Growing incidents of unethical financial practices and increased risk of unauthorized corporate and financial disclosure in the industry was the driving factor behind the establishment of SOX Compliance. Today, achieving SOX compliance is seen as an industry best financial practice for maintaining a good data security standard.
The Act was introduced to bring in a major reform in the security and governance of financial disclosure and further gain public trust and confidence over an organization’s auditing and financial reporting. The standard aims to govern the financial operations, disclosures, and contracted financial services against any unethical practice. Elaborating on the requirements of SOX compliance, we have shared some tips that can help organizations like you achieve compliance. But before heading straight to the compliance process, let us first learn a bit more about SOX Compliance.
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What is SOX Compliance?
The Sarbanes-Oxley Act which is also popularly known as SOX Compliance is a standard that protects clients and stakeholders from fraudulent financial activities and disclosures. The SOX Act outlines compliance requirements for organizations to adhere to and ensure secure business practices.
The objective behind enforcing SOX compliance is to improve the accuracy and reliability of financial activities and the corporate disclosures. Achieving SOX compliance is not just a mandate by law but is also seen as a good business practice adopted by organization. Public traded companies including foreign companies, subsidiaries, accounting firms that audit public companies, and companies that have business in the United States are required to comply with SOX. Non-compliance to SOX Act can result in hefty fines and penalties.
How can you prepare for SOX Compliance?
Achieving SOX Compliance can be challenging but if planned and executed well can be achievable for your organization. Having in place appropriate security controls and requirements outlined in SOX is crucial. This will help maintain accurate financial data, prevent unethical practices and unauthorized disclosure. However, achieving SOX Compliance requires adopting best practices and using appropriate tools for addressing compliance challenges.
Further, your organization will have to update the internal audit process and document the reports as evidence for auditors when they request for the data, to verify whether your organization is SOX compliant. For your organization to be SOX compliant, you will need to ensure having in place or measures and requirements outlined in the SOX requirement. So, here are some ways how your organization can ensure achieving and maintaining compliance.
SOX Compliance Checklist
Data Classification & Monitoring:
Your organization should have a data classification process in place to determine the location of the sensitive data and also those having access to such data. You need to have remediation plans in case of an incident occurrence to effectively manage the risk promptly. Further, your organization will likely need you to establish strict policies and procedures along with an effective auditing and monitoring process to keep a tab on user interactions.
Section 309 requires your organizations to periodically file and review the financial statements and the internal control structure with the Security and Exchange Commission. The top management of your organization is responsible for the accuracy of the data in the financial reporting and the internal control structure. They are responsible for ensuring that the financial data is fairly presented and does not contain any misrepresentation. For ensuring compliance, you must maintain a regular and updated SOX compliance status report which should also be handy for the SOX audit.
Maintaining Data Accuracy:
Section 401 calls for the accuracy of financial data. As per SOX Compliance, every public company is required to periodically file and review its financial statements. Your financial statements should be accurate and not contain any incorrect statements or misleading statements. So, having in place measures and processes to secure the financial data and prevent the tampering of the financial data is crucial.
Securing and Maintaining Access Controls:
SOX Compliance under section 404 states that organizations need to secure and maintain access controls. So, your organization needs to have in place appropriate measures to secure access controls to protect financial information. For this, you must establish physical and role-based access controls including having in place doors, locks, biometric privileged access, access logs, and password policies and systems that can determine and track potential threats, and security weaknesses.
Organizations need to ensure that only the authorized personnel has access to sensitive financial information, both physically and electronically. You must also ensure you get alerts for changes in permission that could affect access to sensitive financial data. Monitoring user behavior can help identify anomalies and potential breaches in SOX compliance.
Regular Assessment of Controls:
Section 404 also mentions the assessment of internal controls. So, your organizations should conduct regular assessments to evaluate the effectiveness of their internal controls. For that, you need to have in place measures that alert you about anomalies and facilitate immediate investigation with appropriate remediation.
Further, they must document the evidence to demonstrate the effectiveness of the controls established to secure the financial information and prevent unauthorized access to it. Demonstrating security controls to prevent cyber-attacks, data breaches and mitigate any cyber threat is significant in the SOX Compliance Audit.
Section 409 states that the organization must transparency and for which they are required to design internal controls that ensure any information relating to the issuer and its consolidated subsidiaries are communicated accordingly. It is essential that you ensure transparency among any individual to whom the financial data and its security are relevant.
SOX Compliance requires your organization to have in place necessary data backups as security. Data backup of your organization’s financial records is crucial and must be secured as a part of your compliance process. This is to ensure the data backup prevents the potential loss and damage in case of an incident.
As and when your IT environment changes, you must have in place measures to embrace the change without having an impact on the security of the financial data and assets. Changes may include new employees, new computers, adopting new technology, and updated software to name a few. But with such significant changes in the environment, you must ensure that sensitive financial data is secured at all times. SOX requires that you have defined processes to manage such change in the environment have a configuration management process in place.
Establish an Incident Management process for reporting security incidents and breaches promptly. Further, the data collected in the process should be documented, and the report presented to the auditor during the investigation should be in detail.
SOX Compliance is not just a one-time process but an ongoing activity for your organization. You will need to re-evaluate your internal controls regularly and constantly perform risk assessments to ensure compliance. Further, educating employees will ensure the secure handling of data and improve the accuracy of financial reporting. We further recommend your organizations adopt an integrated GRC approach that links internal controls with the organization’s risk and business process in alignment with the COSO framework.
Since SOX Compliance is not just about securing the financial reporting but also extends to securing operations, implementing COSO’s framework of internal controls will improve the overall corporate governance. Using the risk-based approach, the COSO framework should be implemented across departments throughout the organization for high-level cybersecurity governance. This streamlines the process of establishing and documenting appropriate internal controls and positioning your organization for continued success in maintaining compliance.