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A Practical IT Approach To Sarbanes-Oxley Compliance

A Practical IT Approach To Sarbanes-Oxley Compliance

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A Practical IT Approach To Sarbanes-Oxley Compliance

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  1. A Practical IT Approach To Sarbanes-Oxley Compliance

  2. Ecora and Sarbanes-Oxley Compliance Agenda • Sarbanes-Oxley -- What is It? • Some Definitions • Where are companies in compliance effort? • Why should I care? • Why a Framework? • COSO • COSO IT Controls • IT General Controls • Example of compliance work with a customer • Summary

  3. Sarbanes-Oxley – What is it? Federal law that imposes strict new financial reporting requirements for publicly traded companies. Places burden on management to devise safeguards around the financial reporting process Specifically identifies IT as a key component of process and audit activity

  4. Sarbanes-Oxley – Definitions Section 302 – Quarterly and annual reporting – set up internal controls. CEO and CFO own it. Section 404 – Management Assessment of Internal Controls • Annual evaluation of internal controls • Quarterly filing of material changes to internal controls • Independent audit of internal controls • Recognized control framework required for assessment

  5. Sarbanes-Oxley – Definitions • PCAOB – Public Company Accounting Oversight Board – established to oversee audits… • Audit Standard No. 2 -- 200 page document defines SOX auditing standards • COSO -- Committee of Sponsoring Organizations of the Treadway Commission – Internal Control – Integrated Framework, PCAOB referenced framework • CobIT – Control Objectives for Information and Related Technology – another well known framework • Internal Control – A process designed….to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles…. (SEC Definition)

  6. Sarbanes-Oxley – Definitions • Internal Control (cont.) – Internal control is not “one-size-fits-all,” and the nature and extent of controls that are necessary depend, to a great extent, on the size and complexity of the company. PCAOB Auditing Standard No. 2 • Control Deficiency – exists when design or operation of a control does not allow management or employees …to prevent or detect misstatements on a timely basis. • Significant Deficiency – control deficiency (or combination of CDs) that adversely affects company’s ability to initiate, authorize, record, process, or report external financial data reliably • Material Weakness – significant deficiency (or combination of SDs) that results in more than remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected

  7. Plan Document Test Report Where are companies in the process? Two Groups < $75M Market Cap – 11/15/04 64% Testing 34% Documentation 2% Reporting > $75M Market Cap – 7/15/05 60% Testing 34% Documentation 3% Reporting 3% Planning Ernst&Young 2004

  8. Sarbanes-Oxley – Why should I care? SOX is changing IT • No more IT closed “black box” • Auditors – with technical expertise -- are now looking closely at IT • E&Y projects that next year IT portion of SOX audit will grow from 10% to 25%.

  9. Sarbanes-Oxley – Why should I care? IT an integral part of the financial reporting and control process • Management’s heavy dependency on IT • High degree of automation in processing day to day transactions • IT data elements are the primary source of data used in decision-making • IT availability / integrity critical to the financial statement close and reporting processes

  10. Why a Framework? 1. SOX Mandate -- Assessment of effectiveness requires “..suitable, recognized control framework...” • Must be identified in annual report • COSO is specifically referenced by PCAOB and forms foundation of its Auditing Standard No. 2. 2. It makes sense • Provides structure • Identifies functional areas of focus

  11. COSO Framework A common sense approach to implementing internal controls Control Environment Risk Assessment Control Activities Information and Communication Monitoring

  12. COSO IT Controls COSO identifies two broad groupings of information system control activities. Control Activities Application Controls Application controls – apply to business processes and designed within applications to prevent/detect unauthorized transactions. General Controls General Controls – apply to all information systems, support secure and continuous operation. They support all other controls

  13. Significant Accounts in Financial Statements Balance Sheet Income Statement SCFP Notes Other Business Processes/ Transaction Classes Process 1 Process 1 Process 1 Financial Applications Application X Application Y Application Z IT Infrastructure Services Database Operating System Network IT General Controls IT general controls are foundation for all IT controls Application Controls General Controls Adapted from IT Control Objectives for Sarbanes-Oxley by the IT Governance Institute

  14. IT General Controls IT General Controls are IT processes and related controls that are generally applied to support the computer application level. However, they may be performed on a single platform or application. IT general controls provide a focus for IT to identify, assess, and develop internal controls around defined areas of operation as they relate to financial controls Tests for controls are specific activities or processes that demonstrate and document proof that the controls are real and in place. Remember -- the whole point of SOX is financial reporting – the objective is to provide documented proof that IT systems associated with financial reporting are locked down.

  15. IT General Controls Network Access System (OS) Access to System System (OS) Access to Data Database Access Your infrastructure figuratively surrounds you’re your financial reporting data. You need controls at each level. Financial Reporting Data

  16. IT Infrastructure Services Database Operating System Network How Ecora helps with IT General Controls Ecora Auditor maps to IT general controls. We provide documented proof that you are complying with internal controls for IT systems that impact financial reporting. General Controls Ecora Infrastructure Coverage Ecora Enterprise Auditor Database MS-SQL, Oracle Operating System Windows, Solaris, HP- UX, AIX, Red Hat Linux, Novell Network Cisco

  17. Client Example Database Internal Controls

  18. Client Example Database Internal Controls

  19. Client Example Database Internal Controls

  20. Client Example OS Internal Controls

  21. Client Example OS Internal Controls

  22. Client Example OS Internal Controls

  23. Client Example OS Internal Controls

  24. Summary Sarbanes-Oxley is here to stay – annual and quarterly Internal controls defined by each company IT will bear an increasing burden of SOX compliance Framework can be guide IT general controls are foundation of all controls Sustainability is requirement Automation tools will make your job easier

  25. And now a word from our sponsor… Ecora Software, Inc. and Enterprise Auditor • Enterprise Auditor automates the collection of configuration data from the major infrastructure applications, databases, OSs, and network components and delivers audit ready reports. • Ecora’s Enterprise Auditor forms the foundation for Sarbanes-Oxley IT internal controls. It gives you a platform for, and proof of compliance with IT internal controls. • Solution Express combines Enterprises Auditor and an Ecora Systems Engineer (no-charge) to get your IT Sarbanes-Oxley compliance effort on a fast track.