Modern Internal Auditing and the Quality Compliance Manager

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The following article focuses on the introduction of the Sarbanes-Oxley Act and discusses some of the best practices companies must adopt in order to comply with the legislation. Aimed at protecting investors by increasing transparency within corporations, the Sarbanes-Oxley Act calls for the implementation of strict auditor regulation and stricter disclosure within company financial statements, among other measures.

Enron, WorldCom, Arthur Andersen, and Tyco have become household names primarily because of their blatant displays of corporate greed and outright accounting fraud. The fall of these companies meant that the incredible amount of $500 billion in market value vanished overnight. Investment banks and accountants had worked together to inflate market values, which no longer had any relation to reality.

At the heart of these massive corporate scandals was a miserable failure of leadership, integrity, and morality on all levels, which eventually led to a complete breakdown of investor confidence. These events triggered a move toward more robust compliance, namely the Sarbanes-Oxley Act (SOX) of 2002, which required much-improved internal controls and changed the nature of conducting business in several fundamental ways.

The Sarbanes-Oxley Act was passed by the US Congress to protect investors from the possibility of fraudulent accounting activities ''by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.''

This act is the latest in a long progression of regulatory reforms aimed at rectifying corporate misdeeds that has its roots in the Great Depression, which began in 1929 and lasted for almost a decade, distinguishing itself as the deepest economic slump to ever affect the United States.

The implementation of SOX best practices can serve as the beginning of a sea change within an organization. Some of these practices include:

  • Board independence and accountability

  • Implementing strict auditor regulation and control by forming auditing committees, inspecting accounting firms, and upgrading the financial literacy of the board

  • Heightened corporate responsibility for any fraudulent actions taken

  • Adoption of a conflict of interest policy and a code of ethics that facilitate greater focus on good decision making

  • Stricter disclosure within company financial statements and the adoption of ethical guidelines to which senior financial officers must adhere

  • Use of internal controls, particularly as they relate to financial operations, and compliance with all laws and regulations at the federal, state, and local levels
The proliferation of technology can prove to be a double-edged sword. While technology facilitates higher and more efficient levels of productivity, it is also an integral part of SOX compliance. Implementation of SOX best practices by the quality compliance manager in the area of information technology and electronic document management compliance can serve to strengthen internal controls, raise awareness of cyber hazards, and maintain investors’ trust by keeping electronic access to websites, databases, and confidential information secure.


Although hindsight is indeed 20/20, compliance with SOX could have had a mitigating effect on the severity of the crises mentioned earlier. The adoption of SOX best practices by the quality compliance manager will serve to strengthen his or her organization’s infrastructure and ensure that its boards are awake, alert, and, most importantly, accountable. By implementing the best practices that have emerged from SOX provisions and standards, the quality compliance manager builds the framework for a transparent organization.


Marchetti, Anne M. Beyond Sarbanes-Oxley Compliance: Effective Enterprise Risk Management. Hoboken, NJ: John Wiley & Sons Publishing, 2005.

Tarantino, Anthony. Manager’s Guide to Compliance. Hoboken, NJ: John Wiley & Sons Publishing, 2006.
On the net:Sarbanes-Oxley: Financial and Accounting Disclosure Information If this article has helped you in some way, will you say thanks by sharing it through a share, like, a link, or an email to someone you think would appreciate the reference.

Popular tags:

 United States  Tyco  accounting fraud  Sarbanes-Oxley Act  US Congress  integrity  methods  recession  corporate scandals  electronic document management

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