CEO and Founder, AudITech
Table of Contents
Professionals and publicly listed companies facing new Sarbanes-Oxley Act requirements (SOX act) may be familiar with the basics of emerging SOX obligations. Getting to know these duties in great detail requires deep background reading and a 2nd opinion from people in-the-know. Here we hope to condense the key points around ‘what is SOX reporting?’ and why it’s super important for new CFOs and CEOs especially.
The Sarbanes-Oxley Act, Section 302 and SOX Reporting
If you’re researching SOX reporting then you’ve likely achieved at least the basic grasp of why the Sarbanes-Oxley Act passed in 2002 in the wake of high-profile financial scandals in large corporations.
Following these scandals, the SOX Act was created to regain confidence from investors and protect shareholders from fraudulent financial reporting, particularly from public or newly-public companies, though reporting requirements also apply to some private companies and non-profit organizations.
CEOs, CFOs and Section 302 of the SOX Act
Section 302 of the SOX Act is of special importance for CEOs and CFOs who must certify as part of the process the completeness and accuracy of financial records produced by their company or organization.
CEOs, CFOs and internal control responsibilities
CEO and CFO reporting duties don’t end there. Besides formally validating the integrity of company finances, they must also be prepared to formally accept personal, legal responsibility for internal controls while also confirming that the internal controls environment has been reviewed in the previous 90 days.
If that wasn’t a big enough burden of responsibility to bear, company leadership must in addition report internal control deficiencies identified in the environment, plus any fraud detected involving the management of the internal audit committee.
Getting a professional 2nd opinion on SOX reporting
If you’re a CEO or CFO reading this, it’s no wonder you’re spending the time doing the deep research on SOX reporting. The company and personal risks of SOX reporting oversight are truly eye watering.
If you’re in any doubt about your obligations and reporting requirements, get a 2nd opinion from former Big 4 auditors who know everything there is to know about SOX compliance, internal controls and ITGC.
SOX Reporting The SEC and Your IT Team
Although the buck ultimately stops with senior management when it comes to reporting, the IT department also plays a critical role. In 2007 the U.S. Securities and Exchange Commission (SEC) issued SOX reporting guidelines defining the role IT teams must play. The guidelines lay out how IT Teams should support the reporting process to minimize all identified risk.
To help IT departments fulfil this role effectively, senior managers must invest time and energy building strong relationships with IT teams based on open, transparent collaboration.
How Can Senior Managers Help IT Teams to Enable Reporting Integrity?
To empower IT departments for this type of reporting, senior management must first understand the scope of their reporting responsibilities that unpack like this.
Giving senior management visibility
IT teams must deliver real-time reporting that gives CEOs and CFOs clear, accessible visibility of the health and status of financial reports.
Establishing ITGC that support SOX reporting
IT teams must identify key IT assets and processes involved in initiating, authorizing, processing and summarizing financial information. ITGC automation in this context can greatly assist IT team’s goal of ensuring internal control procedures support accurate and complete transmission of financial data.
Supporting timely disclosure of critical events
IT teams must ensure robust mechanisms for quickly alerting senior managers, shareholders and regulators of any risks and events that change or may change company financial statements and compliance.
Making Sure SOX Reporting Goes Smoothly Is All About Refining Process and Reducing Complexity
This type of reporting is a delicate balance of diligence, processes design and dedicated collaboration between key stakeholders to ensure processes are strictly followed. There is a lot to think about because there’s a lot at risk. And the reality is that complex reporting processes (that aim to reduce financial risk) can create new, counterproductive risks and personal liabilities.
Mitigating the risk of manual SOX reporting
What great SOX reporting should aim for is to find simplified ways of providing auditors with credible SOX reports and ITGC documentation. Ultimately, the most effective way of achieving this to minimize the risks that manual reporting creates is to automate the ITGC processes that underpin integral financial reporting and internal controls.
