04
Mon, Nov
1 New Articles

IT Coming of Age with New SOX Standards

Commentary
Typography
  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times

On June 17, 2004, the Public Company Accounting Oversight (PCAO) Board finally approved Auditing Standard No. 2, "An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements," which it had been considering since mid-March in response to the Sarbanes-Oxley Act of 2002 (SOX). As this new accounting standard is received within SOX-impacted companies, a small sigh of relief may be heard from many IT managers. Why? Because until the PCAO accepted the standard, IT felt like it was getting harassed by auditors to meet a variety of requirements that were often conflicting, confusing, and counterproductive.

The Section 404 Nightmare

At issue for these IT managers was Section 404 of SOX, which required that registered public accounting firms "attest to and report on an assessment of internal controls" made by the client's management. In other words, before a company could pass the financial audit, it had to prove to the auditing firm that its processes and controls on information systems were, in fact, adequate and accurate.

But, unfortunately for IT, this might include any information source that the auditors deemed important, whether the source was internal to the company or a part of the company's relationship with other organizations. This has been particularly confusing because, as supply chains and customer relationships became automated in the 1990s, control over those sources of information has been difficult for local IT to achieve. This was not only a security issue, but a content issue as well. How could IT verify the accuracy of information from a supplier or a distributor? What controls were auditors going to require?

Standards and the Lack of Them

Further complicating the problem was that there were no accepted standards for identifying what adequate and accurate controls for those information sources might be. Rules and auditor opinions were evolving quickly, and just keeping up with the latest requirements and proposed requirements was beyond the ken of most IT managers.

Meanwhile, deadlines for complying with SOX continue to loom (though extensions for meeting the Section 404 IT requirements have been extended until 2005), and software implementation schemes to exert control are dependent upon a clear understanding of what, exactly, is going to be required by the auditors.

SEC Approves PCAO Auditing Standard No. 2

On June 18, the Securities and Exchange Commission (SEC) approved the PCAO's Auditing Standard No. 2, laying the first firm basis from which auditors can now ask questions of IT and set control requirements. And though IT is still not out of the woods on compliance, at the very least it will start to receive clear messages from the auditors themselves.

IT Control Objectives Released

In addition, on July 4, the IT Governance Institute released its final document on the control objectives for SOX, entitled "IT Control Objectives for Sarbanes-Oxley: The Importance of IT in the Design, Implementation and Sustainability of Internal Control over Disclosure and Financial Reporting."

This report can now serve as both a guideline for IT managers and a legitimate wedge within corporations to keep IT involved in management decision-making. It is the first real IT roadmap that explains both the SOX IT requirements and the methodology by which new application software can be developed or implemented to comply with SOX.

The Management Bridge

This report is a perfect bridge between what upper management needs to know about their IT systems and what IT managers need to plan for to meet the needs of their CFOs. In addition, if you are a developer or IT administrator, the report will help you understand the framework by which the entire IT organization can be measured. It explains the philosophy behind SOX-compliant control of information systems and the means by which IT organizations can begin to exert their influence. I highly recommend that every IT employee--especially those in development--read this document. It will clear the air of SOX-compliance misinformation and explain the significance of what IT will be asked to do in the future.

Ongoing and Future Benefits for IT Organization

To be certain, SOX compliance is still a long, hard road for most IT organizations (a recent survey by Ziff Davis showed that only 37% of organizations were going to make the deadlines.) But, in the long run, IT will see a number of internal benefits that seemed a bit remote before SOX was written into law.

First of all, Section 404 of SOX stresses the importance of a centralized IT infrastructure that controls the sources of information by which the company does business. This requirement, in and of itself, will hike the visibility of IT in helping to determine the business processes it can support.

Secondly, as IT implements the auditing requirements, there will be opportunities to retire a lot of legacy systems and to finally structure many of the ad hoc user systems that grew topsy-turvy as companies automated in the late 1990s.

Finally, implementing the SOX auditing functions locally will require hands-on manpower--not only to install new systems of information, but also to monitor and control the growth of systems in an ongoing fashion. This will help stave off some of the momentum to outsource development because financial liability will require in-house accountability.

From IT to IS (Again!)

How much will this help IT in the long run? If SOX is successful, we can expect to see the resurrection of entire Information Systems departments and a scaling down of the reliance on simple Information Technology departments. Instead of simply implementing "information technology" in the form of more PCs and isolated empires of departmental servers, we'll once again be asked to implement entire "information systems" that are compliant with SEC and SOX rules and regulations.

That re-transformation of the our skills and services is something we haven't seen since Data Processing turned into Information Systems in the early 1980s. It may slow the development of new systems, but in the process it will help to re-establish in-house standards for SOX-compliant information resources.

Thomas M. Stockwell is Editor in Chief of MC Press Online, LP.

Thomas Stockwell

Thomas M. Stockwell is an independent IT analyst and writer. He is the former Editor in Chief of MC Press Online and Midrange Computing magazine and has over 20 years of experience as a programmer, systems engineer, IT director, industry analyst, author, speaker, consultant, and editor.  

 

Tom works from his home in the Napa Valley in California. He can be reached at ITincendiary.com.

 

 

BLOG COMMENTS POWERED BY DISQUS

LATEST COMMENTS

Support MC Press Online

$

Book Reviews

Resource Center

  • SB Profound WC 5536 Have you been wondering about Node.js? Our free Node.js Webinar Series takes you from total beginner to creating a fully-functional IBM i Node.js business application. You can find Part 1 here. In Part 2 of our free Node.js Webinar Series, Brian May teaches you the different tooling options available for writing code, debugging, and using Git for version control. Brian will briefly discuss the different tools available, and demonstrate his preferred setup for Node development on IBM i or any platform. Attend this webinar to learn:

  • SB Profound WP 5539More than ever, there is a demand for IT to deliver innovation. Your IBM i has been an essential part of your business operations for years. However, your organization may struggle to maintain the current system and implement new projects. The thousands of customers we've worked with and surveyed state that expectations regarding the digital footprint and vision of the company are not aligned with the current IT environment.

  • SB HelpSystems ROBOT Generic IBM announced the E1080 servers using the latest Power10 processor in September 2021. The most powerful processor from IBM to date, Power10 is designed to handle the demands of doing business in today’s high-tech atmosphere, including running cloud applications, supporting big data, and managing AI workloads. But what does Power10 mean for your data center? In this recorded webinar, IBMers Dan Sundt and Dylan Boday join IBM Power Champion Tom Huntington for a discussion on why Power10 technology is the right strategic investment if you run IBM i, AIX, or Linux. In this action-packed hour, Tom will share trends from the IBM i and AIX user communities while Dan and Dylan dive into the tech specs for key hardware, including:

  • Magic MarkTRY the one package that solves all your document design and printing challenges on all your platforms. Produce bar code labels, electronic forms, ad hoc reports, and RFID tags – without programming! MarkMagic is the only document design and print solution that combines report writing, WYSIWYG label and forms design, and conditional printing in one integrated product. Make sure your data survives when catastrophe hits. Request your trial now!  Request Now.

  • SB HelpSystems ROBOT GenericForms of ransomware has been around for over 30 years, and with more and more organizations suffering attacks each year, it continues to endure. What has made ransomware such a durable threat and what is the best way to combat it? In order to prevent ransomware, organizations must first understand how it works.

  • SB HelpSystems ROBOT GenericIT security is a top priority for businesses around the world, but most IBM i pros don’t know where to begin—and most cybersecurity experts don’t know IBM i. In this session, Robin Tatam explores the business impact of lax IBM i security, the top vulnerabilities putting IBM i at risk, and the steps you can take to protect your organization. If you’re looking to avoid unexpected downtime or corrupted data, you don’t want to miss this session.

  • SB HelpSystems ROBOT GenericCan you trust all of your users all of the time? A typical end user receives 16 malicious emails each month, but only 17 percent of these phishing campaigns are reported to IT. Once an attack is underway, most organizations won’t discover the breach until six months later. A staggering amount of damage can occur in that time. Despite these risks, 93 percent of organizations are leaving their IBM i systems vulnerable to cybercrime. In this on-demand webinar, IBM i security experts Robin Tatam and Sandi Moore will reveal:

  • FORTRA Disaster protection is vital to every business. Yet, it often consists of patched together procedures that are prone to error. From automatic backups to data encryption to media management, Robot automates the routine (yet often complex) tasks of iSeries backup and recovery, saving you time and money and making the process safer and more reliable. Automate your backups with the Robot Backup and Recovery Solution. Key features include:

  • FORTRAManaging messages on your IBM i can be more than a full-time job if you have to do it manually. Messages need a response and resources must be monitored—often over multiple systems and across platforms. How can you be sure you won’t miss important system events? Automate your message center with the Robot Message Management Solution. Key features include:

  • FORTRAThe thought of printing, distributing, and storing iSeries reports manually may reduce you to tears. Paper and labor costs associated with report generation can spiral out of control. Mountains of paper threaten to swamp your files. Robot automates report bursting, distribution, bundling, and archiving, and offers secure, selective online report viewing. Manage your reports with the Robot Report Management Solution. Key features include:

  • FORTRAFor over 30 years, Robot has been a leader in systems management for IBM i. With batch job creation and scheduling at its core, the Robot Job Scheduling Solution reduces the opportunity for human error and helps you maintain service levels, automating even the biggest, most complex runbooks. Manage your job schedule with the Robot Job Scheduling Solution. Key features include:

  • LANSA Business users want new applications now. Market and regulatory pressures require faster application updates and delivery into production. Your IBM i developers may be approaching retirement, and you see no sure way to fill their positions with experienced developers. In addition, you may be caught between maintaining your existing applications and the uncertainty of moving to something new.

  • LANSAWhen it comes to creating your business applications, there are hundreds of coding platforms and programming languages to choose from. These options range from very complex traditional programming languages to Low-Code platforms where sometimes no traditional coding experience is needed. Download our whitepaper, The Power of Writing Code in a Low-Code Solution, and:

  • LANSASupply Chain is becoming increasingly complex and unpredictable. From raw materials for manufacturing to food supply chains, the journey from source to production to delivery to consumers is marred with inefficiencies, manual processes, shortages, recalls, counterfeits, and scandals. In this webinar, we discuss how:

  • The MC Resource Centers bring you the widest selection of white papers, trial software, and on-demand webcasts for you to choose from. >> Review the list of White Papers, Trial Software or On-Demand Webcast at the MC Press Resource Center. >> Add the items to yru Cart and complet he checkout process and submit

  • Profound Logic Have you been wondering about Node.js? Our free Node.js Webinar Series takes you from total beginner to creating a fully-functional IBM i Node.js business application.

  • SB Profound WC 5536Join us for this hour-long webcast that will explore:

  • Fortra IT managers hoping to find new IBM i talent are discovering that the pool of experienced RPG programmers and operators or administrators with intimate knowledge of the operating system and the applications that run on it is small. This begs the question: How will you manage the platform that supports such a big part of your business? This guide offers strategies and software suggestions to help you plan IT staffing and resources and smooth the transition after your AS/400 talent retires. Read on to learn: