Difference Between SOX and Internal Audit

Internal auditors generally use Sarbanes Oxley standards to cope with issues like governance and risk management.  

SOX is an act of 2002 enacted in the US. It is compliance and standard and enforcement for public companies. On the other hand, internal audit is a profession in which help is provided to an organization to achieve its objectives.

SOX vs Internal Audit 

The main difference between SOX and internal audit is that SOX focuses on creating accountability of financial statements preparation. On the other hand, internal audit focuses on safety, profitability, and efficiency. SOX Is not applied to private companies, whereas internal audit is applied to all organizations.  

SOX vs Internal Audit

The abbreviation for Sarbanes Oxley Act is SOX. In the United States, SOX is a federal law that aims to protect investors with the help of corporate disclosures mainly more accurate and reliable. 

Internal audits generally evaluate the internal control of a company, including accounting processes and corporate governance. It ensures compliance with regulations and laws.

Comparison Table Between SOX and Internal Audit 

Parameters of Comparison SOXInternal Audit
InterpretationIt is a law to protect investors from corporations engaged in fraudulent accounting activitiesIt is a consulting activity, independent and objective assurance to improve and add value to an organization’s operation
RequirementsRegulatoryInternal
ConcernFinancial reporting riskOperational and financial risk
Reliance YesNo
FocusOn creating accountability of financial statements preparationOn safety, profitability, and efficiency

What is SOX? 

The Sarbanes Oxley or simply SOX Act of 2002. In the United States, SOX is a federal law that mandates practices and financial records reporting for corporations and keeping them.   

This act is commonly called SOX and is also known as the “Corporate and Auditing Accountability, Responsibility and Transparency Act” and “Public Company Accounting Reform and Investor Protection Act”.

SOX act protects investors by improving the reliability and accuracy of corporate disclosures. They are made under the purposes of securities laws and for others.

In response to major accounting and corporate scandals, such as WorldCom and Enron this law was enacted. President George W. Bush signed SOX law on July 30, 2002.

What is Internal Audit? 

Internal audit can be referred to as an independent service that evaluates an organization’s corporate practices, internal controls, methods, and processes. It helps in securing compliance with several laws which apply to an organization.

The main purpose is to check the operational standards and effectiveness framed by an organization. An internal audit also helps to know whether the internal operational standards are followed by employees.

It also figures out whether there is an overrun of deliberate cost. Internal audit has a wider scope as it covers every aspect of a business whether it is hiring or business strategy

Financial leakage can be plug by an organization. The process enables the correction and identification of a lapse and procedures. 

Main Differences Between SOX and Internal Audit  

  1. SOX department design the transaction level controls, as well as all controls, report on the operating effectiveness in place to manage, while internal audit departments perform operating effectiveness on independent assessment.  
  2. SOX’s scope is limited to the financial statement preparation control. But internal audit has a wider scope as it covers every aspect of a business whether it is hiring or business strategy. 
Difference Between SOX and Internal Audit

Conclusion 

It can be concluded that in terms of governance and risk management of public companies, internal auditors generally use Sarbanes Oxley standards to cope with it. SOX is concerned with financial reporting risks.

SOX is a law to protect investors from corporations engaged in fraudulent accounting activities. On the flip side, internal audit is a consulting activity, independent and objective assurance to improve and add value to an organization’s operation.

References 

  1. https://ieeexplore.ieee.org/abstract/document/8760666/
  2. https://www.emerald.com/insight/content/doi/10.1108/02686901111151332/full/html
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