What is SOX Section 404 & Who Needs To Comply?

What is SOX Section 404 & Who Needs To Comply?

SOX Section 404 (Sarbanes-Oxley Act Section 404) mandates that all publicly-traded companies must establish internal controls and procedures for financial reporting and must document, test and maintain those controls and procedures to ensure their effectiveness. They must also secure financial information and take adequate steps to ward off theft or corruption of data. The company employees must have proper access rights to deter fraud or misrepresentation of financial data. The purpose of SOX is to reduce the possibilities of corporate fraud by increasing the stringency of procedures and requirements for financial reporting. Key benefits of improved internal control over financial reporting include:

  • Improved effectiveness and efficiency of internal control processes
  • Better information for investors
  • Enhanced investor confidence

What are the implications of the Sarbanes-Oxley Act Section 404?

Section 404 of the Sarbanes-Oxley Act poses significant challenges for corporate boards and management, including:

 

  • The need to devote significant time and resources to ensure compliance
  • The need for management to evaluate and report annually on the effectiveness of internal control over financial reporting
  • The requirement for external auditors to opine on management’s assessment of the effectiveness of its internal control over financial reporting
  • The need to assess the implications of reporting this new information to the marketplace
  • The need for board of director and audit committee oversight of management’s process, findings, and remediation efforts as management scopes and executes its Section 404 plan

How does LuitBiz DMS & QMS help you become SOX Section 404 compliant?

Rule

What it means

How LuitBiz DMS & QMS helps

Access Controls

Access must be controlled to protected financial data via means like unique user-rolls and user-based permissions. All points of access to data, (database, file, folder, etc.), must be appropriately restricted to only provide access to those that are permitted.

All documents and records are access controlled. Access in controlled at the folder level and users without access to a particular folder cannot even know about the existence of that folder in the system.

Auditing & Logging

Audit controls monitor activity on software systems that contain protected information. The ability to monitor logon and logoff activity, file access, updates, edits, and any security incidents are the main features required for compliance.

LuitBiz DMS & QMS maintains complete audit trail of documents and quality forms of who has done what on the document and when and maintains a detailed log of all the activities performed on each document.

Integrity

Ensuring the integrity of the financial data is the goal, so software should provide evidence that data has not been modified or altered.

All documents and records in LuitBiz DMS & QMS are encrypted using AES-256 algorithm and can be easily monitored by persons with the right privileges to do so ensuring complete integrity of all the documents.

Confidentiality

Confidential information cannot be exposed to unauthorized entities. Features like Encryption and Decryption, Automatic User Logoff, and Unique User Login and Passwords help ensure compliance is easily met.

In LuitBiz DMS & QMS, documents and data are stored in encrypted folders. All users need the right combination of user name and password to access the system and the system automatically logs off users after a certain period of inactivity.

Availability

Since authorized individuals must be provided access to financial data, considerations for compliance with this requirement go beyond the ability of software alone. Physical safeguards like data backups and facility security are considerations that must be applied to meet compliance.

LuitBiz DMS & QMS are hosted in secured servers in EU / USA / Australia / Singapore where data is constantly backed up to ensure availability and meet compliance requirements.

Change Management

The U.S. Securities and Exchange Commission, (or SEC), must be notified of any material changes to the process that governs the flow of financial data. Software that features System Event Logging can make this process exponentially easier by providing a reliable and tamper-resistant way to provide data to the SEC.

LuitBiz DMS allows the admin to send notifications to the supervising authorities in SEC about events pertaining to the flow of financial documents.

LuitBiz QMS allows designated users to request for changes in documents about events pertaining to the flow of financial documents.

Workflow

Companies have to assess whether their processes for working with financial data are established, documented and structured properly to contain controls against risk.

The workflow feature of LuitBiz DMS & QMS ensures that only those people can route documents and forms that are authorized, so that financial data is secured against risks. Furthermore, document approval also has password protected electronic signature ensuring that the right person has approved the documents.

Shared Repository

In companies with multiple locations and divisions, they have to ensure that their filing has a consistent approach.

LuitBiz DMS & QMS offers shared repository for multiple geographical locations. Whether your offices are in New York or London, everyone follows similar format of file creation, etc.