With year-end fast approaching, the pressure to get your SOX compliance audit in order is building. Whether you’re navigating Sarbanes-Oxley requirements for the first time or you’re a seasoned pro, preparation is key to ensuring your controls hold up under scrutiny. The good news? You don’t have to tackle it last minute. Here’s a checklist to keep your SOX compliance efforts on track.
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1. Revisit Your Risk Assessment
Before diving into control testing, it’s important to ensure your risk assessment is up to date. Has anything changed since the last assessment? Have new systems been implemented or new regulations introduced? Use this time to confirm that you’re covering all material areas and not missing any high-risk gaps.
Steps to take:
- Update your risk matrix to reflect any new business processes or systems.
- Focus on high-risk areas like financial reporting, revenue recognition, and system access.
- Ensure that control activities are aligned with identified risks.
2. Ensure Segregation of Duties (SoD)
Segregation of Duties (SoD) is one of the pillars of SOX compliance. Ensuring that no single employee can initiate, authorize, and approve transactions is critical for preventing fraud and errors. As your team changes or grows, it’s important to revalidate these roles.
Checklist items:
- Perform a review of all SoD conflicts, especially in finance and IT processes.
- Address and remediate any overlapping duties, ensuring clear separation of responsibilities.
- Document any exceptions and the compensating controls in place.
3. Update Documentation of Internal Controls
Documentation is key in a SOX audit. Make sure your internal controls over financial reporting (ICFR) are well-documented, accurate, and up to date. This is especially important if there have been any changes to your control environment throughout the year.
What to document:
- Key controls for financial processes (revenue recognition, inventory, etc.).
- IT general controls, including access management and change controls.
- Test plans and methodologies used to evaluate the effectiveness of controls.
4. Perform a Control Walkthrough
Don’t wait until the auditors arrive to verify your controls. Conduct internal walkthroughs with the control owners to ensure that controls are functioning as designed and that there are no gaps.
How to proceed:
- Meet with process and control owners to review key controls.
- Test controls on a sample basis to ensure they are working effectively.
- Identify any areas where controls may have weakened or are no longer sufficient.
5. Address IT General Controls (ITGCs)
SOX compliance isn’t just about financial reporting—it also encompasses the IT systems that support financial processes. Ensure that your IT General Controls (ITGCs) are in place and effective, particularly around access management and change management.
Key areas to focus on:
- Access controls: Review user access rights and ensure they align with job responsibilities.
- Change management: Confirm that system changes have gone through proper approval and testing.
- Backup and recovery: Ensure that your data backup processes are well-documented and tested regularly.
6. Test Your Key Controls
This is the heart of SOX compliance. Testing your internal controls before the auditors do can save you from surprises. Test each control thoroughly to ensure it’s operating as intended, and address any deficiencies promptly.
Steps to include:
- Perform internal control testing for both manual and automated controls.
- Document your findings and any issues that arise.
- Implement remediation plans for any identified deficiencies.
7. Ensure Clear Documentation for Control Testing
Auditors love documentation, and so should you. Make sure all control testing, results, and remediation efforts are well-documented. This will streamline the audit process and show that you’ve put in the necessary work to ensure compliance.
Documentation essentials:
- Evidence of control performance (e.g., approvals, reconciliations, access logs).
- Testing methodology and sample sizes.
- Remediation steps for any issues found during testing.
8. Communicate with Your Auditors Early
The more proactive you are with your auditors, the smoother the audit will go. Set up a meeting before the year-end to discuss what they’ll be looking for, any changes in your control environment, and any concerns you might have.
Checklist items:
- Schedule a pre-audit meeting to review scope and expectations.
- Confirm deadlines and deliverables.
- Address any concerns or high-risk areas with your auditors in advance.
9. Automate Where Possible
If your organization hasn’t yet embraced automation for SOX compliance, now’s the time to start. Automating processes such as access controls, reconciliation, and financial reporting can reduce manual errors and save time, especially during audit season.
Consider automating:
- Access control reviews.
- Financial reconciliations.
- Control documentation and testing.
10. Conduct a Post-Audit Review
Once the audit is complete, don’t just move on to the next task. Take the time to conduct a post-audit review, so you can identify what went well and what could be improved for next year’s audit cycle.
Post-audit checklist:
- Review feedback from auditors and management.
- Identify areas for improvement in your SOX compliance process.
- Update your plan for continuous improvement in the upcoming year.
Preparing for a SOX compliance audit can be a daunting task, but with a clear plan, the right tools, and early action, you can tackle it confidently. Remember, the goal isn’t just to pass the audit—it’s to build a robust control environment that supports the long-term health of your organization.
Stay ahead of the game, and if you need help navigating SOX compliance, feel free to reach out to us at HALEY Consulting and Advisory Services. We’re here to help you make the audit process as smooth as possible!
