, companies were aided by the external accounting firms that were supposed to be auditing them. Arthur Andersen, once one of the "Big Five" accounting firms, ceased operations because of its role in the Enron and WorldCom scandals.

SOX aims to prevent corporate fraud by setting strict regulatory mandates to protect financial records from tampering and ensure greater independence between auditors and their clients.

SOX compliance isn’t just a legal requirement—it’s a safeguard for investor confidence and corporate accountability. It also offers tangible business advantages.

Investors may be more confident in financial disclosures and, therefore, more willing to invest in SOX-compliant companies. SOX reduces the incentive for corporate leaders to commit fraud by holding them personally responsible for financial statements.

In addition, SOX compliance can help organizations strengthen their security posture. Many of the same data security controls used to prevent financial tampering also help defend against cyberattacks and data breaches. For instance, identity and access management (IAM) solutions help prevent unauthorized access to users accounts, while security information and event management (SIEM) tools can detect and alert teams to potential security incidents in real time.

With the rise of AI, financial operations are encountering new governance challenges. SOX-compliant control frameworks can help ensure that AI tools are used transparently, minimizing the risk of bias, automation errors or misuse.

SOX principles are also increasingly applied to environmental, social and governance (ESG) reporting, where internal controls can help validate sustainability metrics, reduce the risk of greenwashing and align with disclosure mandates like Europe’s Corporate Sustainability Reporting Directive (CSRD).

All of this contributes to stronger governance and transparency. But while the benefits of SOX compliance are substantial, the consequences of noncompliance can be just as significant.

According to section 906 of the SOX regulations, executives who certify inaccurate financial reports can be fined up to USD 1 million and face up to 10 years in prison. Those who willfully certify misleading statements can be fined up to USD 5 million and imprisoned for up to 20 years.

Executives may be required to return incentive-based compensation if a public company issues a financial restatement. Under 2022 SEC rules, clawbacks are triggered automatically—regardless of misconduct—when material misstatements cause incentive goals to be missed.

SOX also makes it illegal to damage, alter or interfere with financial records. Individual employees can face up to 20 years in prison for doing so. Corporate officers who retaliate against whistleblowers may be fined and face prison terms of up to 10 years.

In serious cases, the SEC can prohibit individuals who violate SOX rules from serving as corporate officers, directors, brokers, advisors or dealers. Companies themselves may even be delisted from stock exchanges for significant noncompliance. 

The Sarbanes-Oxley Act is divided into 11 titles, each outlining different aspects of corporate accountability and financial oversight. The following are five of its most significant provisions:

• Title 1 — Public Company Accounting Oversight Board (PCAOB)
• Title 2 — Auditor Independence
• Title 3 — Corporate Responsibility
• Title 4 — Enhanced Financial Disclosures
• Title 8 — Corporate and Criminal Fraud Accountability

Title 1 established the PCAOB, an independent nonprofit overseen by the SEC, to promote accurate, independent and transparent audit reports. 

The PCAOB registers audit firms, sets auditing and ethics standards, inspects for SOX compliance and enforces rules through penalties—including suspensions, censures and fines of up to USD 2 million per violation.

By creating a centralized oversight body for audit firms, Title I reinforces the integrity of financial reporting and restores trust in the audit process—ultimately strengthening corporate governance across publicly traded companies.

Title 2 strengthens the independence of external auditors by limiting conflicts of interest and restricting the services auditors can provide to their clients. Although the Securities Exchange Act of 1934 already required regular financial reporting, SOX reinforces the need for these reports to be free of misleading statements. Furthermore, they must adhere to generally accepted accounting principles (GAAP), maintained by the Financial Accounting Standards Board.

Companies must disclose off-balance sheet items (like debts held by unconsolidated subsidiaries) if they could materially impact the company's financial condition. Material misstatements are closely scrutinized, as they could influence investor decisions. 

SOX also requires near real-time reporting of material changes to financial information, and mandates internal controls to safeguard financial data from fraudulent activities. Companies must retain financial records for specified periods as part of compliance.

Title 3 holds senior executives personally accountable for the accuracy of financial reports, requiring formal certifications and outlining penalties for noncompliance. Under SOX, the chief executive officer (CEO), chief financial officer (CFO) and any corporate officers performing similar roles are personally responsible for ensuring that financial statements are true and internal control structures are effective.

Executives can face fines and criminal sentences if financial reports are inaccurate, even if they did not intentionally mislead investors. In 2025, a UK tribunal upheld fines against Metro Bank’s former CEO and CFO for publishing misleading financial information tied to a GBP 900 million accounting error—even though they weren’t found to have acted recklessly. The case underscores the growing global pressure on executives to maintain rigorous oversight of financial disclosures.

Title 4 expands disclosure requirements for public companies, particularly around off-balance sheet items, real-time reporting and conflicts of interest—issues that contributed to the financial scandals leading up to SOX. 

At the time, accounting firms auditing public companies often provided consulting services to the same clients, creating pressure to deliver favorable audit reports. Likewise, securities analysts frequently worked for firms offering investment banking services to the companies they evaluated.

To eliminate these conflicts, SOX mandates that public companies form independent audit committees responsible for hiring and coordinating with independent auditors. It also prohibits audit firms from offering consulting services to clients they audit and requires auditor rotation every five years. Analysts must operate independently from their firm’s banking operations and disclose any potential conflicts of interest in their reports.

Title 8 establishes criminal penalties for fraudulent corporate activity and protections for whistleblowers. It covers offenses like document tampering, mail and wire fraud, and retaliation against individuals who report misconduct.

Section 806 makes it illegal to demote, fire, harass or otherwise retaliate against employees who report suspected fraud at publicly traded companies, whether internally or to federal regulators.

Whistleblower provisions have grown more significant in recent years. In 2025, a former SunEdison executive won a record USD 34.5 million settlement in Zornoza v. Terraform Global Inc., the largest SOX retaliation award to date. 

SOX applies to all publicly traded companies doing business in the US and their wholly owned subsidiaries. It also applies to securities analysts and the audit firms that evaluate public companies.

While private companies and nonprofits are not generally bound by SOX, there are some exceptions. Private companies preparing to go public through an initial public offering (IPO) are subject to SOX when they file a registration statement with the SEC. Whistleblowers at private companies that provide services for public companies are protected by SOX when reporting on the misconduct of their public clients.

SOX makes it illegal for any organization (public, private or nonprofit) to destroy or falsify financial records to obstruct a federal investigation.

While SOX is a US regulation, it does have repercussions for foreign companies outside the country. Public companies headquartered outside the US must abide by SOX requirements if they do business in the US. The Sarbanes-Oxley Act of 2002 also inspired international SOX regulations, including Canada’s C-SOX and Japan’s J-SOX, to combat corporate fraud and strengthen financial reporting.

The European Union has implemented its own SOX-like rules surrounding the independence of financial auditors as well. There is noted significant overlap between SOX compliance and General Data Protection Regulation (GDPR) compliance. In particular, many of the same security controls and data protection processes that enable SOX compliance also support GDPR compliance. 

Many organizations align SOX compliance with broader security and data governance frameworks such as ISO/IEC 27001, which reinforce best practices around data protection, audit trails and access controls.

At the core, SOX compliance means that all of an organization's financial disclosures are accurate, and that the organization has controls and documentation to back up its financial statements. 

However, the process of reaching SOX compliance can be complex. SOX does not exhaustively outline every control a company needs or every step auditors must take. Different organizations reach SOX compliance in different ways.

At a high level, SOX has three broad requirements:

1. Filing accurate, executive-certified financial reports
2. Implementing appropriate internal controls.
3. Passing regular audits.

Under SOX section 302, "Corporate Responsibility for Financial Reports," a company's CEO, CFO or equivalent leaders must sign off on every annual report and quarterly financial filing with the SEC.

In signing off on the reports, the CEO and CFO must attest that the financial statements are completely accurate. They must also assert that the appropriate internal controls are in place and have been validated within the last 90 days. 

Under SOX section 404, "Management Assessment of Internal Controls," every annual financial report filed with the SEC must contain an in-depth internal control report. The internal control report affirms that management is responsible for maintaining effective controls and includes an assessment of their performance as of the end of the most recent fiscal year.

Organizations must report any material changes to their financial status promptly. While cybersecurity incidents can count as material changes under SOX, it's worth noting the SEC adopted new rules in July 2023 making the reporting requirements for these incidents even stricter. Organizations must report cybersecurity incidents within four days if they could materially impact financial condition or disclosures—including incidents with third-party services like cloud providers.

Companies implement SOX internal controls to prevent internal and external actors from fraudulently altering financial data or using it for illicit purposes.

SOX does not explicitly list all of the controls companies must implement. Organizations often rely on corporate governance frameworks like the Control Objectives for Information and Related Technologies framework that belongs to the Information Systems Audit and Control Association.

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework is also popular for shaping a strong control environment. While these frameworks were not developed specifically for SOX, they support the control testing needed to meet SOX compliance requirements.

Organizations can implement controls at two levels: business processes and IT infrastructure.

Business process controls are a key part of SOX internal controls. These include training employees on SOX compliance requirements and establishing secure reporting workflows and whistleblower channels. 

Many organizations apply segregation of duties, a principle in which workflows are divided among multiple employees to reduce the risk of fraud or error. This control environment ensures that no single person oversees the entire compliance workflow. For example, the employee who approves payments should not be the same person who writes checks.

To meet SOX compliance audit requirements, companies must also implement procedures for financial record retention. For instance, auditors are required to preserve any work papers generated during the audit process for at least seven years.

Automation has become increasingly important to SOX compliance efforts as enterprise networks grow more complex. And yet, only 35% of organizations are making full use of enabling technologies (such as workflow automation, robotic process automation (RPA) and analytics platforms) to support SOX-related work. IT security controls can help close the gap and enforce SOX requirements more consistently. Examples of controls include:

• SOX compliance software that securely stores documentation, tracks activity and flags gaps in internal controls.

• Data loss prevention (DLP) tools that track where sensitive data is stored, who accesses it and how it's used. DLP tools block unauthorized changes to financial data or transfers to restricted locations. Automated backups ensure data can be recovered if destroyed or tampered with.

• Identity and access management (IAM) solutions that enforce granular access control, granting employees only the minimum permissions needed. Some tools can also help streamline change management as roles shift.

• SIEM tools that monitor networks, detect security breaches and preserve audit logs. Many include SOX compliance features or integrate with audit software to streamline reporting workflows.

• AI governance controls are also increasingly necessary, as artificial intelligence becomes embedded in financial systems. SOX-aligned controls help ensure responsible, auditable use consistent with corporate governance mandates.

• Cloud infrastructure controls should also be considered, since SOX obligations apply to any data center—on-prem or third-party—used to store or process financial information.

As noted above, the CEO and CFO must certify the accuracy of financial statements and the effectiveness of internal controls over financial reporting. Regular internal audits help organizations validate these claims by identifying control gaps and initiating remediation efforts.

Findings from internal audits also support the external auditors who conduct the annual SOX compliance audit. In this audit process, an independent accounting firm assesses financial reporting practices and control structures, with results typically included in the company’s annual SEC filing.

While SOX doesn’t prescribe exactly how audits should be performed, the SEC recommends using a top-down risk assessment (TDRA) to scope the audit. A TDRA identifies accounts and disclosures most vulnerable to material misstatements and focuses on the key controls that mitigate those risks.

Auditors were once required to attest to management’s internal control assessments directly, but this changed with Auditing Standard No. 5, adopted by the SEC in 2007.