Human Resources Information Systems Role in Sarbanes Oxley (SOX) Compliance

Human Resources Information Systems Role in Sarbanes Oxley (SOX) Compliance

Kathryn J. Ready (Winona State University, USA), Milorad Novicevic (University of Mississippi, USA) and Monica Evans (University of Mississippi, USA)
DOI: 10.4018/978-1-59904-883-3.ch069
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Abstract

Compliance with the Sarbanes-Oxley Act (SOX) has become a new indispensable standard operating procedure for public companies competing in the business world of the 21st century. The SOX compliance is crucial for capital market stakeholders that want to ensure transparent insights into the companies’ business operations and financials following the revelation of significant fraud in financial reporting by Enron, HealthSouth, WorldCom, and Global Crossing. From the onset the demands of SOX compliance have resulted in increased responsibilities from companies’ finance and accounting departments. For more effective compliance and monitoring, the human resource (HR) and information technology (IT) departments need to be more strategically involved (Deloitte & Touche, 2003). One tool that may ease the companies’ burden of SOX compliance is the human resource information system (HRIS), provided its role is expanded beyond the traditional scope of ensuring Equal Employment Opportunity (EEO)m compliance and supporting payroll systems (Fletcher, 2005).
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Background On The Sarbanes-Oxley Act

The Sarbanes-Oxley Act was enacted in 2002 as a legislative response to a string of major corporate scandals. The SOX legislation was structured to restore the post-Enron public trust in corporate accountability and independence of auditing (Dailey & Brookmire, 2005). In particular, SOX was passed to raise standards for financial reporting by public companies, increase accountability of boards of directors as a mechanism of corporate governance, insure external audit independence, and prescribe penalties to corporations for SOX violations and criminal penalties to CEO’s or CFO’s for noncompliance (Dailey et al., 2005). See Table 1 for a brief overview of SOX provisions.

Table 1.
Brief overview of Sarbanes-Oxley Act (Source: AICPA, 2007; Weiss, 2006; U.S Congress, 2002)
• Establishes an independent public company accounting board to oversee audits of public companies.
• Requires one member of the audit committee to be an expert in finance.
• Requires full disclosure to stockholders of complex financial transactions.
• Requires CEOs and CFOs to certify in writing the validity of their companies’ financial statements. If they knowingly certify false statements, prison sentences of 20 years and fines of $5 million are possible.
• Prohibits accounting firms from offering other services, like consulting, while also performing audits, which constitute a conflict of interest.
• Requires ethics codes, registered with the Securities and Exchange Commission (SEC), for financial officers.
• Provides a 10-year penalty for wire and mail fraud.
• Provides whistle-blower protection for individuals who report wrongful activities to authorities.
• Requires attorneys of companies to disclose wrongdoing to senior officers and to the board of directors, if necessary.
• Mandates a felony for knowingly destroying or creating documents to impede, obstruct or influence any existing or contemplated federal investigation.
• Makes it a crime for tampering with a record or otherwise impeding any official proceeding.
    • Makes it a crime for any person to corruptly alter, destroy, mutilate, or conceal any document with the intent to impair the object’s integrity or availability for use in an official proceeding.

Key Terms in this Chapter

Ethics: Standards of conduct and moral judgments that help to determine right and wrong behavior.

Stakeholders: All groups and individuals who have an interest in how an organization performs.

Board of Directors: Group of individuals that represent the organization’s shareholders and oversee the work of top executives.

Corporate Governance: System in organizations where the owners direct and control the affairs of the firm.

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