September 14, 2023

Sarbanes-Oxley (SOX) Compliance: How SecOps Can Stay Ready + Pass Your Next SOX Audit

Security & Compliance

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.

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What is SOX (Sarbanes-Oxley)?

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. 

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How SOX Changed the World of IT

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:

  • SOX increased IT governance and compliance expectations.
  • SOX brought about demand for greater IT expertise in organizations that deal with financial data.
  • SOX introduced new requirements for internal controls over financial reporting, including SOX compliance for IT systems and processes that handle financial data.
  • SOX spurred investment in new tech that made SOX controls management, SOX compliance, and SOX reporting easier. 
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Who the Sarbanes-Oxley Act Applies To

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). 

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SOX Fines: What are the Penalties for SOX Noncompliance?

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.

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What is SOX Compliance?

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…

  • Establishing SOX controls and data security measures, including encryption and secure authentication
  • Maintaining data integrity by removing errors in the capturing, processing, and storage of financial data
  • Backing up data and implementing a disaster recovery plan
  • Subjecting IT practices to governance and compliance oversight
  • Implementing strong change management to make sure changes to the system don’t affect data accuracy or security
  • Monitoring user activity with logging and audit mechanisms
  • Reporting on controls, processes, and changes for audit purposes and maintaining comprehensive documentation that can be used to demonstrate accurate, error-free reporting
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What are SOX Controls?

SOX controls are security measures used to prevent or mitigate errors in financial reporting, whether those errors were malicious or unintentional. Some examples of SOX controls 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.

SOX Controls Examples

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: 

  • Access Controls: IT departments institute access controls, like role-based access control (RBAC) and zero-trust security, to ensure that only authorized people have access to systems and data.
  • Security Controls: This includes encryption, firewalls, and other measures to make sure that data is secured against unauthorized access, cyberattacks, or other forms of breach.
  • Change Management: IT sets up systems with rules to validate changes, so that when a change is made to a financial system (be it patching, software updates, security configurations, schema, or access), they can verify the accuracy and consistency of the data in the system.
  • Backup and Disaster Recovery: In the event of data loss (like through disaster or cyberattack), IT should have procedures to secure, recover, and restore data.
  • Audit Trails: IT is in charge of recording events relevant to SOX controls, using configuration management to log user activity, changes to financial data, and track system access.
  • Reporting and Monitoring: IT configures financial reporting systems to extract accurate data, monitor for discrepancies, and generate timely reports. They’re also responsible for generating reports on SOX compliance to prove that systems remain compliant with SOX over time.

SOX controls are one of the many elements of a company’s operations that auditors will look for during a SOX audit. 

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What is 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:

  • Internal controls (including IT controls, processes, and procedures)
  • Documentation practices
  • Whistleblower mechanisms (to give employees a way to report financial inconsistencies or misconduct in the company)
  • Disclosure (how the company discloses financial information, and how they ensure it’s accurate and timely)

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. 

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SOX 404 Compliance: The SOX Compliance Requirement that Relies on IT the Most

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:

  • Management Assessment (SOX 404(a)): Management must document internal controls over financial reporting (ICFR); identify weaknesses in ICFR; and assess the effectiveness of ICFR on an annual basis. (IT designs, implements, and tests ICFR.)
  • Auditor Attestation of Internal Controls (SOX 404(b)): External auditors assess effectiveness of ICFR, with a focus on IT controls, data integrity, access control, and change management. (Again, IT creates much of what becomes ICFR, making them partially responsible for the effectiveness of the controls.)

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. 

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Guidelines and Tips for Continuous SOX Compliance

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:

  • Assessments and documentation of internal controls
  • Risk assessments of financial reporting
  • Control testing
  • Workflow automation related to SOX activities
  • Data analytics to review and identify anomalies in the financial data
  • Reporting and documentation
  • Audit trails and logging of all activities related to the compliance process
  • Integration of compliance tools with ERP software and financial systems
  • User access controls to manage user permissions
  • Training and awareness to educate staff on compliance tooling and processes
  • Continuous monitoring for identifying compliance issues
  • Consideration of 3rd party solutions designed for SOX compliance
  • Auditor collaboration to ensure information is timely and available
  • Currency to ensure tools are kept up to date

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.

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How to Automate SOX Compliance

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.

Use Security + Compliance Automation Tools

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:

  • Role-Based Access Control (RBAC): Maintain robust access controls with role-based permissions to restrict access to authorized personnel.
  • Continuous Monitoring: Track changes to financial data, system configurations, to detect anomalies and potential compliance issues in real-time.
  • Data Encryption and Security: Protection of financial data at rest and when in flight. This may include firewalls, Intrusion Detection Systems (IDS), and malware protection (anti-ransomware/anti-virus).
  • Change Management and Versioning: This ensures all changes to financial systems and systems configurations are documented, reviewed and approved.  Version control tracks this over time.
  • Auditing and Testing: Regular audits test the effectiveness of IT controls, identify weaknesses, and remediate issues. Activities may include penetration testing, vulnerability assessment, and control assessments.

Puppet Comply and Compliance Enforcement align your infrastructure configurations to established security standards to automate compliance across your IT.


Leverage Existing Compliance Frameworks for SOX Compliance

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.

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Define and Enforce Your Desired SOX Compliance with Puppet

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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