SOX Compliance (Sarbanes-Oxley Act)
Adherence to the Sarbanes-Oxley Act of 2002, which mandates strict financial reporting standards for US public companies.
What is SOX Compliance?
The Sarbanes-Oxley Act (SOX) of 2002 is a US federal law enacted in response to major corporate accounting scandals (Enron, WorldCom, Tyco) that imposed sweeping reforms on financial reporting, corporate governance, and auditing practices. Key provisions include Section 302, which requires CEO and CFO to personally certify the accuracy of financial reports, and Section 404, which mandates management's assessment and auditor attestation of internal controls over financial reporting. SOX also created the Public Company Accounting Oversight Board (PCAOB) to oversee auditors, prohibited certain conflicts of interest, and established criminal penalties for fraudulent financial reporting. SOX compliance is a significant annual expense for public companies — particularly smaller ones — but has substantially improved financial reporting quality.
Example
When a private company goes public through an IPO, SOX compliance becomes mandatory. Stripe's anticipated IPO will require it to build the internal controls infrastructure — documentation, segregation of duties, audit committee oversight — that SOX demands, a process that can cost $1–5 million annually depending on company size.