All You Need to Know About Internal Controls for SOX Compliance

Regulations like SOX establish rules to protect organizations, nations, and the public from fraudulent or erroneous practices.

All You Need to Know About Internal Controls for SOX Compliance

Today’s organizations recognize the strategic role F&A plays in powering business
growth and driving long-term success. Efforts to constantly re-imagine and revamp finance processes in such a way that they continue to support enterprise goals through their lifecycle have, therefore, become a mainstay.

By streamlining operations, infusing agility through technology, and using analytics to provide intelligence for informed decision-making, these organizations can go beyond siloed process efficiency and drive continuous improvements across a range of financial processes.

But despite all efforts towards improving their processes, ensuring compliance with
regulations such as SOX continues to be a widespread challenge. Although SOX aims to increase the reliability of financial reporting and protect investors from corporate fraud, successful compliance requires organizations to implement a bunch of internal controls to ensure their financial reporting is accurate.

The Need for Internal Controls for SOX Compliance

If you want to discover problems or detect (or prevent) errors in your company’s
financial reporting process, you need to set up the right internal controls. Applying internal controls for SOX compliance across all financial reports or results can ensure you comply with necessary guidelines and enable your organization to achieve all its goals.

Since financial reports have to regularly be filed with the Securities Exchange
Commission, the slightest non-compliance can lead to severe criminal penalties for violations, including jail time and millions of dollars in penalties. However, because the SOX standard does not provide a list of controls to be set up, you need to define your own controls to meet the said requirements. Here are some controls to focus on:

  1. Restricting information access by putting appropriate access control measures in place is a great way to ensure only authorized people have access to sensitive financial information.
  2. Implementing the right IT security controls is important to protect the financial organization against cyberattacks as well as minimize the impact of any misuse or breach
  3. Continuously monitoring network activity for fault or intrusion also helps maintain the performance of network devices while optimizing their availability, overcoming bottlenecks, and preventing downtime.
  4. Amplifying your data backup game through the implementation of the right backup and storage mechanisms can help in minimizing business disruption and data loss in case of a disaster
  5. Establishing a robust change management strategy is also important to evaluate how an organization implements and manages changes to the IT environment.

Some best practices to follow

If you want to protect your company from data breaches, insider threats, and cyberattacks, limiting access to internal financial systems through the implementation of the right controls can pay huge dividends.

Here are some best practices that can help you effectively implement and monitor your SOX internal controls:

  1. Make a list of key controls: The far-reaching repercussions of SOX non-compliance don’t mean you need to apply a control each time a risk is detected. To avoid the headache of developing, enforcing, and managing a sundry list of controls, limit the number of controls to the bare minimum. You can do this by identifying key controls and tagging them as low-risk or high-risk. Such an approach can streamline the control process and also help in prioritizing efforts towards high-risk areas.
  2. Implement a comprehensive risk assessment framework: Since enterprise executives are directly responsible for the accuracy of all the financial reports they furnish, implementing a comprehensive risk assessment framework is a critical step in ensuring SOX compliance. Such a framework with robust internal control structures can help safeguard and secure all financial data while ensuring consistent enforcement of the required policies.
  3. Have the right monitoring systems in place: Having the right monitoring systems in place that can document and track the logs is a great way to track the veracity and validity of your internal controls while ensuring SOX compliance around the clock. These systems can automatically quantify risk by tying violations to the exact dollar amount, helping you prioritize your most critical controls. Since any shortcoming is immediately reported up the chain as quickly as possible, organizations can achieve the transparency they need in the current state of their internal controls and drive efforts towards improving their quality and consistency.
  4. Embrace automation: Prepping up for a SOX audit by constantly updating your internal controls can be a taxing, costly, and time-consuming process – but it doesn’t have to be that way. Automated solutions can streamline the compliance process, paving the way for continuous monitoring of your organization’s processes and
    internal controls and ensure you are always on track. By autonomously monitoring compliance-related activities, such solutions can surface violations, pinpoint risks, and enable enforcement with the required regulations – so there are no surprises when the actual audit happens.
  5. Ensure regular reviews: To ensure your internal controls and procedures are upto-date, conducting regular audits and reviews using robust control frameworks is also extremely important. Such reviews can help provide an audit trail of all access to sensitive financial information while flagging risky activity. They can also help you assess risks related to SOX controls, evaluate if existing controls are enough to meet requirements, as well as define the controls needed for missing controls.

Regulations like SOX establish rules to protect organizations, nations, and the public from fraudulent or erroneous practices. By putting certain controls in place, the standard helps increase transparency in the financial reporting process and allows organizations to maintain their books accurately and ethically.

Follow these best practices to enable and ensure SOX compliance and satisfy the
requirements of your auditors, your customers, and other regulatory bodies.


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