J-Sox vs Sarbanes-Oxley Act (SOX)
Passed in 2002, the Corporate Responsibility Act, or as its better known, the Sarbanes-Oxley Act (SOX) was designed to ensure that investors are protected from companies fraudulently reporting financial information. By implementing the Public Company Accounting Oversight Board, SOX made it easier to hold CEOs accountable and prosecute them for fraudulent reporting. The act also created a detailed set of guidelines that companies should follow regarding internal controls and auditing to further protect investors and shareholders.
As a response to the Sarbanes-Oxley Act passing into law in the United States, other countries began to implement laws to implement internal controls and reporting regulations for businesses that are based elsewhere. One notable example is the Financial Instruments and Exchange Act enacted in 2006 in Japan. Known informally as J-SOX, the act was strongly influenced by the Sarbanes-Oxley Act. After fraudulent reporting was discovered to have been conducted by two major Japanese firms, the Financial Services Agency saw the need to implement new rules to protect investors. J-SOX requires companies to enhance internal control reporting and demonstrate the effectiveness of their internal controls.
Like SOX, J-SOX requires companies to report and audit their internal control assessment. However, unlike in the US, J-SOX does not require the auditor to audit the internal controls’ effectiveness, it is the company’s responsibility. Additionally, while the auditor must be independent, J-SOX does not prohibit them from serving as a consultant to the company. Under Sarbanes-Oxley, all auditors must not have a personal or professional tie to the company for whom they are conducting an audit.
It is also important to note that under J-SOX, only listed companies are required to follow the requirements established by the regulation, with medium and small listed companies able to make simplifications based on their specific situations. Within the US, SOX applies to “eligible companies,” or ones that exceed $75 million in publicly held shares.
Like its American counterpart, J-SOX also established penalties for companies that publish false reports. In Japan, individuals can face up to 5 years in prison and fines up to 5 million yen, while companies can be fined up to 500 million. In the US, penalties are much steeper; executives can face as many as 20 years in prison with fines up to $5 million.
With over 3,8000 companies listed on Japanese stock exchanges, J-SOX has a wide-reaching effect within the country. To adapt to changing capital markets and international finances, the regulation serves to enhance the transparency of reporting done by publicly traded companies and protect investors from business transactions that are not what they claim to be.
YouAttest automates the creation and review of these access reviews. To learn more about YouAttest, please register for our next webinar, AD Best Practices for Audit with Okta’s Jennifer Galvin. Or write us @ info@youattest.com.
