Companies often think of implementing SOX Controls the same way that a student looks at their homework. While this is understandable in a way, it’s still an unfortunate situation. There are two distinct benefits of working towards SOX compliance. The first benefit is obvious– SOX controls help your company stay compliant. The second is just as important– SOX controls will also make your company better.
By recognizing its current control risks and ensuring that its new controls are suitable, your company will navigate the SOX 404 difficulties more easily. Additionally, it will receive multiple benefits by emphasizing these four items:
Every company is unique
The goal is to come up with controls that enhance existing processes
With the right controls, your company will improve its financial reporting
You can cut costs significantly by automating SOX controls
Every Company is Unique
A cookie cutter approach to your controls structure simply won’t work. This is because it can’t take a firm’s unique features fully into account– its niche, size, and specific procedures. Auditors typically view risks as though they exist in a silo. This means that when they discover a common risk, they develop a control that’s the same for every company. This can’t help but lead to inefficiencies. Instead, an auditor should locate the best place within your company’s processes to place this control.
Here’s how to find the best place in your procedures to implement a given control. Everything should be based on your company’s current processes. The auditor should consider the personnel and procedures involved with all of your business processes. After you’ve analyzed your company, it becomes easier to implement the control.
Your Goal? Develop SOX Controls That Enhance Existing Processes
The goal of implementing a SOX project should always be to increase efficiency through better processes. The risk assessment points out existing risks, the likelihood and effects of the potential exposure, and the corresponding controls, or lack thereof, that are currently in place to safeguard against these risks.
The process review of one large utility company revealed that its two top financial officers maintained a different checklist of important entries and accounting procedures. Because of these separate checklists, a great deal of essential information was missed during the closing of the books. In other words, a current process was creating inefficiencies and putting the company at considerable risk. As a result of this discovery, the company began using a single, comprehensive checklist and averted the risk of missed entries. This practice proved very valuable as a planning tool.
Come Up with Controls That Improve Your Financial Reporting
One of the main reasons that Congress approved the Sarbanes-Oxley Act was to help regain the public’s confidence in the accuracy and integrity of financial reports. However, this improved reliability benefits the investors and other stakeholders. The company can benefit from this better information as well, largely because it helps them make more informed decisions about improving its processes and overall performance.
Companies should always make sure that controls and business operations are in sync with applicable financial reporting requirements. To accomplish this, companies must pay close attention to when they need specific financial information. Understanding the timing involved will a) point out where a given control is currently placed within the parameters of a business process, and b) demonstrate how frequently the control is performed.
For instance, the control is placed at the end of the reporting chain, and no information can be obtained until the entire process is complete. However, if the control is placed in the early stages of the reporting process, the firm can get useful information much sooner. This also applies to the frequency with which the control is conducted. Instead of holding off until the end of the year to examine impairment signs that were leading to misstated assets, a quarterly check gave a certain infrastructure company timely access to important financial information.
Lower the Cost of SOX Controls Through Automation
One of the main complaints about the passage of the Sarbanes-Oxley Act is the high costs companies pay to remain compliant. These costs can be especially onerous for firms that rely on manual systems of control. Fortunately, these companies can reduce the cost burden of SOX compliance by using automated controls. By automating controls whenever possible, you’ll save time by eliminating the chance for human error.
Since the time when The Sarbanes-Oxley Act first took effect, firms have tried every method imaginable to create environments that are conducive to strong SOX controls. Unfortunately, these attempts have produced mixed results. Automation of SOX controls is the necessary next step.
About Brandon Pfaff
Helping clients ford their financial future by powering through the currents of complexity. River City CPAs, LLC specializes in assisting individuals and small businesses with tax preparation, bookkeeping, payroll and successful business planning.