The Sarbanes-Oxley Act (SOX) mandates businesses to safeguard sensitive financial data against unapproved access, and ensure secure data backup systems with no potential for tampering.
Publicly-traded companies must disclose any material cybersecurity risks and incidents to investors, which requires an internal control process with sufficient cyber expertise to reduce data breach frequencies while guaranteeing accurate financial reports to shareholders.
What is SOX Compliance?
The Sarbanes-Oxley Act, more commonly referred to as SOX, was passed in 2002 with regulations that require publicly-traded companies to maintain transparency in financial reporting and prevent fraud. Furthermore, SOX requires companies to implement and maintain security measures including regular auditing of IT systems within their organization.
These requirements can be especially difficult for IT departments, who must quickly and accurately identify any suspicious activity that could signal breach or fraud. One effective method for doing this is implementing systems to automatically detect and report on suspicious activities – including invalid login attempts, password resets and attempts at accessing privileged files.
SOX compliance requires companies to log and identify suspicious activities while also notifying authorities within four business days about any cybersecurity breaches or risks, with details including identification and mitigation strategies for risks identified as part of disclosures. Failing to do so can carry harsh penalties ranging up to $5 Million fines and 20 years imprisonment for noncompliance.
SOX Compliance Requirements
SOX compliance is a complex undertaking that requires close cooperation between IT and financial departments. A dedicated SOX software solution can ease both teams’ load by providing an in-depth view of cyber threats, access and other data security concerns that must be addressed.
As an example, it is crucial that companies can track all changes made to their IT environments (including adding or removing users) as well as verify that all critical assets are encrypted and protected. You also must implement real-time systems alerting you of any permission changes which might threaten access to sensitive financial data, and ensure employees follow the Principle of Least Privilege.
Submitting false reports or withholding data that makes their reports seem more accurate can incur considerable fines and imprisonment, so it is critical that your business implements effective IT controls and procedures to avoid data breaches and pass SOX audits.
Internal Control Report
The internal control report is one of the more involved SOX cyber security requirements, as its primary aim is to ensure only authorized individuals have access to sensitive financial data. This may require access controls such as biometrics or password policies as well as backup/recovery plans and record keeping of any changes that take place to the IT environment such as new employees joining, updated software being deployed etc.
Risk assessments are another critical element of internal control reports, as they ensure that those risks with the highest potential receive priority consideration and prevent weaknesses in systems from going undetected due to time or staffing constraints.
Additionally, a comprehensive data security policy must be communicated to all employees and implemented consistently across your organization in order to remain compliant with SOX regulations. This ensures that everyone understands security risks associated with financial records as well as company policies; furthermore it could prevent costly breaches or fines from regulatory bodies like SEC.
Data security policies
Effective data security policies require input from all parties involved. An institution might wish to have each department or user type develop its own policy guidelines that then serve as part of a larger formal policy that can be implemented companywide – this approach increases involvement and acceptance.
An information protection policy must address incident response and reporting procedures, outlining who handles breaches when they occur and how lessons learned are shared to avoid future incidents. Furthermore, this policy should state whether employees and contract workers can use personal mobile devices to access company resources.
An effective security policy requires zero-trust architectures, which enable every individual and device to be evaluated individually for risks and keep records of worst case scenarios. Cymulate’s assessment platform conducts on-demand simulations with instant results to easily establish and verify your organization’s security posture – an ideal solution for SOX compliance while mitigating risk and safeguarding sensitive information, potentially helping prevent costly fines from the SEC.
Proof of compliance
SOX compliance demonstrates a company has systems in place to safeguard financial information against unintended access, including physical measures like locking servers behind biometric doors and electronic controls like least privilege, permission audits and strong password policies. Furthermore, having a robust backup system minimizes the risk of data loss from cyberattacks.
SOX requires firms to regularly assess cybersecurity risks and disclose any incidents to investors as soon as they occur. To do this, businesses should implement effective security and data protection practices such as quality access management, preventative monitoring and redundancy/backup plans. Partnering with an IT firm specialized in cyberSOX may provide them with knowledge and systems necessary for complying with SOX disclosure controls and demonstrating maturity of SOX disclosure controls.
SOX compliance can help mitigate the risks associated with data breaches that threaten brand and investor trust, as well as enhance interdepartmental communication and strengthen overall security posture of your organization.
SOX Audits
SOX audits involve reviewing internal policies, monitoring IT systems and verifying that cyber security measures are in place. This may involve restricting access to financial data by placing servers and data centers in secure locations as well as using password management controls. It’s also crucial that systems exist for collecting cybersecurity event data as well as monitoring for breaches daily using alerts for anomalous activity or system logs that contain suspicious activities that include any attempts.
One of the key challenges associated with SOX compliance is demonstrating that IT controls are working. A PAM solution that offers real-time alerts following access changes for sensitive systems while adhering to least privilege is key for this endeavor, enabling you to keep an audit trail and spot any suspicious activities such as data tampering or hacking attempts as they happen. Furthermore, backup processes must be in place so reports detailing daily efficacy can be generated for select officials.
Benefits of SOX Compliance
Compliance with SOX not only ensures companies can adequately secure and audit financial data, but it can also reduce cyberattack risk. Businesses meeting SOX regulations are less likely to suffer devastating data breaches that damage brand reputation while costing millions in fines, lawsuits, lost revenue and missed growth opportunities.
SOX mandates that businesses establish internal systems to safeguard sensitive information, monitor potential threats, track change history and detect security weaknesses. This enables IT departments to develop effective internal controls for data protection as well as ensure transparency between financial personnel and IT staff.
However, to maximize these types of internal security measures, IT teams need to possess both expertise and tools necessary for effective implementation. Without such support, they may fail to accurately understand or report incidents that could have had a material effect on their business if left unreported. Software such as SIEM platforms may help provide this context and severity by correlating security system data and detecting anomalies.
Cyber Security and SOX Compliance
Cyberattacks can have catastrophic results for businesses and their shareholders alike, often being catastrophic in terms of reputation, revenue and shareholder value. Cybersecurity measures simply are not effective enough at fully protecting from cyber attacks; thus they must be addressed immediately in order to be prevented completely.
SOX was developed in 2002 to protect business stakeholders against fraud by increasing public disclosure of controls over financial reporting. It applies to all publicly held US companies as well as any that trade with the US.
5 Steps to Automating SOX Controls
Following the accounting scandals at Enron, WorldCom and Arthur Andersen that caused billions in shareholder and investor losses, Congressmen Paul Sarbanes and Michael Oxley combined compliance law into the Sarbanes-Oxley Act (SOX). SOX requires publicly held companies to implement internal control systems designed to protect sensitive financial data such as door scanners, badges and locked file cabinets that only authorized individuals have access to. Furthermore, segregation of duties should also be enforced while regularly rotating passwords to maintain least privilege access and audit permission changes are among requirements under SOX.
SOX also mandates back-up processes and off-site storage to protect data in the event of an attack, while all employees complete annual security awareness training courses and all departments share information on how they can report cyberattacks or suspicious activities.
New technology can assist teams by automating many of these processes, saving both time and money as well as decreasing human error risks. An investment in SOX automation may improve team collaboration across departments while streamlining both control test and evidence collection phases of an internal audit process.
1. Evaluate SOX Internal Controls and Assess Risk
To ensure cyber SOX compliance, you should make sure you have systems in place to gather and analyze system activity data in order to quickly detect any breaches or suspicious logins. Furthermore, installing time stamp tracking software will help ensure all security-related systems are being used as intended – something required by SOX compliance.
When creating SOX cybersecurity processes, it is imperative to abide by the COSO internal control framework’s guidelines and requirements. This framework comprises 17 principles organized into five subsections which must be strictly observed to ensure compliance with SOX 404.
As this framework is similar to NIST CSF, using these standards as benchmarks for cyber risk evaluation and mitigation is an excellent way to ensure an effective SOX program. By adhering to these guidelines, you can be assured that your internal controls meet the highest standards, protecting against expensive financial restatements. SOX compliance also benefits companies by strengthening corporate governance, increasing accountability, preventing fraud, improving financial reporting capabilities and providing easier access to capital markets.
2. Audit Changes that Impact Regulated Data
SOX regulations must be abided by all publicly held US companies and foreign firms that trade equity or debt securities in the US, as well as accounting firms auditing listed companies. Failure to do so may incur fines and even jail time for executives infringing upon these regulations, not only through fines and possible jail sentences but also due to potential loss of public stock listing or cancellation of D&O insurance policies.
SOX compliance can be an enormously onerous burden on IT departments and business leaders, necessitating an in-depth information security framework and active, transparent breach notification and disclosure processes – without which compliance could quickly turn into chaos.
Modern data security software helps your organization meet SOX requirements in several ways. For instance, data-centric IT security platforms automatically track changes to sensitive financial data, show which devices are running those policies and alert you of any rule violations or violations to company policy. It can also track permissions while protecting against breaches, insider threats and ransomware attacks.
An IT governance platform also helps you demonstrate compliance with SOX and other regulatory bodies such as ISO 27001 and COBIT, and achieve and maintain cybersecurity certifications such as CASB, CFAA, PCI, and FISMA.
3. Access Management and Elimination of Excessive
Access management is key when it comes to SOX compliance; companies must monitor and control access to their data while eliminating privileged accounts that don’t serve a legitimate business need.
Privileged account mismanagement is a serious threat, often stemming from insufficient monitoring and awareness. Password sharing, reused passwords and insufficient IT team oversight may all contribute to unmanaged accounts lingering on a network and vulnerable accounts that can be exploited to steal credentials and launch cyberattacks against your organization.
Privilege Access Management involves regularly switching firewall, application, database and operating system administrator passwords as part of the management of privilege access to reduce user error and isolate duties to reduce likelihood. You must record and audit privileged account changes while monitoring for privilege elevation or unauthorized access; in addition to verifying all users have only those privileges necessary. However, this task can be challenging without automated tools.
4. Implement an Automated Repeatable Audit Process
Establishing systems to monitor the daily effectiveness of security safeguards is vitally important. Your system must track who accesses or modifies data related to SOX provisions as well as any attempts made at breaching them; installing automated reporting capabilities as well as immediate alerting capabilities is necessary for maintaining compliance and meeting SOX provisions.
Ofttimes, these systems can be integrated seamlessly with existing SOX risk assessments, making integration with vendor risk management platforms or attack surface managers simple. With their assistance, these platforms ensure all teams work toward compliance while notifying all affected of any cybersecurity incidents that need addressing immediately.
SOX is an essential regulation for public and private companies alike that need to maintain high standards in financial reporting and disclosures. Compliant companies typically find greater ease accessing capital markets and being better able to manage any costly consequences of data breaches more easily; noncompliance could incur fines as well as removal from public stock exchange listings as well as cancellation of D&O insurance policies.
5. Enforce Separation of Duties and Enable Auditor
One of the primary challenges associated with SOX compliance implementation is ensuring all team members understand your company’s critical assets – systems which could have catastrophic effects if compromised and require a strong governance strategy to prevent reputational or financial loss.
Implementing separation of duties (SoD) is an integral component of SOX compliance that helps mitigate errors, abuse, fraud, theft or other acts that might take place as a result. By keeping every user and role from overseeing every step from start to finish, SoD helps minimize errors, abuse fraud theft or any other forms of misconduct that might take place during a transaction.
PAM solutions can assist SOX auditors in upholding SoD by providing visibility of system activity such as changes to databases, files, privilege structures and access failures such as invalid login attempts or failed attempts at retrieving privileged data – which may indicate potential illegal activity. It also allows audit of technical difficulties reported to your auditor so they are aware of any issues immediately and can take immediate steps against potential cyber attacks faster. Having such systems in place helps avoid overlooking security risks while helping auditors respond faster in response to cyber attacks.
Final Thoughts
Two decades ago, the Sarbanes-Oxley Act fundamentally transformed how businesses operated – especially in terms of transparency and financial reporting. Today’s rapidly digitalising world requires cybersecurity risks to be factored into SOX risk assessments; proposed regulations by the Securities and Exchange Commission (SEC) aim to limit cyberattacks while improving companywide risk management processes and increasing board accountability.
The SEC’s proposed new rules include mandating that companies report material cyber attacks and threats, expanding board oversight roles in cybersecurity practices, and offering whistleblower protection against retaliation. Companies should stay apprised of these constantly shifting rules to ensure they meet their obligations while protecting investors, customers, employees and suppliers.
Conducting a SOX audit is an effective way of gauging the strength of cyber security within any organization, and is one way of evaluating its efficacy. By identifying key areas needing improvement and filling any gaps identified as needed for further protection of sensitive data from being breached or exposed. Implementation of SOX compliance also increases communication between teams involved with assessment process as well as eliminating redundant testing costs – for more information regarding its implications on your business please reach out our team of experts.
