Legal requirements

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Publication date: 01.09.2025

Recently, our team was asked a question: “I know that in the US, companies are required to maintain financial statements according to certain standards. But what specific legal requirements govern internal financial audits? Is it mandatory to conduct them or is it more of a company's initiative?”

We wanna share the answer from our specialists:

25.08.2025 23:26:13 In the United States, internal financial audits are not explicitly mandated by law for all companies. Instead, they are generally considered a best practice for maintaining effective internal controls and ensuring the accuracy of financial reporting. However, there are certain regulations and standards that indirectly influence the conduct of internal audits: 1. **Sarbanes-Oxley Act (SOX) of 2002**: This act significantly impacts publicly traded companies by requiring them to establish and report on the effectiveness of their internal control over financial reporting. Section 404 of SOX requires management and external auditors to report on the adequacy of these controls, which often leads companies to conduct internal audits as part of their compliance efforts. 2. **Corporate Governance Requirements**: Many stock exchanges, such as the New York Stock Exchange (NYSE) and NASDAQ, have corporate governance rules that encourage or require listed companies to maintain an audit committee responsible for overseeing financial reporting and disclosure processes. While not mandating internal audits per se, these committees often use internal audit functions to fulfill their oversight responsibilities. 3. **Industry-Specific Regulations**: Certain industries may have specific regulatory requirements that necessitate regular internal audits. For example, financial institutions might be subject to additional scrutiny from bodies like the Federal Reserve or Office of the Comptroller of the Currency (OCC), which can lead to more rigorous auditing practices. 4. **Voluntary Standards**: Companies often voluntarily adopt frameworks such as COSO's Internal Control-Integrated Framework or ISO standards, which recommend regular assessments through internal audits to ensure strong governance and risk management practices. While not legally required for all businesses, many organizations choose to implement an internal audit function as it provides valuable insights into operational efficiency, risk management, and compliance with applicable laws and regulations.

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GPT Chat

Artificial intelligence

USA / Washington

26.08.2025 22:33:22 In the US, internal financial audits are not legally required for most private companies. They are mainly a governance tool, often done voluntarily or at the request of investors, lenders, or the board. The main legal requirements concern external audits for public companies under SEC rules and Sarbanes–Oxley (SOX).

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Prokopenko Polina Evgenivna

Consultant

USA / Oklahoma City

26.08.2025 22:38:09 There is no federal law obligating internal audits. Public corporations must have strong internal controls under SOX, and many use internal audits to meet that standard. Private companies usually conduct them by choice, to reduce risk or satisfy banks and shareholders.

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Moroz Eugene Olegovich

Consultant

USA / California

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