SOX requirements generally include business controls & SOX IT controls. From a business perspective, these controls involve the accuracy of data, which feeds into financial reporting. From an IT perspective, there are general controls & application controls, which ensure the systems are complete, correct, and free from any kind of error that will impact financial reporting. It’s very important for companies to maintain their own ITGC controls checklist to make sure that their ITGC audits are done properly.

The key to defining SOX scope is to know which systems and processes impact financial reporting. Though many people get confused in differentiating critical IT systems and SOX IT systems though you have a system which holds your customer information, if that system doesn’t capture any kind of financial data, which feeds in your financial reporting, it isn’t the SOX application.

What are SOX Controls?

Without delving deep into the technical aspects, SOX requires that public companies generally include having an internal process control in-place for financial reporting. The primary goal for such controls is reliable and accurate financial reporting. Confusion from users is mostly centered around understanding where the SOX ends & regular IT management starts.

SOX controls have helped keep the market financially transparent and has help rid the market of less financially honest firms. They have also increased market strength and individual corporate stability.

Strengthening of SOX Control Structure

Sections 302 & 404 of the SOX act require proper documentation of the controls, which includes personnel policies, operations manuals, as well as recorded control procedures. With the extensive mandatory documentations, most organizations will find this process quite overwhelming, but the result could be very productive for a company.

Another benefit of SOX compliance is control awareness; how the controls fit into the big picture becomes transparent. When management and auditors focus on internal controls, through a SOX assessment, organizations quickly become aware of how important the control activities actually are for the financial success of an organization. Other important SOX compliance requirements are as follow:

  1. CEOs & CFOs are responsible for the accuracy, submission, and documentation of financial reports and the internal control structure of the SEC. Officers face jail time & monetary penalties for the compliance failures – whether intentional or unintentional.
  2. SOX compliance requires an Internal Control Report, which states management will be liable for the adequate control structure of the financial records. It also, requires that any issues should remain reported to the chain as fast as possible for complete transparency.
  3. Companies need to stay up-to-date on regulations, interpretations, best practices, and external audit frameworks.
  4. Formal data policies, data security policies communication, as well as consistent data enforcement security policies need to be in place. Additionally, companies must develop as well as implement a comprehensive security strategy to protect and secure various financial data that remain stored & used during normal operations.
  5. Companies must maintain and offer the right documentation, proving that they’re compliant and that they are monitoring & measuring the SOX compliance goals.

How Can You Finalize an Effective System of Controls Plan?

To finalize & plan for the most effective system of IC, your audit team should identify the automated and manual SOX IT controls. Likewise, for automated controls, you must evaluate if the underlying system stays in-scope for the ITGC testing that can impact the overall testing policy of this control. If you have the ITGC controls on an underlying system, you can substantially decrease the amount of the SOX IT control required.

When you have defined the scope & identified SOX controls by using these practices, you are on the right track to developing a well-rounded testing program.