Getting Ready for Your IPO: A guide to SOX Compliance

Launching an Initial Public Offering (IPO) is a key milestone for businesses as it allows them to raise funds from a larger investor base, improve liquidity for stakeholders, and increase market visibility and prestige. Despite the appeal of growth potential, the process of IPO preparation, notably compliance with the Sarbanes-Oxley Act (SOX), can provide significant challenges.

We’ve put together a guide to help companies navigate the challenges of SOX compliance as they prepare for their IPO. This guide not only highlights important regulations, but it also presents solutions to help expedite the compliance process and increase efficiency. 

Understanding SOX Compliance in IPO Preparation

The Sarbanes-Oxley Act, passed in 2002 in response to corporate fraud and losses suffered by investors, sets rules to prevent and punish accounting fraud. It also affects how public companies manage risks, govern themselves, and report their financials. SOX Compliance is crucial for companies planning to go public, as it shows they’re committed to honesty and transparency. Meeting SOX standards builds trust with investors and regulators, making a company more likely to succeed in the stock market. So, following SOX rules is vital for companies getting ready for an IPO, ensuring a smooth transition to being publicly traded and long-term success in finance.

Key Provisions of SOX and Their Impact on IPOs

Here’s a breakdown of the significant sections of SOX and their implications for companies venturing into the IPO landscape:

1.SOX Section 302 – Corporate Responsibility for Financial Reports

This section mandates that senior executives, typically the CEO and CFO, certify the accuracy and completeness of financial statements submitted to the Securities and Exchange Commission (SEC). Compliance with Section 302 ensures that corporate leaders assume personal responsibility for the integrity of financial reporting, instilling confidence in investors considering an IPO.

2.SOX Section 401: Disclosures in Periodic Reports

Section 401 requires companies to provide transparent and comprehensive disclosures in their periodic reports filed with the SEC. By ensuring the disclosure of material information relevant to investors, companies seeking an IPO can enhance transparency and mitigate risks associated with inadequate disclosure practices.

3.SOX Section 404: Management Assessment of Internal Controls

Perhaps one of the most significant provisions of SOX, Section 404 mandates that management assess and report on the effectiveness of internal controls over financial reporting. Companies preparing for an IPO must establish robust internal control frameworks to safeguard against financial misstatements, thereby bolstering investor confidence and facilitating a smoother IPO process.

4.SOX Section 409 – Real Time Issuer Disclosures

This section requires companies to disclose material changes to their financial condition or operations on a real-time basis. Compliance with Section 409 ensures timely dissemination of critical information to investors, enabling them to make informed decisions during the IPO process and beyond.

5.SOX Section 802 – Criminal Penalties for Altering Documents

Section 802 imposes criminal penalties for the alteration or destruction of documents with the intent to obstruct or influence official proceedings. By deterring fraudulent document practices, compliance with this section reinforces the integrity of financial information provided to investors during the IPO.

6.SOX Section 806 – Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud

This section safeguards employees of publicly traded companies who report instances of fraud or misconduct from retaliation. Compliance with Section 806 fosters a culture of transparency and accountability within organizations, which is essential for maintaining investor trust, especially during an IPO.

7.SOX Section 902 – Attempts & Conspiracies to Commit Fraud Offenses

Section 902 addresses attempts and conspiracies to commit fraud offenses under SOX, imposing penalties for individuals involved in fraudulent activities. Compliance with this section reinforces the commitment to ethical conduct and integrity in financial reporting, essential prerequisites for a successful IPO.

8.SOX Section 906 – Corporate Responsibility for Financial Reports

Section 906 reinforces executive accountability and transparency in financial reporting, essential elements for investor trust and confidence, particularly during an IPO.

Automating SOX Compliance with AudITech

Automating SOX compliance with AudITech offers a revolutionary solution to fully automated IT General Control (ITGC) audits, notorious for their time-consuming nature when done manually. AudITech’s comprehensive ITGC Automation solution accelerates the auditing process, allowing auditors to focus on data analysis and risk identification.

Specifically, SOX sections 302, 404, and 409 mandate monitoring, logging, and auditing of critical parameters and conditions, including:

  • Internal controls
  • Network activity
  • Database activity
  • Login activity (success and failures)
  • Account activity
  • User activity
  • Information Access

AudITech’s platform facilitates the automated monitoring and auditing of these parameters, ensuring compliance with SOX requirements while minimizing manual efforts. By leveraging AudITech’s capabilities, companies can efficiently manage SOX compliance tasks, thereby enhancing operational efficiency and reducing audit-related burdens.

A recent case study involving Fiverr highlights the transformative impact of AudITech’s platform, Fiverr’s Change Management controls testing was reduced by 80% in the first year and provided 100% cover of the tested population. This significant time-saving allows companies to reallocate resources towards strategic initiatives and ensures a smoother transition into the IPO landscape.

In summary, SOX compliance is paramount for companies preparing for an IPO, as it underscores transparency, accountability, and investor confidence. By comprehensively addressing SOX requirements and leveraging tools like AudITech, companies can navigate the IPO process more effectively, positioning themselves for success in the public market. 

Allow AudITech to guide you through your pre-IPO and post-IPO SOX compliance needs. Book a demo today to discover how our self-auditing software can pave the way for a successful IPO journey.

How you can benefit from fully automating your ITGC Audits with AudITech

This blog explores the advantages of embracing automation software within the realm of ITGC Auditing, highlighting how this technological evolution can revolutionize the field for the better. 

Given how much technology is ingrained in our everyday lives, it should come as no surprise that workplaces are also going through significant change. Across various industries, automation has become a cornerstone of operations, promising heightened efficiency and precision. However, despite this widespread embrace of technological advancements, the auditing industry has been somewhat hesitant to fully integrate automation into its practices.

The Current IT Auditing landscape

Software integration has become standard practice across departments in today’s corporate landscape, allowing for smooth communication and increased operational efficiency. But this integration has also led to more controls, which raises the risk of undetected deficiencies.

It’s critical for public companies that are obligated by SOX requirements to keep strong control processes in place. However, performing ITGC Audits manually has become more difficult and time-consuming as technological improvements lead to a growing number of controls within firms.

Revolutionizing Auditing with AudITech’s Automation Solution

In traditional manual IT General Controls Audits, auditors can only sample a fraction of the controls, leaving room for undetected deficiencies that could pose significant risks during external audits. This uncertainty is especially concerning for CFOs, who bear the responsibility of signing off on financial statements. AudITech’s automation software, however, conducts comprehensive audits of all controls, evidence, and populations on a daily basis. This proactive approach ensures that any deficiencies are promptly identified and addressed, providing stakeholders with the assurance of SOX compliance and facilitating a smoother external audit process. With AudITech, organizations can navigate the complexities of regulatory compliance with confidence and ease.

Integration of Automation

But how does ITGC Automation with AudITech work? It’s far more simple than you think. Our team works alongside the company to integrate all controls to the platform. The company can decide whether they want to integrate the controls in an automatic way using an API or if they would like to have it manually integrated, simply with csv files. At AudITech we recommend the Automation route to experience the full automation capabilities of the platform. We have a wide range of integrations already available, some include Jira, Oracle, NetSuite, SAP, Azure, AWS and many more.

Once the integration is complete, our team runs tests to confirm that the audits are being processed appropriately and that the results are accurate. Once this phase is completed, the platform will automatically perform ITGC audits on all controls and report back on the results. Your staff will no longer have to perform manual ITGC audits. 

Easy to Use Platform

All of these findings can be viewed from a single user-friendly dashboard. You can filter through many options, here are some examples, users, systems, entity, domain, status etc. With our platform you get a bird’s eye view of issues detected allowing you to identify the most critical issues immediately. You can download working papers and reports directly from the platform,  and make comments that pull through from the platform directly to the working paper.

SOC1 and SOC2 Compliance

Rest assured that our platform has undergone rigorous assessments and obtained both SOC1 and SOC2 certifications. These certifications signify that our processes and controls meet stringent standards for data security, integrity, and accuracy. Therefore, when you sign off on working papers generated by our platform, you can have full confidence that they are not only accurate but also adhere to the highest industry standards for reliability and compliance.

Embracing automation in ITGC auditing is essential for navigating the complexities of regulatory compliance. By leveraging AudITech’s automated platform, organizations can streamline their auditing processes, ensure accuracy, and stay ahead in an ever-evolving business landscape. It’s time for auditors to embrace automation and unlock the full potential of their auditing practices.

Contact us today to schedule a demo and see how our solution can help you.

Revealing the Future of ITGC Auditing

In a riveting conversation at the GAM conference 2024 in Vegas, Lior Mistriel, a Partner at PwC Israel with over 17 years of experience specializing in IT audit, and Eli Edry, the CEO and Founder of AudITech, came together to discuss the transformative impact of automation on ITGC auditing.

Watch the full conversation here!

Embracing Automation: A Paradigm Shift in ITGC

Lior kicked off the conversation by discussing the current landscape of IT auditing. Despite automation revolutionizing various industries, the finance sector seems to lag behind. Bookkeepers still engage in manual reconciliations, while IT auditors are buried in documentation and testing tasks. The question arises: when will the finance sector, including big four firms, fully embrace automation?

Eli joined in, highlighting the stagnancy in the ITGC auditing profession despite technological advancements. He emphasized the need for change and expressed optimism about the increasing adoption of automation tools by forward-thinking companies like AudITech. As technology continues to evolve, internal auditors seek innovative solutions to streamline processes and focus on high-level findings.

Overcoming Fear of Change

Both speakers acknowledged the apprehension among consulting firms regarding the adoption of automation. However, they emphasized the positive impact it could have on the profession. Rather than fearing job losses, consultants could redirect their focus towards providing valuable insights and consultancy services to clients, leveraging automation to enhance efficiency.

Creating Value through Technology

Eli referenced a recent PCAOB publication discussing the economic analysis of integrating technology into internal audit controls. While automation may initially lead to fewer manual hours, it ultimately creates value for companies. Internal auditors can increase fees, deliver more comprehensive services, and maintain a positive reputation by leveraging technology to its fullest potential.

Gaining Full Visibility

Lior highlighted another crucial aspect of automation: providing full visibility and assurance. Traditional auditing methods often rely on sampling, leaving room for uncertainty. With automation tools like AudITech, companies can test the entire population, ensuring comprehensive coverage and peace of mind for management.

The Path Forward

In conclusion, Lior and Eli underscored the importance of embracing automation as the future of ITGC auditing. By overcoming fear, harnessing the power of technology, and gaining full visibility, companies can navigate the evolving landscape of auditing with confidence and efficiency.

The conversation between Lior Mistriel and Eli Edry exemplifies the collaborative effort needed to drive change and innovation in the world of IT auditing. As they continue to advocate for automation and its transformative potential, they pave the way for a more efficient and effective auditing process.

Strengthening Audit Evidence: PCAOB’s Proposed Changes

Audit evidence is the foundation of an effective financial audit, giving the basis to an auditor’s perspective on an organization’s financial statements. Auditors progressively depend on information technology and electronic information to fulfill their obligations in an ever-developing technology landscape. The Public Company Accounting Oversight Board (PCAOB) has proposed amendments to its guidelines to address the difficulties presented by technology-assisted examination and guarantee audit evidence’s reliability.

Navigating the Digital Terrain: Ensuring Integrity in Audit Evidence

Audit evidence includes all data auditors use to make inferences because of their perspective. This includes data in electronic structure used in technology to help examination. Such data can be received from the organization being examined or outside sources.

Strengthening Controls: PCAOB’s Emphasis on Organization-Created Data

The proposed amendments emphasize the significance of auditors assessing the adequacy and appropriateness of organization-created data utilized as audit evidence. At the point when an organization has successful powers over this data, its reliability is elevated, guaranteeing the precision and integrity of the information utilized in the audit process. By emphasizing controls, the proposed changes plan to fortify the general reliability of audit evidence and cultivate more noteworthy trust in financial reporting.

AS 1105.10A and the Reliability of External Data in Audits

The proposed amendments present another paragraph, AS 1105.10A, which addresses the reliability of outside data upheld by the organization in an electronic structure and utilized as audit evidence. The reason behind this amendment lies in the fact that auditors frequently use enormous volumes of information obtained by organizations from outer sources in their technology-assisted examination. Since the organization keeps up with this data, assessing its reliability is basic to guarantee a precise audit.

Ensuring Accuracy: Evaluating Organization-Sourced Data in Technology-Assisted Examination

To accomplish this, auditors should carry out an unambiguous methodology, including understanding the source of the data and the organization’s systems for receiving, recording, and keeping up with it. Moreover, auditors should test controls, for example, information technology general controls (ITGC) and automated application controls, that administer the organization’s cycles for receiving and overseeing outside data. By contrasting the data given by the organization to the first information acquired from outer sources, auditors can confirm the precision and comprehensiveness of the audit evidence.

An Economic Analysis of the PCAOB Amendments

Audit quality and transparency are fundamental components in guaranteeing the reliability of monetary data for organizations, investors, and stakeholders. As technology quickly progresses, auditors have incorporated technology-assisted examination into their audit systems to further develop productivity and adequacy. We would know, as this is the core of what AudITech offers our clients: IT audit automation. The Public Company Accounting Oversight Board (PCAOB) has proposed amendments to audit principles to address the developing landscape of assessment practices, considering their financial effects. This article investigates the expected impacts of these proposed amendments on the audit market.

Economic Analysis Methodology

This economic analysis starts with assessing the ongoing monetary baseline, enveloping existing audit norms, firms’ ongoing practices, and insight from the Board’s investigations program. Notwithstanding, because of restricted quantitative information, the investigation fundamentally takes on a subjective methodology, consolidating accessible statics by utilizing technology-helped examination by audit firms.

The economic analysis recognizes the requirement for vigorous audit performance guidelines. As fiscal statement PCAOB cannot simply notice the audit interaction, there is a risk that examiners might perform poor-quality audits. Technological progression has become fundamental to the auditor’s creation capability, and guidelines should oblige these progressions to encourage audit upgrades.

Economic Analysis Assumptions

According to economic analysis, the absence of explicit direction on planning and performing audit techniques, including technology-assisted examination might bring about auditors not procuring apt audit evidence, possibly prompting material errors in fiscal reports. The proposed PCAOB amendments will benefit by providing clarity on auditors’ liabilities to relieve this risk.

The economic analysis investigates the advantages and expenses related to the proposed amendments. Improved audit strategies through technology-assisted examination are probably going to prompt higher audit quality, more productive audits, and possibly lower audit expenses. This therefore benefits financial backers and fiscal summary users by decreasing the probability of material misstatements. Further developed monetary data can empower more proficient capital allotment choices, improving capital arrangement and diminishing the expense of capital for organizations.

Additionally, auditors are supposed to profit from the proposed PCAOB amendments through diminished administrative vulnerability and related compliance costs. The changes offer a clearer comprehension of auditors’ liabilities, possibly prompting more proficient audit processes. While there are costs engaged with executing the proposed corrections, they are expected to be somewhat hidden and reasonably offset by the advantages.

The economic analysis recognizes the expected unintended economic effects of the proposed revisions. One concern is that some auditors could diminish their utilization of technology-helped examination because of perceived costs offsetting benefits. Nonetheless, such a decrease may improve audit quality on the off chance that auditors decide to renounce strategies that do not essentially add to acquiring desired evidence.

Moreover, there are plausible disproportionate effects on small firms because of restricted economies of scale. Nonetheless, existing relieving factors, for example, engagement level efficiencies and diminishing expenses of innovation-based tools, can assist with counterbalancing these impacts.

Economic Analysis Conclusion

This analysis justifies why the standard setting is favored over giving interpretive direction or expanding examination and authorization endeavors. The standard setting gives clear and explicit rules, further developing audit principles to address technological headways. Although an independent norm for technology-assisted examination was considered, it was considered pointless, as existing guidelines cover audits using technology. The proposed amendments to audit principles, including technology-assisted examination, present a chance to upgrade audit quality and address the difficulties presented by mechanical headways in the audit market.

The advantages of a more productive and successful audit methodology, prompting higher audit quality and further improved financial backer choices, are supposed to offset the unassuming expenses. These changes mean a positive step towards guaranteeing powerful and straightforward monetary reporting, helping organizations, financial backers, and the general monetary market. As the audit landscape develops, the technology-assisted examination will assume a critical role in keeping up with the trustworthiness of monetary data and fortifying investor confidence.

If you want to ensure you’re among those ‘keeping up’, schedule a demo with AudITech today so your ITGC audits can be one less thing to worry about.

A word on the pending PCAOB amendments

The Public Company Accounting Oversight Board (PCAOB) is proposing significant amendments to its existing standards, AS 1105, Audit Evidence, and AS 2301, The Auditor’s Responses to the Risks of Material Misstatement, as well as conforming amendments to other related PCAOB auditing standards. These proposed amendments respond to the ever-increasing use of technology in audits and aim to enhance audit quality and investor protection. Specifically, the amendments will address the challenges and opportunities presented by technology-assisted analysis, enabling auditors to analyze information electronically using technology-based tools. Naturally, here at AudITech, we’re interested in these developments as developers of ITGC audit software.

Why make these amendments?

Throughout the last ten years, technological headways have changed the business landscape, with organizations progressing to computerized platforms and creating tremendous measures of electronic data. On balance, evaluators have embraced technological-assisted examination, utilizing tools like data analytics, machine learning, and artificial intelligence to gather, process, and decipher electronic information. This shift has empowered auditors to perform more precise investigations, recognize designs, distinguish peculiarities, and effectively reveal potential risks.

AS 1105, Audit Evidence, characterizes what comprises audit evidence and outlines prerequisites for planning and executing audit procedures to acquire adequate and fitting audit evidence. The audit evidence amendments intend to update this standard to unequivocally address parts of planning and performing audit procedures, including technology leverage investigation. By giving clearer rules and guidelines, auditors can improve the utilization of technology-based tools to accumulate review proof and guarantee its reliability.

AS 2301, The Auditor’s Response to the Risk of Material Misstatement, sets out prerequisites for auditors to plan and carry out proper responses to distinguished risks of material misstatement. The proposed revisions to this standard will line up with the extended utilization of technology-assisted examination in risk evaluation techniques. Auditors will be directed on the most proficient method to use technology to analyze and answer advancing risks, eventually improving audit quality.

What will these amendments do?

The proposed amendments will give clarity on recognizing analytical procedures and test of detail, which is currently ailing in the current PCAOB guidelines. Auditors will be better prepared to comprehend when and how to apply technology-assisted examination as a component of their audit techniques, prompting more productive and precise audits.

The proposed amendments aim to handle situations where examiners will direct multi-purpose procedures that include a technology-assisted examination. These methodologies serve different targets and require comprehensive documentation to guarantee their viability. Under the amendments, auditors will be expected to clearly report the reason, results, and evidence acquired for every procedure, lining up with the targets of the audit. This documentation will give straightforward clarity in the audit process, empowering auditors to show the reasoning behind their choices and conclusions. 

By expressly enumerating the reason for every procedure, auditors can guarantee that the systems are suitably intended to accomplish the expected results. Besides, by archiving the outcomes and evidence acquired, auditors can efficiently track and analyze the advancement of the audit, guaranteeing that the evidence gathered upholds the conclusions achieved. Adjusting the documentation to the targets of every method fortifies the overall audit quality, as it encourages consistency, precision, and dependability in the audit procedure. Eventually, these corrections advance more noteworthy responsibility and trust in audit practices, as auditors are constrained to stick to thorough documentation principles while utilizing technology-assisted examination in multi-purpose audit procedures.

The examination led by the PCAOB features the important role of external information kept by organizations and utilized by evaluators as audit evidence. The proposed amendments will determine examiner obligations regarding the dependability of this external data, stressing the significance of assessing the data’s source and the organization’s methodology for maintaining and handling it.

Why are these amendments necessary?

Due to the dependence on technology-based tools, the proposed amendments highlight the significance of controls over information technology. Powerful controls, including IT general controls and computerized application controls, improve the quality of audit evidence derived from organization-created and external data.

The proposed amendments make upgrading audit quality a possibility, bringing about more exact and reliable reporting. The clear direction of the technology-assisted investigation will empower auditors to direct more productive and viable audits, possibly prompting cost savings for audit firms and lower review expenses for organizations. Investors will profit from enhanced monetary data, giving them more certainty and effectiveness in making capital allocation choices.

The impending execution of the proposed amendments might involve a few adjustments to the audit approaches of firms, yet with generally hidden costs in contrast with the possible gains in audit quality. The PCAOB emphasizes striking the right harmony between embracing technological advancement and maintaining robust audit principles to guarantee the progress of these amendments. By recognizing the requirement for flexibility, the PCAOB empowers audit firms to successfully use technology-assisted investigation while keeping up with the respectability and thoroughness of audit processes. The changes are intended to direct auditors to perform more productive and successful audits, prompting expected cost savings for firms and diminished review expenses for clients. Moreover, investors stand to profit from the subsequent superior monetary data, imparting more noteworthy certainty and convenience in their capital allotment choices. By proactively exploring the difficulties of technological integration, the PCAOB means cultivating a consistent change toward a technologically progressed auditing climate, where audit quality and investor security stay at the front. Generally, the PCAOB’s obligation to maintain balance among development and thorough standards guarantees that these amendments will act as an impetus for positive change inside the auditing profession.

In Summary

 The proposed amendments to PCAOB norms, AS 1105 and AS 2301, address a huge step in adjusting audit practices to the technological age. By addressing the difficulties and opportunities introduced by technology-assisted examination, these revisions will upgrade audit quality, investor security, and the general proficiency of audits. The PCAOB empowers dynamic commitment and cooperation with stakeholders through the amendment process to guarantee that the final principles stay relevant and versatile to the consistently changing landscape of innovation in auditing practices. Through these amendments, auditors will be better prepared to use innovation and encourage more noteworthy simplicity, responsibility, and trust in financial reporting to assist all stakeholders in the monetary landscape.

At AudITech, we’re no strangers to adjusting audit practices to the technological age. Don’t get left behind. Contact us for a demo today.

How SPACs Can Avoid SOX Compliance Surprises

Compared with traditional initial public offerings (IPO), special purpose acquisitions companies (SPACs) have rocketed in popularity in recent years as a faster route to going public.

According to Grant Thornton’s research, SPACs raised more than $26 billion in investment capital in January 2021 alone.

After going public, the SPAC (created for acquisition as a legal entity with no commercial operations) must seek a suitable target to acquire. Once the SPACs have taken over the privately-held company, the SPAC entity fulfilled its purpose.

Despite their utility in simplifying the process of going public, SPACs come with potential hidden risks when complying with regulatory Sarbanes-Oxley Act obligations (SOX).

SPACs vs Traditional IPO: SOX Compliance Risks

Typically, SPACs face SOX compliance risks that IPOs are better prepared to handle. Traditional IPOs take a longer route to initial public offerings that involve greater financial due diligence before achieving the required investment.

Consequently, SPACs companies going public can be surprised with urgent SOX compliance requirements they’re not prepared for.

To summarize

Despite the differences in the routes for going public, SPACs and traditional IPOs are subject to the exact SOX compliance requirements.

 SPACs Management must be cautious not to let the perceived ease and convenience blind them from personal regulatory mandates that the Sarbanes-Oxley act places on them.And the surprises don’t end there—once SPACs discover their SOX compliance obligations, another little surprise may lay in store—IT General Controls (ITGC).

SPACs, ITGC and IT Audits

ITGCs are ongoing processes designed, implemented, and monitored to ensure the integrity of financial information sourced from a company’s information technology systems and environment.

SOX compliance is dependent on SPACs being able to produce the right ITGC documentation generated through an internal IT audit.

Your ITGC obligations won’t wait; you shouldn’t either

Unless you’re using ITGC automation, designing, implementing, and monitoring ITGC doesn’t come easily, so leave plenty of time.

Doing the basic groundwork and preparing ITGC for successful SOX IT audits requires fundamental changes in mindset and culture.

CFOs and CISOs of SPACs going public must ensure this culture change is consistently advocated for so that it trickles down into relevant teams and remits.

If you’re starting your SOX audit and ITGC journey:

Study the Sarbanes-Oxley act: Sections of specific importance and relevance include sections 302, 404, and 906, though we recommend not limiting your research only to these sections.

Build a relationship with SOX industry insiders: This may be an external auditor registered with the Public Company Accounting Oversight Board (PCAOB), or it might be us—before we automated ITGC, we used to be Big 4 auditors, so we’re ideally positioned to share a detailed insider perspective on what you need to do.

Build and educate your IT & MIS teams: Don’t assume the Accounting department will care for things. SOX compliance and ITGC responsibilities run deep into an organization—from Payroll to Sales, IT and beyond.

Closing Advice for SPACs Seeking SOX Compliance

Don’t panic. Automate what you can: Don’t rush the process if you discover your SOX and ITGC requirements late. Gather the correct information to share with the right stakeholders to raise awareness and make a case for automating ITGC.

Create a coherent plan: If you decide not to automate ITGC, you’ll have much work to be completed quickly. Even if you already have a reasonably healthy control environment. Once you’ve built your IT audit team and strategy, work backward from your compliance deadlines—ensure time to fill ITGC gaps identified and allocate the right resources to fix them.

Test your ITGC before your auditor does: Your new ITGC may look great on paper, but it may also be inconsistently performed. Ensure to test and monitor ITGC standards over time before requesting an external opinion.

DO SOX IT Audits Faster and Automate ITGC Monitoring, With AudITech

Due to the complexity involved in manual ITGC audits, the processes implemented to overcome SOX compliance risk can create other increased risks of error and oversight.

By simplifying and automating ITGC, AudITech protects organizations from those increased risks while providing a fast track to confident SOX compliance readiness.

Request a demo and discover the fast, simple, valuable route to ITGC and SOX compliance peace of mind.

What Is SOX Reporting? (And Why CFOs Should Care)

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.

The 5-Step Guide to IT General Controls for SOX Compliance

As part of your overall corporate governance and SOX compliance objectives, designing, implementing and monitoring robust IT General Controls (ITGC) are key factors.

Once your ITGC standards have been comprehensively implemented, your internal audit serves as a measure of their effectiveness for ensuring the integrity of your financial and accounting information.

What We’ll Cover In This Guide to ITGC for SOX Compliance

In this 7-minute guide to ITGC for SOX compliance you’ll learn the process for creating robust ITGC standards that external auditors will smile about.

Here’s what we’ll cover:

  • Who is legally responsible for ITGC?
  • ITGC for SOX compliance checklist
  1. Establishing your controls environment
  2. Conducting an ITGC risk assessment
  3. Implementing controls activities 
  4. Implementing information & communications systems 
  5. Monitoring your ITGC
  6. BONUS STEP: Automating IT General Controls monitoring

Who Is Legally Responsible for ITGC?

Because SOX compliance requirements are ultimately assessed by external auditors, it’s easy for organizations to slip into a mode of complacent thinking that assumes ITGC are the responsibility of auditors and accountants.

The first step to establishing ITGC is to avoid such assumptions. Designed to protect investors from fraudulent financial reporting by companies, The Sarbanes-Oxley Act of 2002 (SOX Act) enforces that ITGC are very much the responsibility of senior management.

As such, it’s vital that newly-listed companies (or companies made public through merger or SPAC acquisitions) empower senior managers at all levels to integrate standards of ITGC responsibility into their daily roles. 

ITGC Checklist

For those doing SOX compliance and ITGC research on-the-fly over lunch, here’s an at-a-glance checklist of SOX compliance goals and actions for building ITGC standards.

1Prevent data tamperingImplement access tracking to detect suspicious login attempts to systems with financially sensitive data.
2Record timelines for key activitiesImplement methods for applying timestamps to financial and other data relating to SOX provisions. Store such data at remote, secure locations with encryption to prevent tampering.
3Build verifiable controls to track accessImplement systems able to receive data from any source. For example files, FTP, and databases. Track who accessed or modified these data.

1. Establishing Your Controls Environment

When we say ‘controls environment’ we’re referring to more than just a data or IT environment. Your controls environment also includes your organization’s values, culture and collective expectations.

How can you establish and cultivate a positive controls environment?

Set your mission: This should include ITGC goals and strategic planning so all stakeholders are clear on what they need to accomplish.

Advocate for the mission from the top: Senior management must become ITGC advocates who promote and maintain the ethical standards, integrity and policies that trickle down into teams.

Hire for compliance: Part of your HR and hiring process should include interviewing for at least base-level ITGC and SOX compliance awareness in candidates—gaps can always be filled.

Provide leadership & governance: Ensure leaders remain on top of operations and performance considerations relating to ITGC, correcting controls issues that are identified.

Promote accountability: Position ITGC and SOX compliance as inherent (not separate to) people’s daily roles, and integrate ITGC standards as part of performance appraisals.

It’s worth noting that sustaining a strong controls environment as part of an integrated culture of compliance diligence will bring many more benefits than SOX compliance readiness—ultimately, ITGC are also about maximizing business performance and cost-efficiency.

2. Conducting an ITGC Risk Assessment

Legacy thinking behind risk management has typically focused on financial threats. Modern Enterprise Risk Management (ERM) has in recent times shifted toward a risk assessment standard that factors for anything that could affect the organization.

When designing and implementing ITGC for SOX compliance, your more of thinking should follow this all-encompassing thinking.

Match risks to performance: Each control owner should be able to identify each risk they’re accountable for may negatively impact operations and performance.

Collaborate on risk assessment: Meet with ITGC stakeholders and identify potential external risks such as leadership gaps, HR gaps of inadequate hiring and training standards, potentially ignored or unresolved auditing and monitoring findings, emerging laws and legislations and poor safeguards of physical assets.

Rate and rank risks identified: Prioritize attention toward resolving critical risk, and strategize with ITGC collaborators how less immediate risks will be mitigated.

Develop corrective actions: Assign clearly defined actions to identified controls owners who’ll become accountable for implementation of controls standards that fall under their remit.

3. Implementing Controls Activities

Your ITGC risk assessment should have resulted in a comprehensive framework for implementing airtight ITGC standards that leave nothing to chance. Now, your controls activities implementations should aim to practically apply that framework.

Establish clear responsibilities: Assign each critical ITGC task to only a single person, and ensure structure and hierarchies are in place for effective reporting and delegation.

Apply separation of duties: Avoid making any one single stakeholder responsible for every part of any given process. Instead, diversify process ownership between individuals and use compensating controls, such as additional monitoring or secondary sign-offs when separation of duties isn’t possible.

Restrict access: Avoid allowing systems or data access permissions unless a clever ‘need-to-know’ purpose has been identified and authorized.

Create policies and procedures: These should be clearly written instructions and directives on how they should be followed.

Keep accurate records: Document all expenditures and their justifications.

All project expenditures in your company or organization should be backed by a clear statement of purpose and objectives as part of controls activities designed to leave a clear audit trail of transparency and accountability.

4. Implementing Information and Communication Systems

At this stage, your ITGC standards for SOX compliance should have taken shape. 

To ensure standards don’t regress and deteriorate, it’s now crucial that ITGC be maintained with the backing of quality information and dissemination of effective communication.

Establish reliable information systems: Information systems that track operations relating to ITGC progress should be available and secure. Don’t leave spreadsheets laying around on desktop hard drives, for example.

AudITech helps ITGC stakeholders automate IT General Controls and IT audits that make up a critical part of ITGC standards. Through a single, powerful dashboard you’ll run IT audits in minutes (instead of weeks), view alerts of control gaps, and cues on how to easily close them.

Distribute ITGC information throughout your organization: Ensure critical information is reaching the right compliance stakeholders in a timely way, and ask them what information they need but may not be receiving.

5. Monitoring Your ITGC

Congratulations! If you followed the guidance above diligently, then you just established and implemented a coherent framework for ITGC. But the hard work isn’t over—senior management teams need to continually verify their effectiveness.

Conduct ITGC performance reviews: These reviews should seek to compare your actual performance vs your defined goals and budgets to assess if controls are being followed.

Conduct independent management reviews: Further test your ITGC with the help of impartial management stakeholders able to offer objective perspective on whether controls are working as intended, or if they should be redesigned.

Arrange external audits, and respond to findings: Solicit the help of external auditors to vet your ITGC and your IT General Controls that are a subset of IC relating to the integrity of your IT environment and data systems.

Track all corrective actions: If controls gaps are identified, address them and document how you addressed them. Make sure also that the corrective actions were sufficient to close controls gaps that were spotted.

Monitor your ITGC continually: SOX compliance is part of a continual process of ITGC standards monitoring. This means you’ll need to find effective ways of linking corrective actions back to improvements in your Controls Environment and Control Activity standards to confirm that standards are actually being maintained and improved.

6. BONUS STEP: Automating IT General Controls Monitoring

One of the core pillars of ITGC are your IT General Controls that govern the effectiveness of your IT systems in maintaining the integrity of financial reporting. If your ITGC aren’t implemented and monitored, then ITGC will be judged as ‘weak’ by external auditors.

Once ITGC are implemented, your Internal Audit is the means by which their effectiveness is tested.

Imagine running IT audits in minutes from your browser

The good news is that you can use AudITech to automate away weeks of complex collaborations, human-error risk and IT department interventions usually involved in IT audits. Contact us and schedule an AudITech demo to discover the simple route to smarter, more valuable audits.

Read AudITech’s ITGC Guide for Newly Listed Companies CFOs and SOX Compliance Officers

For SOX compliance professionals, newly-public companies seeking SOX compliance and their CFOs, this guide will help improve your understanding of how to advocate for and maintain continual IT General Controls standards as part of your push for SOX compliance certification.

How SOX and ITGC Affect IT Teams and How to Make Their Life Easier

Maintaining oversight of IT General Controls (ITGC) for SOX compliance requires careful balancing of critical remits and control-owner responsibilities spread across departments. One such department is your IT team. Without them, other SOX compliance stakeholders and priorities would lack the right financial data, system access, security and assurances required for SOX readiness.

How This Affect’s Your IT Team

The problem, though, is that your IT team performs numerous other business-critical functions. Their time is both precious and expensive. But the Sarbanes-Oxley Act is the law—one that commands certain duties that only the IT team are positioned to fulfill.

What demands does the SOX act place on IT departments? And how can senior managers innovate new approaches to ITGC  to reduce disruptive SOX requirements that pull IT teams away from key daily priorities?

Here we’ll highlight key sections from the Sarbanes-Oxley Act of 2002 to discover the stresses and strains of duty that each places on your IT department.

We’ll also explore powerful time and cost-saving efficiencies for reducing the manual-process risk, cost and complexity of granular IT department interventions.

SOX Act Section 302: Providing Visibility

Section 302 of the SOX Act requires CEOs and CFOs to validate the accuracy of a company’s financial statements—they’re personally, legally liable. No pressure.

Your IT department’s role here is to mitigate senior managers’ liability by delivering methods for reliable, real-time reporting of financial data, ensuring that reports are produced in a compliance-friendly format that auditors will both recognize and sign-off on.

SOX Act Section 404: Establishing Controls to Support Accurate Financial Reporting

Section 404 of the SOX Act states that the integrity of company financial reporting must be moderated by a set of carefully designed, implemented and monitored internal controls.

In this context, the IT department must play a crucial role in identifying key IT systems and processes for initiating, authorizing, processing and summarizing financial report data. This will typically also involve application testing, security, verification of software integrations and so on.

SOX Act Section 409: Delivering Timely Disclosure of Critical Financial Data

Section 409 of the SOX Act addresses the need for senior management to monitor, declare and disclose in a timely way and information that may affect the company’s compliance and financial performance. For example, mergers and acquisitions, bankruptcy, the dissolution of a major supplier or a crippling data breach.

For this to happen effectively, your IT department must provide the tools for alerting managers, shareholders and regulators of any changes in the company financial statement, or any other event that may trigger the need for timely disclosures.

SOX Act Section 802: Ensuring Comprehensive Financial Records Retention

Even for digitally-savvy companies and organizations, financial record keeping can still involve a combination of paper and electronic copies of financially-sensitive information. Section 802 of the SOX Act requires that these be preserved and made available to auditors for a minimum of five years.

To achieve this, the IT team’s role is to ensure paper and digital records are both preserved and backed up while ensuring the correct functioning of document management systems. On top of all this, IT professionals must also keep these records available in the event of data and systems migrations.

The Compliance Risk and Cost of Complex IT Department Interventions

As we’ve learned, SOX places important but also complex demands on IT teams that are a critical pillar of maintaining the ITGC environment for SOX compliance.

Each SOX Act section requires complex, granular work with countless moving parts that consume IT-department bandwidth—this is time that could be invested on other business-critical tasks.

The negative impact is business growth frustrated by conflicting IT-team priorities. Not to mention increased (rather than reduced) compliance risk thanks to the countless manual tasks involved in fulfilling duties, plus the likelihood for human error.

How ITGC Automation Reduces Risk and Frees Your IT Team From Complex, Manual Workflows

End-to-end TGC automation  is a powerful way of shielding IT departments from the granular, expensive and time-consuming demands of SOX compliance, without compromising on diligence or duty.

By empowering other SOX compliance stakeholders to configure, implement and monitor ITGC with greater independence, AudITech simplifies and streamlines the route to SOX compliance readiness, eliminating the complexity and risk of manual process and human error..

Join our team for an AudITech demo and we’ll show you how your CFO, CISO and SOX compliance officer can implement and monitor ITGC for all cloud and IT assets from a single browser—without the delay and cost of IT department SOX interventions.

Achieve full ITGC Audit Independence & peace of mind

We’ll guide you through your first ITGC Audit in minutes. Learn to create fast, official, trusted ITGC reports recognized by IT-auditors

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