Article
The SOX compliance journey: Preparing for compliance
Jan 15, 2025 · Authored by Chad Miller, Mumta Taneja, Erin Clayville, Matt Reierson, Jim Schoppe
Successfully achieving Sarbanes-Oxley (SOX) 404 compliance is complex, challenging and can seem daunting. Many companies underestimate the necessary scope of documentation, evaluation and testing efforts, as well as staffing requirements.
Drawing on our experience assisting many organizations with their SOX 404 readiness efforts, we have prepared an example “SOX readiness roadmap,” which may be executed over a one-or two-year period, based on the needs of the organization.
Familiarize yourself with the SOX 404 compliance readiness basics below and download our guide for expanded insights, including a sample 12-month readiness roadmap.
SOX readiness
Maturing your organization and preparing for an initial public offering (IPO) requires many decisions, including decisions about your internal control structure and framework.
Consider the following as your company continues to grow, scale and take steps toward an IPO:
Embed culture
Establish organizational buy-in through c-suite leadership and nimble management
Start early and educate
Engage with key stakeholders, leverage investments in technology and prioritize the most material risks
Engage with third parties
Understand the holistic ecosystem of controls and engage with your external auditors
Learn, update and improve
Learn from others to avoid pitfalls, keep documents current and segregate duties
Key SOX activities and timeline
- Document company's significant business processes affecting financial reporting
- Identify risk, controls and areas of improvement in internal controls over financial reporting (ICFR)
- Make code of ethics and business conduct policy publicly available
- Establish "whistleblower" hotline
- Evaluate need for enhanced financial reporting function
- Implement a CEO/CFO certification process
- Implement a process to test internal controls and report on testing
- Remediate internal control gaps where necessary
- Management's assessment on internal controls over financial reporting
- Auditor's attestation and report on management’s assessment of internal controls over financial reporting
SOX compliance challenges
Become aware of the pitfalls to more successfully navigate toward success. In no particular order, the top 10 compliance issues include:
- Board and audit committee understanding of risk and control
- Effective controls over information technology (IT) environment including user access, segregation of duties and cybersecurity controls
- External financial reporting and disclosure preparation process
- Evaluation and testing of controls over outsourced processes
- Current, consistent, complete and documented IT and accounting policies and procedures, including internal controls documentation (e.g., narratives and/or flowcharts, risk and control matrices)
- Formal controls over the financial closing process
- Formal financial reporting and IT risk management program
- Adequate controls to record non-routine, complex and unusual transactions
- Understanding of IPE, key report, spreadsheet control and documentation requirements
- Effectively controlled post-merger integration
