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Since its passing in 2002, the Sarbanes-Oxley Act (SOX) has become one of the leading regulatory compliance requirements for U.S. companies. It’s synonymous with corporate governance and financial reporting standards for publicly traded companies.
Companies spend millions of dollars and thousands of hours ensuring SOX compliance. Scrutiny is high for organizations subject to it, and the penalties can be crushing. In this blog, we’ll give you an overview of what SOX is, the history of SOX, the most relevant SOX controls for your IT, and how to chart a course toward SOX compliance.
Table of Contents
SOX is the Sarbanes-Oxley Act, a 2002 federal law created to enhance transparency in financial reporting by publicly traded U.S. companies. It includes provisions for auditing, certification, whistleblowing, disclosure, internal controls, and criminal penalties over financial reporting.
The Sarbanes-Oxley Act (SOX) was a response to a series of incidents in corporate accounting, including misconduct at Enron (2001), WorldCom (2002), and Tyco International (2002). Each of these scandals involved fraud and mismanagement, often for personal gain, which undermined public trust and shook investor confidence in the larger U.S. financial market.
The impact was significant: Investors withdrew funds, stocks plummeted, pension funds withered, and international investment declined. SOX was enacted to enforce transparency and accountability in large financial organizations and restore investor confidence in U.S. financial markets.
The Sarbanes-Oxley Act (SOX) ushered in an era of increased governance, compliance, auditing, and security in corporate IT, particularly for organizations that handle financial data.
The impact of SOX on the world of IT operations was so wide-ranging that it’s hard to measure, even decades after its passing. A few of the most prominent ways SOX changed IT include:
The Sarbanes-Oxley Act applies to publicly traded U.S. companies registered with the Securities and Exchange Commission (SEC), regardless of industry. SOX can apply to companies in finance, tech, manufacturing, insurance, retail, healthcare, and more.
Companies subject to the Sarbanes-Oxley Act are expected to institute controls and practices that ensure transparency, accuracy, accountability, and auditability of their financial reporting and corporate governance. Select provisions of SOX also extend to vendors those companies use.
The Sarbanes-Oxley Act (SOX) also set forth compliance expectations, which cover a range of security controls and rules organizations must follow to adhere to SOX requirements (and pass a SOX audit).
SOX Section 802 states that individuals and companies who don’t comply with SOX can face millions of dollars in fines, years of imprisonment, and numerous legal, civil, and reputational liabilities.
CEOs, CISOs, and CFOs who knowingly send false statements to a SOX auditor can be fined up to $5 million and face up to 20 years in prison. Entities doing the same face up to $25 million in fines.
Additionally, a company found in violation of SOX Section 802 can risk elimination from public trading platforms; lawsuits from individuals or entities seeking damages; increased scrutiny from the SEC and the Department of Justice (DOJ); and loss of credibility and investor confidence.
SOX compliance is a measure of a company’s adherence to the requirements of the Sarbanes-Oxley Act (SOX). SOX requirements include maintaining SOX controls, auditor independence, document retention, CEO/CFO certification, reporting, and more.
Sarbanes-Oxley compliance (SOX compliance) is a multi-departmental effort. It requires collaboration among management, finance, legal, IT, and more. Noncompliance with SOX can lead to fines, legal penalties, and reputational damage.
For IT, SOX compliance means…
SOX controls are a set of security measures companies use to prevent errors in financial reporting. SOX controls are required by the Sarbanes-Oxley Act (SOX) and include restricting access to sensitive information, documenting procedures, timely reporting, and review and certification of financial statements and disclosures.
In order to achieve SOX compliance, organizations must institute SOX controls – but there’s no hard-and-fast list of specific actions to take to meet the expectations of SOX controls. SOX standards let companies define and configure their own internal controls to meet regulations.
In other words, SOX controls define the end state, not the path to get there.
IT departments play a significant role in implementing SOX controls. Many requirements of SOX controls intersect with system hardening best practices. Here are a few examples of SOX controls that IT contributes to:
SOX controls are one of the many elements of a company’s operations that auditors will look for during a SOX audit.
A SOX audit (or SOX compliance audit) is an examination of a company’s adherence to Sarbanes-Oxley (SOX) compliance requirements. It is an evaluation of whether or not the company can accurately and reliably process and report financial information.
A SOX audit (or SOX compliance audit) is a thorough review of a company’s practices around financial reporting, from IT to finance and accounting. During a SOX audit, an independent auditor reviews internal controls and practices to determine whether or not they adequately ensure accuracy and reliability in the company’s financial statements.
An audit for SOX compliance will often touch on many aspects of the audited company’s practices and reporting, including:
After the audit is completed, the auditor generates a report evaluating the effectiveness of the company’s SOX controls and compliance. That report is usually included in the company’s annual report, which is filed with the SEC as part of the official record.
While a SOX audit covers much more than the information technology aspects of a company’s SOX compliance, IT departments play a crucial role in instituting and ensuring proper controls. In fact, the responsibilities of an IT department can help a company meet many essential SOX compliance requirements.
SOX 404 compliance (Management Assessment of Internal Controls) is a list of requirements for publicly traded companies to establish internal controls over financial reporting (ICFR). Strong ICFR helps a company ensure their financial statements are accurate, reliable, and will hold up to a SOX audit.
IT teams are heavily involved in SOX Section 404 and its subsections. IT is instrumental in creating and maintaining many of the internal controls SOX 404 compliance depends on. A company’s IT team ensures those internal controls are well-built, well-designed, and consistently implemented.
SOX 404 requirements include:
Together, SOX 404(a) and SOX 404(b) comprise the implementation and review of internal controls that detect and prevent inaccuracies in a company’s financial statements. A SOX-compliant company relies heavily on IT to establish and maintain system configurations that comply with SOX.
SOX compliance is complex, to put it lightly. Covering all your bases can be an intense process, especially in organizations with a large or diverse IT environment. Becoming SOX compliant entails a significant number of important strategies, including:
It’s worth noting again that SOX doesn’t lay out an action plan for you. It simply sets the expected goal for compliance. Your IT has the freedom to choose tools (like automation and configuration management), benchmarks, and frameworks that can get you there.
You can automate SOX compliance by using automation and configuration management tools that meet the requirements of SOX compliance.
Being SOX compliant takes a lot of effort, and IT is just one aspect of SOX compliance to consider. Automating SOX compliance allows organizations to streamline those efforts, reduce manual errors, and improve efficiency.
Technology and information systems are integral components of financial reporting. These systems need to be continuously available and protected from outages. Servers that host these systems need to be configured with high levels of security to ensure that the application data is also available, and secure from unauthorized access or alteration.
Here are the ways security automation tools can speed up and lock down SOX compliance:
Puppet Comply and Compliance Enforcement Modules align your infrastructure configurations to established security standards to automate compliance across your IT.DEMO COMPLY + CEM
Puppet Comply and Compliance Enforcement Modules align your infrastructure configurations to established security standards to automate compliance across your IT.
DEMO COMPLY + CEM
You can achieve SOX compliance by following guidelines from COSO, COBIT, ISO 27001, ITIL, NIST, PCI DSS, CIS Benchmarks, and more.
Numerous regulatory frameworks and standards can help organizations with SOX compliance by providing guidelines, best practices, and control frameworks that align with the requirements of SOX.
Popular compliance frameworks include COSO, COBIT, ISO 27001, ITIL, NIST, PCI DSS, and NIST SP800-53. These frameworks are not typically prescriptive and often require drilling down into more technical standards and recommendations, such as those published by the Center for Internet Security (CIS).
Once you've defined and applied the desired state for system configuration (based on compliance frameworks), compliance automation can enforce it without human intervention. Automatically enforcing compliance reduces the manual effort of compliance by continuously assessing configurations, remediating drift, and enforcing the compliant state you prescribe.
Like any kind of compliance expectation, SOX compliance is not a one-size-fits-all endeavor. Every organization should tailor their compliance efforts to the specific needs and requirements of their industry and regulatory environment.
SOX compliance requires cooperation across numerous departments – which, as you might expect, can get hairy. IT and security departments often have conflicting initiatives, leading to inefficiency and sluggishness when requirements are reviewed and remediated on different sides of the fence. Aligning compliance initiatives with configuration management improves the effectiveness of both sides and allows the organization to mitigate risk.
Empowering IT operations teams with the ability to constantly assess infrastructure configurations ensures that configurations remain at their desired state between audits, alleviating the requirement for large-scale remediation efforts.
You can try Puppet Enterprise for yourself on up to 10 nodes in your infrastructure for as long as you want, or get a demo of the Puppet Comply add-on to see how much time you can save on compliance configuration.
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Senior Director of Product Marketing, Puppet by Perforce
Robin Tatam (CISM CPFA CTSP CTMA PCI-P) is a Product Marketer at Puppet by Perforce, where he promotes the benefits of managing compliance using Puppet. Prior to his role with Puppet, Robin worked as a Security Evangelist, and was a globally recognized SME and five-time IBM Champion. Robin also loves travel and cultural exploration, is an accomplished photographer, and considers himself an amateur mixologist.