Munish Jauhar

It is related to the financial reporting of a company. According to section 302, the CEO/CFO of a company must certify that all records are accurate and complete. They must hold themselves responsible for all internal controls, review these controls in the past 90 days, and confirm the same. In short, there is a clear guideline for all modern businesses to ensure high-security standards are enforced.

It specifies the requirements for the monitoring and maintenance of internal controls that are related to the accounting and finance of a company. According to section 404, businesses must have an annual audit of these controls that should be performed by another firm. In this audit, the effectiveness of all internal controls is assessed and its findings are reported.

If these sections are well-understood, it will help you in guiding the policies for your IT team, hardware implementation, and software implementation.

“What data do you have?”
“What type of data do you have?”
“What precautions need to be taken for which type of data?”

SOX compliance is not possible without tools and processes to secure your data. You require written evidence of internal controls. The written evidence must state that these controls have been communicated and enforced.

You can put the right security tools and processes in place after completing your audit. The SOX audit should be done once a year. Based on your findings, you may require to update your controls. For unbiased results, the SOX audit must be performed by an outside company.

Companies have migrated to electronic records to keep the data safe. SOX Act requires that IT departments create and maintain an archive of all corporate records. The real trick is to find the best way to keep these records manageable, cost-effective, and in compliance.

IT department need to comply with SOX guidelines due to the following concerns:

• Managing records that may lead to issues like destruction, alteration, or falsification of records.
• The retention period of record storage that includes the best practices for securely storing public accounts.
• Type of business record to be stored such as electronic communications

IT department must address how to prevent falsification of records, destroy data properly (especially sensitive data) and manage alterations and versions of data. Since the data retention period depends on the data, the SOX guidelines help companies to better understand which data to keep and for how long. Some data cannot be destroyed after a certain period. Thus, the third concern of the SOX guidelines (i.e., which type of data must be stored) cannot be ignored by the SOX Act.

How your company can monitor its data and enforce corporate policies for data handling?

Initiating with the proper data classification method is the key. It ensures that your data will be stored properly. When the data is classified properly, you will know what precautions must be taken for what data. Whether the data is to be encrypted and compressed or be in a certain file format depends on the data itself.

It is important to mask the data while transferring from one person/system to another. It is a part of protection and compliance. Thus, you must monitor data, enforce your policies, and log every user action.

Your company must comply with the SOX guidelines as non-compliance may lead to serious consequences.

SOX compliance cannot be pushed off or leave to chance; keeping up with it requires dedication. It is good to have the bandwidth for keeping your SOX compliance. You must ensure that all policies are communicated to your IT department. You can take help from an outside company that can audit, recommend tools, set up policies, and monitor data.

According to the SOX compliance requirements, your business must follow the step-by-step procedure to identify the areas where serious errors are likely to occur. Proper understanding of business processes can help your organization in identifying new ways (that includes new software tools) to make these processes more efficient.

For instance, a person was working in a company having more than 60 different cash and money market accounts. At the time of the SOX compliance process, it was discovered that each month, two different people were reconciling those accounts manually. They eliminated this duplicated effort by automating this complicated process so that they have enormous time for other work. Automating this process also helped in minimizing the opportunities for internal fraud.

If your company establishes consistent processes, the gathered data (from sales to a tax bill) will become more accurate and hence, valuable. Controls drive consistency; consistency drives benchmarks.

For instance, rather than recording sales whenever a team has time, a company can establish a consistent process for recording sales at the moment a contract is signed. Consistency offers more accurate data for better decision-making and a clearer view of long-term growth.

Better benchmarks lead to better performance assessments for the team. Performance measurement becomes less qualitative and more quantitative.

For instance, a company created a consistent process for recognizing sales when a contract was signed or payment was received. This process helped in eliminating the temptation for an individual or a team to pull pending sales forward to strengthen the lackluster quarter. Every salesperson was recording their sales the same way and while comparing performance across the team, it was found that the comparison was fair and accurate.

Small and big companies are driven by people and systems respectively. For informal processes, individuals can keep essential information in their heads. For instance, the VP of tax knows every small detail about a company’s tax position. If processes are not consistent and repeatable, then everything will be personally run by the VP. However, think of a situation when the VP is absent due to any reason.

Creating systems enable businesses to slot new people into key roles, whenever required. If your business has clear systems and everything is well-documented, it is much easier to grow a department quickly as new people will be able to hit the ground running.

It was observed that when the SOX compliance process took through a company, the VP of tax got fed up with the new paperwork requirements and started to complain.

Running a business is not easy. However, some people love the all-night hackathons of the startup phase but will find it tedious to work in a more formal company. When a public company starts to establish systems, it will need early help to identify such people and either change their minds or exit them. When the company becomes public, everybody must be fully aligned and pulling in sync. SOX compliance can help companies tackle those essential people issues early so that they are ready for their next phase of growth.

Although SOX compliance is costly to organizations, it provides benefits to the company. Implementation of SOX compliance helps to build a strong internal control environment that enhances confidence in company internal financial reporting, reduce fraud risk, and improve corporate governance. It eventually helps companies to win new businesses.