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How to Use a SOX Compliance Checklist

Stay on top of your SOX compliance requirements and be ready for audit with a digital checklist. Understand how you can increase accountability and transparency in financial reporting. Learn how you can best prepare for the SOX audit and which requirements must be met.

What is the Sarbane Oxley Compliance checklist (SOX)?

The United States Congress enacted the Sarbanes-Oxley Act of 2002 to protect the public from unethical and fraudulent practices by business entities. Resulting from a series of financial scandals, the SOX compliance checklist seeks to elevate accountability and transparency in financial reporting while setting proper checks and balances in corporations.

This law applies to all US-based public companies, international companies in possession of a tradable financial asset registered with the SEC such as stocks, and accounting and auditing companies providing services to the businesses as mentioned above.

In this article, the following points are explained:

1. The 4 key requirements of the SOX compliance

2. How to prepare for a sox audit

3. The advantages of digital checklists for SOX compliance

bookkeeper working on financial records and reports with a laptop and a calculator

What are the key requirements of the SOX Compliance?

The provisions of the SOX Law can be summarized into these four key requirements that public companies must comply with:

  1. All financial statements must be audited by independent auditors and presented periodically.
  2. Any material change that can potentially affect the market value of the company’s securities and its financial situation must be reported to the public immediately.
  3. Robust internal controls must be implemented to identify and avoid fraud and protect the company’s financial information integrity. This includes finance-related and IT-related controls.
  4. An assessment of internal controls checked and authorized by independent auditors should be furnished by companies every year.

How do you prepare for a SOX audit?

Meeting the Sarbanes Oxley compliance requirements can be an intimidating task with plenty of room to mess up. However, there are some steps you can take to help ease your preparation in time for audit season.

  1. Establish a plan and define your timelines
    To ensure that all relevant reports are available on time, you need to map out a comprehensive plan of what needs to be done and when it needs to be ready. It is recommended to develop a plan starting from the current fiscal year up to the period leading to the year you will need to be fully SOX compliant.
  2. Select one or more frameworks that can improve your SOX compliance
    You can consider employing the help of organizations with established frameworks and models specifically designed to strengthen internal controls and prepare for SOX compliance. Here are some of the ones you can consider:
    • The Committee of Sponsoring Organizations of the Treadway Commission (COSO): They can provide support in establishing your company’s internal controls.
    • Control Objectives for Information and Related Technologies (COBIT): They can help ensure your IT processes are compliant.
    • The Information Technology Governance Institute (ITGI): They can guide internal controls and IT compliance, with more focus on security-related controls.
  3. Carry out risk assessments
    You can pinpoint potential problem areas that need to be addressed when you create your compliance plan through a risk assessment.
  4. Conduct a company-wide evaluation
    Every part of your company — primary divisions and secondary operations — must be compliant. To ensure this, you need to assess all processes and procedures being implemented across the board.
  5. Document all your processes
    Detailing your processes can provide the context needed to establish a more transparent flow of information. Make sure that you document your company’s financial reporting process along with the key personnel involved. Another important thing that must be well-documented is the procedures set in place to protect against fraudulent threats and financial risks.
  6. Evaluate IT-related controls
    Assessing your internal IT controls will help you stay up to par with the industry best practices regarding data security and guarantee better protection from tampering. You can implement a SOX compliance IT checklist specifically aimed to increase your company’s IT infrastructure security to make sure nothing gets overlooked.
  7. Assess your third-party vendors
    You need to pay attention to your vendors to make sure you cover all your bases. If a security or data breach happens at a vendor, your company will still be held liable.
  8. Put your internal controls to the test
    You must ensure your internal controls, especially key controls in your risk assessment, are working the way they should.
  9. Identify and correct your deficiencies
    Any identified deficiencies should be fixed and reported as necessary. For significant deficiencies, only your senior management needs to be kept in the loop. On the other hand, material deficiencies are required to be made public in a 10-K.
  10. Regularly communicate and update
    One of the main goals of SOX is increased transparency and accountability. This means that your senior management, the board, and the internal audit committee are well-updated on the progress and findings of the compliance process.
group of employees consults in front of a laptop

Minimize Errors and ensure SOX compliance with a digital checklist

Getting a better understanding of the requirements and process is just half the battle. To pass the SOX audit with flying colors, you’ll need a reliable tool to help you gather all the data you need quickly and measure the results accurately.

With Lumiform, you create a customized digital SOX 404 checklist that suits your needs so you can quickly evaluate your current company standing, identify areas for improvement, and have complete confidence in your established internal controls.

Here are some of the features you can enjoy:

  • Create your custom checklist in minutes with access to over 12,000 ready-made templates.
  • Access your SOX compliance checklists any time of the day, whether you’re online or offline.
  • Conduct your inspection via the app and consolidate all visual documentation of your processes and procedures.
  • Auto-generate in-depth SOX compliance reports and share them with your stakeholders easily.
  • Analyze your data via the dashboard to see if you are hitting the SOX compliance.
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