SOX compliance checklist: key steps to meet Sarbanes-Oxley Act requirements

In the early 2000s, the accounting and business world was rocked by several high-profile scandals. From Enron to WorldCom, several once-great corporations are now synonymous with corporate fraud and deceit. 

In response to those tumultuous times, the US passed the Sarbanes Oxley Act (SOX) in 2002 — a sweeping new law designed to improve transparency and accountability in financial reporting. Today, SOX compliance is a cornerstone of corporate governance for public companies. 

In this article, we’ll explain everything you need to know about SOX compliance. We’ll also provide a handy SOX compliance checklist that breaks the process down into key steps. 

What is SOX compliance?

SOX compliance refers to a company’s efforts to meet the requirements set out in the SOX Act of 2002. This applies to all publicly traded companies that operate in the US — as well as the accounting firms that audit these companies. By ensuring SOX compliance, public companies commit to following stringent reporting standards that:

• Improve transparency, accuracy, and accountability in financial reporting
• Mitigate the risk of accounting fraud or mismanagement
• Protect investors from catastrophic losses 

In the more than two decades since the SOX Act came into force, it has become the cornerstone of corporate governance for public companies. But SOX compliance isn’t a given. It requires deep knowledge and continuous effort to remain compliant — often at a significant cost to businesses.

Why is SOX compliance important?

SOX compliance is crucial for all sorts of reasons. Firstly, it’s a legal requirement for public companies that operate in the US. Failure to comply with SOX requirements can result in hefty fines and destroy public trust. Executives involved in SOX violations may even face criminal convictions. 

SOX compliance is also important from an operational perspective. By complying with SOX requirements, public businesses can:

• Ensure accurate and transparent reporting
• Establish robust internal controls and standards 
• Identify and mitigate potential risks through regular external audits
• Foster a culture of accountability and professional integrity
• Safeguard sensitive financial data 

In other words, SOX compliance helps businesses achieve long-term stability and sustainable growth. 

Key SOX compliance requirements

The SOX Act comprises 11 titles, each containing specific compliance requirements. While SOX compliance involves adhering to all these sections, some are considered particularly important, including:

Section 302: Corporate Responsibility for Financial Reports 

This section sets out the SOX compliance requirements for CEOs and CFOs when it comes to financial reporting. Under SOX, CEOs and CFOs must: 

• Ensure the accuracy and completeness of quarterly and annual financial reports
• Establish and maintain internal accounting controls — and evaluate their effectiveness in the 90 days prior to a report being filed
• Disclose any significant issues, instances of fraud, or changes to internal controls

Section 404: Management Assessment of Internal Controls 

This section sets out the requirement for public companies to include internal control reports alongside their financial reports. These internal control reports must include an assessment of the business’s internal controls and procedures. Section 404 also states that internal controls must be subject to an external SOX audit each year. 

Section 409: Real-time Issuer Disclosures 

This section outlines the requirement for real-time disclosures. In practice, this means that public businesses must inform the US Securities and Exchange Commission (SEC) of any significant changes to their financial position or operations as swiftly as possible. 

9 key steps in the SOX compliance checklist

SOX compliance is a major undertaking for public companies. Using this SOX compliance checklist, you can break down the process into key steps. By following these best practices, you’ll be on track for SOX compliance and accurate and transparent reporting.

1. Ensure data integrity and accuracy

SOX aims to improve the accuracy and integrity of financial reporting. For this to be achievable, you first need to ensure the integrity of your data. In other words, your data should be reliable, complete, and verifiable. To do this, we recommend:

• Reviewing financial statements, audit trails, and transaction logs to verify accuracy and completeness
• Putting measures in place to track suspicious activities and detect data tampering

2. Conduct a comprehensive SOX risk assessment

Another key step in SOX compliance is to identify any risks that could impact the accuracy and completeness of your financial reporting. Your risk assessment should:

• Assess financial materiality and security vulnerabilities
• Test internal controls to identify weak points
• Cover all relevant areas of your business

You can then use the outcomes of your risk assessment to define the scope of your SOX processes and optimize your internal controls. Because risks change over time, we recommend reviewing your risk assessment process regularly and adapting it to emerging issues. 

3. Automate key processes

We recommend automating your SOX compliance processes wherever possible. For example, audit software helps you spot issues as they occur. You can also automate risk assessment and testing. This enables you to address issues faster while saving you valuable time and resources. 

Then there’s the financial reporting process itself. Accounting software such as QuickBooks Online and Xero generates automated reports for you based on real-time financial data. 

At the same time, practice management software like TaxDome can automate your workflows, including all communication, task management, document management, and more. 

4. Implement data management best practices

To remain SOX compliant, your business must keep its financial data secure at all times. That means protecting it against unauthorized access, tampering, or loss. There are several data management best practices that you can implement to ensure the security of your data, including:

• Timestamping and encrypting financial data to prevent tampering
• Storing sensitive data in secure, remote locations
• Implementing role-based access controls to prevent unauthorized access
• Regularly backing up your data
• Having a robust disaster recovery plan in place
• Providing ongoing training on data management risks and best practices

5. Monitor access and activity

To ensure SOX compliance, you need to have complete visibility into who accesses your financial systems and what changes they make. By leveraging software with access controls, you can: 

• Track and document user activity
• Generate verifiable audit trails
• Set up real-time alerts for unauthorized access or suspicious activity

By regularly monitoring and reviewing your access logs and activity, you can identify any irregularities as they arise. At the same time, you instill a culture of accountability and transparency. 

6. Conduct regular testing and audits

The SOX Act requires public companies to undergo an external SOX audit each year. In addition to this requirement, we recommend performing internal audits at regular intervals. This process enables you to test the effectiveness of your internal controls and compliance measures — and use your findings to make improvements.

Audits and testing should take place in a controlled way, with auditors given permission-based access to relevant financial information and systems. You should also document any findings or changes you make. 

7. Train key personnel and promote awareness

SOX compliance is a team effort. To ensure your staff understand the role they play in meeting SOX compliance requirements, we recommend conducting regular compliance training. 

SOX training should cover areas such as your internal controls, key roles and responsibilities, and the importance of SOX compliance. Ideally, sessions will also be tailored to different roles or levels of seniority. This ensures that the information people receive is relevant. 

8. Prepare for incident management and reporting

Incidents can happen even with the most robust controls in place. With this in mind, you must have a clear plan for what to do in the event of a security breach or other SOX violations. 

Technology can help here. Using incident management software, you can automatically detect, log, and analyze security breaches. In addition, you must have processes in place to document: 

• Why an incident happened
• The steps you took to resolve it
• Any changes you’ve made to your internal controls as a result 

As with all things SOX, transparency is crucial. In the event of a breach or violation, you must inform the SEC and other key stakeholders promptly.

9. Maintain and update compliance practices

Compliance isn’t a one-time thing. It’s a process of continuously testing, reviewing, and improving your internal controls. You’ll need to adapt your approach in line with changes to your organization and personnel. At the same time, SOX regulations or industry standards may change to adapt to new risks.

We recommend scheduling regular reviews of your internal controls and compliance frameworks. This will help you identify areas for improvement and make any necessary changes. 

Tools and technologies for SOX compliance

Technology plays a central role in SOX compliance. With the right tools, you can take the manual strain out of compliance processes while ensuring greater accuracy and transparency. There are all sorts of tools designed to help you streamline different aspects of SOX compliance. Let’s look at some key examples.  

Enterprise risk management (ERM) software. Tools such as AuditBoard, Workiva, and Scrut Automation enable you to: 

• Plan and execute internal audits
• Perform real-time risk assessments
• Monitor and test internal controls
• Streamline access and permission management

Security information and event management (SIEM) software. Tools such as SolarWinds, Splunk, and IBM QRadar enable you to: 

• Gather audit-ready logs from different sources
• Detect and respond to threats in real time
• Ensure data integrity by monitoring data access, movement, and modifications

Financial reporting and accounting software. Tools such as Sage Intacct, QuickBooks, and Xero enable you to:

• Connect with banks for real-time access to financial data
• Generate automated financial reports 
• Provide audit trail logs of transactions and activity

Vendor and third-party compliance software. Tools such as UpGuard, SecurityScorecard, and BitSight enable you to:

• Understand vulnerabilities outside the scope of your organization
• Assess third-party vendors to ensure SOX compliance
• Send automated security questionnaires to gain a deeper understanding of vendor security

The tools above all focus on technical aspects of SOX compliance and financial reporting. In addition to that, you need to consider your day-to-day operational needs. 

How will you organize compliance work into manageable tasks? How will you empower your team through smooth collaboration? How will you integrate document management and client communication into your workflows? The answer is with comprehensive practice management software — like TaxDome.

TaxDome combines tools for managing teams, clients, projects, and documents — all on one award-winning platform. You can automate your compliance workflows, interact with clients via secure client portals, and delegate tasks to team members, without jumping between different apps.

The bottom line

SOX compliance is now a critical requirement for public companies and the accounting firms that audit them. By adhering to SOX standards, your business can avoid hefty fines and reputational damage. Moreover, you can ensure the accuracy and integrity of your financial reporting. The SOX compliance checklist we’ve provided in this article will help you in this mission. 

Without the right technology, SOX compliance can be highly complex. Thankfully, there are countless tools designed to streamline and automate your compliance efforts. In addition to SOX-specific software, you’ll need a system that keeps your team organized, your clients in the loop, and your documents and data secure. This is where TaxDome can help. 

TaxDome provides a single source of truth for your accounting and compliance workflows. It helps you get stuff done — faster, smarter, and more accurately than ever before. To see for yourself, request a demo today!