Passed in 2002, the Sarbanes-Oxley Act (commonly referred to as SOX) was designed to protect investors from fraudulent financial reporting conducted by companies they invest in. SOX makes it easier for company executives to be held responsible for fraudulent reporting, since before it was difficult to prosecute in the event of wrongdoing. SOX also established detailed guidelines for internal controls and auditing procedures that a company should incorporate to effectively establish cybersecurity practices.
While SOX does not apply to companies operating outside of the United States, it served to strongly influence regulations put in place by other countries to promote diversity in the marketplace and foster investor confidence. In response to the US regulation, the European Union has established its own set of statutory auditing requirements for companies operating within its borders.
The most recent rules, set in place in 2014, aim to improve legally required audits within the EU. The first component of these rules is Directive 2014/56/EU, which established the framework for audits, public oversight of auditors, and cooperation between EU authorities. The directive also gives EU officials the power to investigate and impose sanctions so that the rules can be better enforced to protect investors. The second component is Regulation (EU) No 537/2014 and specifies audit requirements for public interest entities. Additionally, 2016 saw the establishment of the Committee of European Auditing Oversight Bodies to further improve oversight of audits across the EU.
Like SOX, the rules set in place by the European Union limit the non-audit services an auditor can provide to audit clients. This reinforces the independence of auditors and allows them to improve the trust of investors.
Seeing the value of regulations like SOX, countries across the globe are adopting regulations inspired by its American counterpart. These regulations serve to hold companies accountable for their financial reporting so that investors can feel confident and trust in the companies they have invested money into. SOX opened the world up to the need for better transparency and accountability and countries have been responding to the need ever since.