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SOX Compliance Checklist – Audit Requirements Explained (Best Practice). In this post, we will introduce SOX and explain about SOX compliance, and audit requirements.

First of all, The United States Congress issued the Sarbanes-Oxley Act (SOX) to prevent the public from fraudulent practices by corporations. In 2002, the passing of the SOX increased financial reporting transparency and introduced an internal corporate checks and balances system.

But does it benefit your corporations or business houses, or is it just for the public’s safety? Well, it’s also a smart business practice to safeguard data for companies. 

The limit the access to internal financial systems enables businesses to reduce the risk of data theft or cyber attacks. But that’s not it.

You must understand a lot about SOX financial and cybersecurity controls, SOX compliance, and audit requirements. 

Shall we start this article blog about SOX Compliance Checklist – Audit Requirements Explained (Best Practice).

History of SOX Act

All in all, understanding the act’s history helps you to set a solid foundation for better clarity. As a matter of fact, the federal legislature introduced the SOX act because of financial scandals. Basically, it covers the need for control over financial reporting practices in corporations.

Representative Michael G. Oxley and Senator Paul Sarbanes wrote the bill to tackle several high profile corporate incidents.

As a result, SOX act contains 11 titles. As seen below, it covers additional corporate board responsibilities to criminal penalties.

The Securities and Exchange Commission (SEC) handles the implementation and enforcement of the requirements. Another key point, is that it also covers auditor independence, internal control assessments, corporate governance, and enhanced financial disclosure.

Different countries, like Canada, South Africa, Germany, Australia, France, India, and Japan, India, France, etc, have implemented their SOX regulations.

Does SOX Compliance Apply To Your Firm?

Besides, SOX applies to every single publicly traded company in the United States. Also to all the subsidiaries and foreign publicly traded companies in the United States.

Certainly, the act also regulates accounting firms responsible for auditing companies subject to SOX compliance.

Concurrently, the private companies, non-profits, and charities don’t have to comply with all SOX requirements.

However, private organizations that destroy or falsify financial data can be liable for penalties under certain SOX language.

Consequently, private companies planning an IPO should prepare themselves to comply with SOX. Here’s the compliance checklist you must follow.

SOX Compliance Checklist

At the present time, SOX compliance is very important in protecting your business data and keeping the integrity of your financial transactions. The effective way to ensure compliance is by following a checklist of the act. 

Below is a SOX checklist with measures you can take to align your business with compliance requirements.

1. Analyse and collect security system data

Firstly, you should implement systems to validate and test your security, and compliance measures. Must be robust all year round. Additionally, have processes and systems in place that collect data around security incidents, breaches, and suspicious activity. 

Equally, use different software to report and collect system activity data. in turn, it enables your team to address SOX compliance issues proactively.

2. Implement security breach tracking

Forthwith, install powerful detection software. That is to identify and dissect suspicious activities on systems relevant to SOX compliance.

Henceforth, the software should assess, detect, and document threats in real time. Also, it sends detailed reports to your incident management system for quick action.

3. Grant auditors defence system access

Constant communication with SOX auditors helps you greatly. Further, it’s the aspect that companies succeeding in SOX compliance have in common.

Similarly, provide access and limited control to your auditors over your safeguarding software, protocols, and systems. For instance, it helps them to troubleshoot and diagnose working issues. Moreover, it assists in identifying improvement opportunities.

4. Disclose security incidents to auditors

Next compliance check is to install systems to document and detect security breaches. Thanks to that, it immediately alerts the SOX auditor about the incident. Even more, it minimizes overlooking threats and enables your auditors to address issues quickly. 

For example, a data classification engine can help determine what data to protect and alert you to breach or compromise.

5. Report technical difficulties to auditors

To demonstrate in point 6, we talk about training your IT department to communicate technical difficulties identified in the security safeguards to your auditors.

Also, establish systems that can test network functionality and file integrity. To explain, it is ideal or detecting issues. Additionally, it ensures the systems are good at documenting and disclosing security incidents to your auditors.

6. Prevent data tampering

What’s more, there is a need to install software to track suspicious logins and prevent data breaches. Especially important for business databases containing sensitive financial documents.

Ensure your sensitive data is not accessible or changeable to comply with SOX compliance. With attention to using data privacy protection software for enhanced security and better results.

7. Document activity timelines

What’s more, please integrate systems to record activity timestamps on transactions and related data according to SOX guidelines.

Remember to encrypt the data in a secure location or database to bypass tampering. Truly speaking, activity documentation is vital to ensure correct information is easily accessible during your SOX audit.

8. Install access tracking controls

Without a doubt, please implement software that receives data and messages from digital sources. For example FTP, databases, and computer files. The controls should identify and track external entities attempting and breaching to tamper with your data. 

Professional cybersecurity tracking and visualization tools, like DatAdvantage, help monitor access controls going forward.

9. Ensure defence systems are working

Lastly, install different systems to send reports to the auditors via email. Alternatively, use other means for daily communication.

Do not forget to grant the auditors’ systems access to view data without alteration. Also, constantly assess whether the safeguarding software works by collaborating with your IT department and SOX auditors.

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What are the SOX Compliance Requirements?

In order to comply with SOX regulations, you must yearly audit your financial statements. The financial audit aims to confirm the integrity of your data handling processes and different financial statements.

Being a public company, you must supply proof of SOX internal controls. That is to ensure data security and accurate financial reporting is present. The most vital SOX compliance requirements are 302, 409, 802, 404, and 906.

Remember, compliance becomes more important if your organization engages in data protection. 

Top Compliance Requirements

Please follow our guidelines for the most vital compliance requirements.

1. Section 302: Corporate Responsibility for Financial Reports

Public companies must file regular internal control structures and financial statements with the SEC.

Section 302 also states that the CEO and CFO must handle the financial reports’ documentation, accuracy, and submission. They are also responsible for sharing the internal control structure with the SEC.

In addition, the executive officers must establish and maintain internal SOX controls. They should also validate the controls within 90 days before processing the report.

2. Section 404: Management Assessment of Internal Controls

Section 404 is a complicated, contested, and expensive part of the SOX compliance requirements. Therefore, it requires annual financial reports. In these, there are Internal Control Report, highlighting that management handles internal control structure. 

Also, the report should include an assessment by management of the success of the control structure. You must report the shortcomings and register an independent auditor to attest to the accuracy of the company management assertion.

The internal accounting controls and control framework must be in place, operational, and effective.

Both management and the auditor must perform their assessment in a top down risk assessment. It requires management to base the assessment and evidence gathered on risk.

3. Section 802: Criminal Penalties for Altering Documents

The section imposes consequences of up to 20 years imprisonment for destroying, altering, mutilating, or concealing documents.

Section 802 imposes penalties for falsifying financial records or tangible objects intending to impede, obstruct, or influence legal investigations.

It imposes 10 years of imprisonment on an accountant or auditor who violates the requirements of maintenance of all audits.

4. Section 806: Sarbanes Oxley Whistleblower

Section 806 focuses on the disclosure of corporate fraud. It also protects public companies’ or subsidiaries’ employees who report their illegal activities.

It allows the U.S. Department of Labour to protect whistle blowers against retaliating employers. Also, the section further enables the Department of Justice to charge those responsible for the retaliation.

5. Section 409: Real Time Issuer Disclosures

The Section 409 says, that companies must regularly disclose any material changes in financial operations or conditions. Thus, section 409 protects the interests of investors and also the public.

6. Section 906: Corporate Responsibility for Financial Reports

The section defines the criminal penalty for certifying a fraudulent or misleading financial report. It can cause $5 million in fines and up to 20 years in prison.

Up next with SOX Compliance Checklist – Audit Requirements Explained (Best Practice) is to learn the benefits of implementing the compliance requirements.

Benefits of SOX Compliance

SOX compliance can help your company to improve data security while restoring public business confidence.

It can also help you raise capital once you regulate financial reporting. Companies adhering to SOX compliance can effectively detect and react to security threats. In turn they minimize the chances of data breaches.

Some benefits include:

Unquestionably, SOX compliant companies can report more predictable finances and simple access to capital markets. Whether producing reports for auditors, investors, or regulators, your reporting capabilities can improve with SOX.

2. Enhanced cyber security

By implementing SOX, you are safe from cyberattacks and the aftermath of a data breach. Truly speaking, data breaches are difficult to remediate and manage. Well, the companies never recover from the damage done to their business.

The security controls SOX requires will reduce the potential of a malicious hack or threat.

3. Financial stewardship

SOX provides the framework for your company to better steward your financial records. It benefits multiple aspects of your company. ISO 27001 compliance in alignment with SOX can promote accurate and efficient financial reporting.

4. Better collaboration

SOX compliance can help you build a cohesive internal team and improve communication between departments.

Surely, it also offers improved cross functional communication and cooperation. You can avail the benefits of a companywide program like SOX and get the best results for your organization.

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What Are SOX Audit Requirements?

SOX Audit compliance checklist 2022

The SOX act requires your financial reports to include an Internal Controls Report. It highlights that a company’s financial data are precise and accurate. The reports also show that there are adequate controls to safeguard financial data.

An external SOX auditor can help you to review policies, controls, and procedures during a Section 404 audit.

The auditor can interview your staff to confirm that their duties match their job description. Auditors can analyse if your workforce has the required training to access financial information safely.

Specifically, SOX sections 404, 302, and 409 require the following parameters and conditions:

  • User activity
  • Information Access
  • Internal controls
  • Database activity

SOX auditing requires internal controls and procedures to audit using a control framework like COBIT. Monitoring systems and log collection should provide an audit trail of access and activity to sensitive business information.

A review of your business’s internal controls is the largest component of a SOX compliance audit. Internal controls include IT assets like network hardware, computers, and electronic equipment that financial data passes through.

A SOX IT audit includes:

Data backup

Maintain backup systems to protect your sensitive data. Data centers containing backup data are also subject to SOX compliance requirements compared to those hosted on-site.

Change management

It involves the IT department process for adding users and computers, updating and installing software, and making changes to databases. Keeps records of what’s changed, when, and who changed it.

IT security

Ensure that controls are in place to protect against data breaches and have tools ready to remediate incidents. Invest in equipment and services that will monitor and protect your financial database.

Access controls

It refers to electronic or physical controls preventing unauthorized users from accessing sensitive financial information. This includes keeping data centers and servers in secure locations, implementing effective password controls, and following other measures.

Thank you for reading SOX Compliance Checklist – Audit Requirements Explained (Best Practice). We shall conclude. 

SOX Compliance Checklist - Audit Requirements Explained Conclusion

Summing up, SOX compliance is an excellent way to improve your data protection and minimize your chances of a data breach.

You effectively have to model your security on the Protection model and Data Centric Audit to comply with SOX. The model requires companies to understand their sensitive data location, who can access it, and how users use it.

Comply with the SOX act, avoid legal troubles, and increase your data protection.

Andrew Fitzgerald

Andrew Fitzgerald

Cloud Solution Architect. Helping customers transform their IT Infrastructure, Cloud deployments and Security. 20 years experience working in complex infrastructure environments and a Microsoft Certified Solutions Expert on everything Cloud and Active Directory.

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