Keeping up with compliance requirements as a public company is a tough job. If you make one mistake with a SOX requirement, your company can face serious consequences.
Before we look at ways to address these requirements, let’s take a step back and define a few key terms and concepts.
Defining Key SOX Terms
SOX: An abbreviation for the Sarbanes-Oxley Act of 2002. This law was enacted to respond to fraud and accounting problems at several companies in the late 1990s and early 2000s. The law also requires that the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) must review financial reports. It’s important to note that the law also imposes financial penalties and jail time if it’s violated.
Since SOX is a complex law that impacts many companies, many specialized professionals, applications, and processes are designed to address SOX requirements.
SOX 302: Section 302 of the SOX law requires that the CEO and CFO review and approve the report. Additionally, the above officers must state that there’s no untrue, missing, or misleading information in the financial reports. For these executives to provide approval, they’ll need to rely upon other people, systems, and processes throughout the organization.
SOX 304: Section 304 is a punitive section of the law that requires the CEO and CFO to reimburse any bonuses or profits if the financial reporting has problems. This provision encourages a more long-term perspective on how executives approach their reporting obligations.
What Do SOX302 and SOX304 Require?
If you’re an executive in a large publicly traded company, you need to rely upon other people and processes to carry out work. This reality extends to fulfilling SOX 302 and SOX 304 requirements. The SOX Act doesn’t define the details of internal controls to be used since companies vary widely.
Some of the best practices to contribute to a successful internal control environment include the following elements.
- Security policy: This document provides guidance to employees on acceptable IT use guidelines, how to protect information, and other factors. This policy can only be effective if it’s communicated throughout the organization.
- Access and authentication: How can the CFO and CEO approve financial statements if every employee in the organization has access to financial data? To provide confidence over the data, you need robust internal controls over access.
- User account management: The way you manage, oversee, and control user accounts impacts whether you can certify that nobody has interfered with financial data.
- Segregation of duties: To complete a transaction, you need to have two or more parties. For example, you might have requestor and approver user roles to submit financial reports. By involving multiple people, such controls make fraud and misconduct more difficult to carry out.
The Challenge with SOX Reviews
When SOX requirements first came out, small armies of consultants and accountants were required to implement the changes. After the initial implementation, your work isn’t done. Remember that public companies are required to issue a variety of financial reports throughout the year, including quarterly financial reports. Every quarter and every year, SOX reviews and checks must be completed to stay compliant.
However, constantly checking each user account and report isn’t effective. Your IT security staff doesn’t have the resources to do that kind of manual review each day. Manual review of each SOX-related system and process is unlikely to be consistent. As a result, you’re likely to miss issues. In that case, how can you ask your executives to give their approval and risk penalties? You can’t make that promise; instead, you need a better way to carry out SOX reviews.
The Better Way to Approach SOX Reviews Today
Let’s assume that your accounting systems, processes, and staff are already operating with a high level of integrity. That’s not enough to pass SOX 302 and SOX 304 reviews. You also need to fine-tune your cybersecurity processes. Imagine if a disgruntled or dishonest employee undermined your financial systems.
The simple way to speed up your SOX reviews without compromising on quality is to use cybersecurity software solutions. Here are some of the ways that Avatier can help you get through your next SOX review faster.
- Improve user access controls: Instead of wasting time configuring each user on your system, set up groups of users. With Group Requester, you can set up user types such as “Financial Analyst” and “Finance Manager” with different permissions. With this approach, you can ensure that segregation of duties is followed.
- Tighten password management: Using strong passwords is another key technique to show that your internal controls and financial data are well protected. To save time in password management, use Password Management so that employees can manage their passwords easily.
- Systematize logs and records for audit: Your security policy may require that detailed records be kept on each user who’s granted access to your systems. Rather than relying upon each manager, keeping all of that data in one place is a better solution. With Password Management, each change is automatically recorded in an audit log. That saves you time from having to assemble data from multiple sources during a SOX review.
IT Leaders: Show Your Support for SOX Reviews
You might assume that SOX compliance is a problem for only the CEO and CFO to consider. That’s outdated thinking. If you want to be seen as a business leader, ask what you can do to make SOX reviews easier and more reliable from an IT perspective. Since most people find SOX compliance work taxing and stressful, anything you can do to ease the burden will be appreciated. After you tighten up SOX controls, turn to IT audit improvement next. Find out how to avoid embarrassing IT audit findings with our post: The Simple Way to Reduce Your IT Security Audit Findings.