How To Get Started with your IT Compliance Efforts for SOX

There’s no question about it. For many of you top executives in the corporate world, all roads leading to a brighter future have to go through SOX compliance. And because the business processes that contribute to financial reporting (the crux of the Sarbanes-Oxley Act) are now highly reliant on IT systems, it is important to focus a good part of your attention there.

It is a long and arduous path to IT compliance, so if you don’t want your company to fall by the wayside due to inefficient utilisation of resources, it is important to set out with a plan on hand. What we have here are some vital information that will guide you in putting together a sound plan for SOX compliance of your company?s IT systems.

Why focus on IT systems for SOX compliance?

We’ll get to that. But first, let’s take up the specific portions of the Sarbanes-Oxley Act that affect information technology. These portions can be found in Section 302 and Section 404 of the act.

In simplified form, Section 302 grants the SEC (Securities and Exchange Commission) authority to come up with rules requiring you, CEOs and CFOs, to certify in each annual or quarterly financial report the following:

  • that you have reviewed the report;
  • that based on your knowledge, the report does not contain anything or leave out anything that would render it misleading;
  • that based on your knowledge, all financial information in the report fairly represent the financial conditions of the company;
  • that you are responsible for establishing internal controls over financial reporting; and
  • that you have assessed the effectiveness of the internal controls.

Similarly, Section 404, stated in simplified form, allows the SEC to come up with rules requiring you, CEOs and CFOs, to add an internal control report to each annual financial report stating that you are responsible for establishing internal controls over financial reporting.

You are also required to assess the effectiveness of those controls and to have a public accounting firm to attest to your assessment based upon standards adopted by the Public Company Accounting Oversight Board (PCAOB).

While there is no mention of IT systems, IT systems now play a significant role in financial reporting. Practically all of the data you need for your financial reports are stored, retrieved and processed on IT systems, so you really have to include them in your SOX compliance initiatives and establish controls on them.

Now that that’s settled, your next question could very well be: How do you know what controls to install and whether those controls are already sufficient to achieve compliance?

Finding a suitable guide for IT compliance

The two bodies responsible for setting rules and standards dealing with SOX, SEC and PCAOB, point to a well-established control framework for guidance – COSO. This framework was drafted by the Committee of Sponsoring Organisations of the Treadway Commission (COSO) and is the most widely accepted control framework in the business world.

However, while COSO is a tested and proven framework, it is more suitable for general controls. What we recommend is a widely-used control framework that aligns well with COSO but also caters to the more technical features and issues that come with IT systems.

Taking into consideration those qualifiers, we recommend COBIT. COBIT features a well thought out collection of IT-related control objectives grouped into four domains: Plan and Organise (PO), Acquire and Implement (AI), Deliver and Support (DS), and Monitor and Evaluate (ME). The document also includes maturity models, performance goals and metrics, and activity goals.

A few examples of COBIt’s detailed control objectives are:

DS4.2 – IT Continuity Plans
DS4.9 – Offsite Backup Storage
DS5.4 – User Account Management
DS5.8 – Cryptographic Key Management
DS5.10 – Network Security
DS5.11 – Exchange of Sensitive Data

By those titles alone, you can see that the framework is specifically designed for IT. But the document is quite extensive and, chances are, you won’t need all of the items detailed there. Furthermore, don’t expect COBIT to specify a control solution controls for every control objective. For example, throughout the control objective DS4 (Ensure Continuous Service), you won’t find any mention of virtualisation, which is common in any modern business continuity solution.

Basically, COBIT will tell you what you need to attain in order to achieve effective governance, management and control, but you’ll have to pick the solution best suited to reach that level of attainment.

Articles highly relevant to the one you just read:

Month End Accounting The Way It Should Be Today
Spreadsheet Woes ? Burden in SOX Compliance and Other Regulations
Spreadsheet Woes ? Limited Features For Easy Adoption of a Control Framework
How Internal Auditors Can Win The War Against Spreadsheet Fraud

Check our similar posts

Spreadsheet Risk Issues

It is interesting to note that the riskiness of operational spreadsheets are overlooked even by companies with high standards of risk management. Only when errors amount to actual losses do they realize that these risks have been staring them in the face all along.

Common spreadsheet risk issues

Susceptibility to trivial manual errors

Due to the fundamental structure of spreadsheets, a slight change in the formula or value in any of their inhabited cells may already affect their overall output. An

  • accidental copy-paste,
  • omission of a negative sign,
  • erroneous range selection,
  • incorrect data input or
  • unintentional deletion of a character,cell, range, column, or row

are just some of the simple errors spreadsheet users frequently encounter. Rarely are there any counter-checking controls in place in a spreadsheet-based activity and manual errors therefore easily go undetected.

Possibility of the user working on the wrong version

How do you store spreadsheet files?

Since the most common reports are usually generated on a monthly basis, users tend to store them using variations of these two configurations:

spreadsheet storage

If you notice, a user can accidentally work on the wrong version with any of these structures.

Prone to inconsistent company-wide reporting

This happens when a summary or ?final? spreadsheet is fed information by different departments coming from their own spreadsheets. Even if most of the data in their spreadsheets come from one source (the company-wide database), erroneous copy-pasting and linking, or even different interpretations of the same data can result to contradicting information in the end.

Often defenceless against unauthorised access

Some spreadsheets contain information needed by various individuals or department units in an organisation. Hence, they are often shared via email or through shared folders in a network. Now, because spreadsheets don’t normally use any access control, any user can easily open a spreadsheet file and view or modify the contents as he wishes.

Highly vulnerable to fraud

A complex spreadsheet system with zero or very minimal controls provides the perfect setting for would-be fraudsters. Hidden cells with malicious formulas and links to bogus information can go unnoticed for a long time especially if the final figures don’t deviate much from expected values.

Spreadsheet risk mitigation solutions may not suffice

Inherent complexity makes testing and logic inspection very time consuming

Deep testing can uncover possible errors hidden in spreadsheet cells and consequently mitigate risks. But spreadsheets used to support financial reporting are normally large, complex, highly-personalised and, without ample supporting documentation, understandably hard to follow.

No clear ownership of risk management responsibilities

There?s always a dilemma when an organisation starts assigning risk management responsibilities for spreadsheets. IT personnel believe users in the business side of the organisation should be responsible since they are the ones who create, edit, store, duplicate, and share the spreadsheet files. On the other hand, users believe IT should be responsible since they have always been in-charge of managing IT infrastructure, applications, and files.

To get rid of spreadsheet risks, you’ll have to get rid of spreadsheets altogether

One remedy is to have a risk management activity that involves both IT personnel and spreadsheet users. But wouldn’t you want to get rid of the complexity of having to distribute the responsibilities between the two parties instead of just one?

Learn more about Denizon’s server application solutions and how you can get rid of spreadsheet risk issues.

More Spreadsheet Blogs


Spreadsheet Risks in Banks


Top 10 Disadvantages of Spreadsheets


Disadvantages of Spreadsheets – obstacles to compliance in the Healthcare Industry


How Internal Auditors can win the War against Spreadsheet Fraud


Spreadsheet Reporting – No Room in your company in an age of Business Intelligence


Still looking for a Way to Consolidate Excel Spreadsheets?


Disadvantages of Spreadsheets


Spreadsheet woes – ill equipped for an Agile Business Environment


Spreadsheet Fraud


Spreadsheet Woes – Limited features for easy adoption of a control framework


Spreadsheet woes – Burden in SOX Compliance and other Regulations


Spreadsheet Risk Issues


Server Application Solutions – Don’t let Spreadsheets hold your Business back


Why Spreadsheets can send the pillars of Solvency II crashing down

?

Advert-Book-UK

amazon.co.uk

?

Advert-Book-USA

amazon.com

Contact Us

  • (+353)(0)1-443-3807 – IRL
  • (+44)(0)20-7193-9751 – UK
Monitoring Water Banks with Telemetrics

Longstanding droughts across South Australia are forcing farmers to rethink the moisture in the soil they once regarded as their inalienable right. Trend monitoring is an essential input to applying pesticides and fertilisers in balanced ratios. Soil moisture sensors are transmitting data to central points for onward processing on a cloud, and this is making a positive difference to agricultural output.

Peter Buss, co-founder of Sentek Technology calls ground moisture a water bank and manufactures ground sensors to interrogate it. His hometown of Adelaide is in one of the driest states in Australia. This makes monitoring soil water even more critical, if agriculture is to continue. Sentek has been helping farmers deliver optimum amounts of water since 1992.

The analogy of a water bank is interesting. Agriculturists must ?bank? water for less-than-rainy days instead of squeezing the last drop. They need a stream of online data and a safe place somewhere in the cloud to curate it. Sentek is in the lead in places as remote as Peru?s Atacamba desert and the mountains of Mongolia, where it supports sustainable floriculture, forestry, horticulture, pastures, row crops and viticulture through precise delivery of scarce water.

This relies on precision measurement using a variety of drill and drop probes with sensors fixed at 4? / 10cm increments along multiples of 12? / 30cm up to 4 times. These probe soil moisture, soil temperature and soil salinity, and are readily re-positioned to other locations as crops rotate.

Peter Buss is convinced that measurement is a means to the end and only the beginning. ?Too often, growers start watering when plants don’t really need it, wasting water, energy, and labour. By monitoring that need accurately, that water can be saved until later when the plant really needs it.? He goes on to add that the crop is the ultimate sensor, and that ?we should ask the plant what it needs?.

This takes the debate a stage further. Water wise farmers should plant water-wise crops, not try to close the stable door after the horse has bolted and dry years return. The South Australia government thinks the answer also lies in correct farm dam management. It wants farmers to build ones that allow sufficient water to bypass in order to sustain the natural environment too.

There is more to water management than squeezing the last drop. Soil moisture goes beyond measuring for profit. It is about farming sustainably using data from sensors to guide us. ecoVaro is ahead of the curve as we explore imaginative ways to exploit the data these provide for the common good of all.

How to Improve Corporate Efficiency through IT

When revenues are low, what do you do to improve your profit? Obviously, those same revenues should at least remain the same. So, the objective would be to deliver the same products and services for less cost. More for less. Such is the essence of corporate efficiency.

There are many things that can make a company inefficient. There are outdated procedures, poor coordination between departments, managers? lack of business visibility, and prolonged down times, to mention a few. As a company grows, these issues get more severe.

You can overcome all these by deploying the right IT solutions. But don’t IT solutions increase spending instead? Au contraire. The last couple of decades have seen the rise of IT solutions that help companies’realise obvious cost savings in no time.

Streamline processes and keep departments in-sync

Company inefficiencies are largely due to outdated systems and procedures. These systems and procedures were not built for the dynamic and complex business environments of today that are being shaped by increasingly onerous regulations, fierce and growing competition, significant economic upswings and downturns, new battlefronts (like the Web) and logistical strategies (like outsourcing), and IT-savvy crooks.

So when your employees force outdated systems to meet today?s business demands, they’re just not able to deliver. At least not efficiently.

Another major cause of inefficiency is the discordance among departments, business units, and even individual staff members themselves. There are those who still use highly personalised spreadsheets and other disparate applications, which make data consolidation take forever and the financial close a perennial headache.

Costly devices like mobile phones, netbooks, and tablet PCs, which are supposedly designed to provide better communication, are not fully maximised. If these are subsidised by the company, then they also contribute to company inefficiency.

One way to deal with these issues is to deploy server based solutions. By centralising your IT system, you can easily implement various improvements that can pave the way for better communication and collaboration, stronger security, faster processes and transactions, and shorter down times for troubleshooting and maintenance. All these clearly translate to cost savings.

Gain better visibility

Corporate efficiency can be improved if your decision makers can make wise and well-informed decisions, faster. But they can only do this if reports they receive from people down the line are timely, accurate, and reliable. Basically, data should be presented in a way for managers to gain quick insights from.

If your people take too much time scrutinising, interpreting, and reconciling data, you can’t hope to gain a significant competitive advantage. Equally important to managing an ongoing project is the speed at which you make a go/no go decision to start or stop a project. A wise, quick decision will help you avoid wastage.

The same holds true when making purchases and investment decisions. It’s all about quickly eliminating waste and investing only on those that will give you fast, positive returns.

Clear business visibility will allow managers to allocate resources where they are most effective, to pinpoint what products and services being offered are more profitable, and to identify which customers are giving better business from an overall perspective.

These are all possible with business intelligence. We know, we know. You’ll say BI solutions will force you to break the bank. Not anymore. At least, not all. There are already two main types of BI solutions: on-premise and SaaS. The latter will generally cost you less.

Of course, each type has its own advantages, and you’ll really have to look into the size of your organisation, the number of source systems your decision-making platform is connected to, integration requirements, budget, etc. to make sure you get the most out of your investment.

But IT solutions cost an arm and a leg

Again, not anymore. These days, you can find IT products that are faster, more functional, and more powerful than their predecessors at a fraction of the cost. When it comes to getting more affordable IT products and services, you now have many options.

For example, you can turn to open source solutions to save on license costs. These solutions are typically backed by vibrant and helpful communities where you can find an extensive source of technical support – many of which are for free. With popular open source products, you can easily tap from a large pool of developers with affordable rates any time you want to make system enhancements or customisation.

On another front, virtualization solutions allow you to save on CAPEX and OPEX by eliminating certain expenses normally used for setting up infrastructure or buying hardware and maintaining them. Server virtualisation, for instance, will allow you to consolidate servers and put them together into just one machine, while desktop virtualisation will enable you to eliminate unproductive hours associated with desktop down times by allowing you to redeploy a malfunctioning desktop very quickly.

Closely related to those are cloud-based solutions like SaaS (Software as a Service), IaaS (Infrastructure as a Service), and DCoD (Data Center on Demand). SaaS and IaaS will help you realize savings in acquisition and maintenance costs for software and hardware, while DCoD?s scalable services allow you to request for additional capacity, power and storage only as you need them, thus making you spend only according to your current infrastructure requirements.

Like we said, there are many, many options out there just waiting to be tapped.

Ready to work with Denizon?

Contact Us Today