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Sarbanes-Oxley (SOX) Act

Ensure your cybersecurity controls meet SOX requirements to protect your financial data and maintain transparency. Continuously validate the effectiveness of your security posture to stay compliant and mitigate risks.

Sarbanes-Oxley (SOX) Act

 

What is the Sarbanes-Oxley (SOX) Act?

The Sarbanes-Oxley Act (SOX), enacted in 2002, was introduced to protect investors by improving the accuracy and reliability of corporate financial disclosures following major corporate scandals. Its goal was to restore trust in financial markets through stronger accountability.
SOX establishes strict requirements for financial reporting and internal controls over financial reporting. Meeting these requirements depends heavily on IT and cybersecurity controls that protect financial systems, enforce access restrictions, and provide evidence that these controls operate effectively in practice.

Stay SOX-compliant and secure your financial data with continuous validation

Why SOX Compliance is Important

SOX compliance requires more than meeting regulatory obligations. Public companies must demonstrate that internal controls over financial reporting operate effectively to protect the integrity of financial systems and data and to surface issues that could impact financial disclosures.

SOX compliance goes beyond documenting policies or deploying security tools. Organizations must be able to prove, with defensible evidence, that controls remain effective as systems and threats change. This requirement for ongoing control assurance makes security validation a critical component of SOX compliance.

Here’s how SOX compliance helps organizations achieve these goals:

  • Safeguards against fraudulent activities

  • Strengthens cybersecurity practices through rigorous audits

  • Enhances corporate governance and accountability

  • Builds trust with investors and stakeholders 

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Benefits of Security Validation for SOX Compliance

Picus Security helps financial institutions continuously test the effectiveness of controls required by SOX, ensuring regulatory compliance while minimizing the risk of financial misreporting and fraud.

Ensure Financial Data Integrity

Continuously validate security controls that protect financial reporting systems from unauthorized access, misuse, and data manipulation that could lead to fraud or errors.

Strengthen Internal Controls and Cybersecurity

Regularly simulate cyberattacks to ensure that security measures protecting sensitive financial information are functioning as intended.

Automate SOX Control Testing

Move from periodic testing to continuous validation, ensuring that your financial data is secure year-round, not just during audits.

Enhance Audit Readiness

Generate automated validation reports that demonstrate the effectiveness of security controls supporting SOX compliance and audit reviews.

 

What SOX Compliance Requires

SOX establishes clear standards for financial reporting and the protection of financial data. Its various sections define specific requirements organizations must meet to achieve and maintain compliance.

Section 404:

Internal Controls Over Financial Reporting (ICFR)

SOX Section 404 requires organizations to establish, maintain, and assess the effectiveness of internal controls over financial reporting. Management must formally attest that these controls operate effectively, and external auditors must independently validate that assessment. The focus of this section is not only whether controls exist, but whether they reliably protect the integrity of financial reporting systems.

How Picus helps to Address the Gap:

Picus validates the effectiveness of security controls that support ICFR by safely emulating real attack techniques targeting financial systems, identities, and data flows. This allows organizations to move beyond documented control design and demonstrate, with evidence, that controls preventing unauthorized access, misuse, or data manipulation actually work in practice.

 

Section 302:

Corporate Responsibility for Financial Reports

SOX Section 302 requires CEOs and CFOs to personally certify the accuracy of financial reports and the effectiveness of internal controls. This certification is based on management’s evaluation of control performance and their ability to disclose deficiencies, weaknesses, or fraud that could impact financial reporting.

How Picus Helps to Address the Gap:

Picus provides objective evidence that security controls protecting financial reporting systems operate effectively at the time of certification. By continuously validating control performance against realistic attack scenarios, Picus strengthens the factual basis executives rely on when evaluating and certifying internal controls.

 

Section 103:

Auditing, Quality Control, and Standards

SOX Section 103 establishes standards for audit quality and requires auditors to evaluate internal controls using reliable and supportable evidence. Auditors must be able to assess not only control design, but also how controls perform in real operating conditions.

How Picus Helps to Address the Gap:

Picus produces repeatable, time-bound validation evidence that auditors can use to support conclusions about security control effectiveness. This strengthens audit quality by reducing reliance on manual walkthroughs and inferred assumptions about control performance.

 

Section 401:

Disclosures in Periodic Reports

SOX Section 401 focuses on the accuracy and completeness of financial disclosures, including material adjustments and off-balance sheet transactions. These disclosures depend on the integrity of the systems generating financial data.

How Picus Helps to Address the Gap:

Picus helps protect the reliability of financial disclosures by validating that security controls prevent unauthorized access or manipulation of financial reporting systems. This reduces the risk that undisclosed control failures compromise the accuracy of reported financial information.

 

Section 409:

Real-Time Issuer Disclosures

SOX Section 409 requires organizations to disclose material changes in financial condition or operations on a rapid basis. Timely disclosure depends on the ability to detect incidents or control failures that could materially affect financial reporting.

How Picus Helps to Address the Gap:

Picus validates detection and response controls to ensure that suspicious activity affecting financial systems would be identified in a timely manner. This strengthens an organization’s ability to recognize events that may trigger disclosure obligations.

 

Section 802:

Criminal Penalties for Altering Documents

SOX Section 802 addresses the integrity and retention of records by imposing penalties for the alteration, destruction, or concealment of financial and audit records. Compliance depends on effective controls that restrict access and detect unauthorized changes to electronic records.

How Picus Helps to Address the Gap:

Picus validates the security controls that protect financial records and audit artifacts from unauthorized access or tampering. By testing controls against realistic attacker behaviors, organizations can assess whether record integrity safeguards function as intended.

Reduce SOX Compliance Risk with BAS and Automated Penetration Testing

Breach and Attack Simulation (BAS) and Automated Penetration Testing (APT) play a crucial role in closing the gap between compliance requirements on paper and actual protection in practice.

Picus helps organizations strengthen their SOX compliance posture by enabling them to:

  • Simulate and validate security controls to ensure financial data is protected from unauthorized access and breaches.

  • Continuously assess control effectiveness with simulation-based testing, mimicking real-world cyberattacks to identify vulnerabilities that could impact financial reporting.

  • Automate penetration testing to validate cybersecurity controls against potential threats like ransomware, phishing, and data exfiltration. This is critical for safeguarding sensitive financial information.

  • Identify and prioritize security gaps across hybrid infrastructures, ensuring compliance with SOX requirements while strengthening audit readiness.

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Frequently Asked Questions

SOX compliance refers to adhering to the Sarbanes-Oxley Act of 2002, a U.S. federal law designed to protect investors from fraudulent financial reporting by corporations. It mandates strict reforms to improve financial transparency, internal controls, and the accuracy of corporate disclosures. Organizations must establish and maintain robust internal controls to ensure financial data integrity and safeguard against potential fraud.

Publicly traded companies in the United States are required to comply with SOX. This includes all U.S.-based companies and foreign companies with publicly traded securities in the U.S. market. SOX compliance also applies to subsidiaries and financial institutions that fall under these categories, as well as accounting firms and auditors involved in public company audits.

SOX compliance involves multiple key requirements, including:

  • Section 404: Requires companies to establish, document, and test their internal controls over financial reporting.

  • Section 302: Mandates CEO and CFO certification of financial reports to confirm their accuracy.

  • Section 409: Requires timely disclosures of material changes in financial conditions.

  • Section 802: Imposes penalties for the destruction or falsification of records.

Organizations must also ensure that their data protection, financial reporting, and audit trails are secure and verifiable, with internal processes for handling risks related to financial misstatements.

The benefits of SOX compliance extend beyond regulatory adherence:

  • Improved financial reporting: Ensures accuracy and transparency in financial disclosures.

  • Enhanced internal controls: Reduces the risk of fraud and errors in financial reporting.

  • Increased investor confidence: Builds trust by demonstrating commitment to ethical business practices.

  • Stronger cybersecurity: SOX drives the protection of sensitive financial data through robust security measures.

By following SOX requirements, companies mitigate the risks of financial misreporting, improve corporate governance, and reduce potential legal liabilities.

The 4 key SOX controls typically include:

  1. Segregation of Duties: Ensures that no single individual is responsible for all aspects of a financial transaction.

  2. Authorization Controls: Ensures that transactions are authorized by the appropriate personnel before they occur.

  3. Access Controls: Limits access to financial data to only those who need it to perform their job functions.

  4. Reconciliations and Documentation: Ensures all financial transactions are fully documented and reconciled regularly.

These controls help organizations prevent fraudulent activities and ensure that financial reports are accurate and reliable.

No, SOX compliance primarily applies to publicly traded companies. However, certain provisions and requirements can also extend to private companies in specific cases, especially if they are considering going public or have publicly traded subsidiaries. Additionally, companies that are required to comply with SEC (Securities and Exchange Commission) regulations may also be affected by SOX-like requirements, particularly regarding financial reporting and internal controls.

To implement SOX compliance, follow these key steps:

  1. Conduct a risk assessment: Identify areas where internal controls over financial reporting may be vulnerable to fraud or misstatements.

  2. Design and implement internal controls: Develop policies and procedures to manage risks related to financial data, such as segregation of duties, access controls, and regular reconciliations.

  3. Conduct regular testing: Test internal controls regularly to ensure their effectiveness and compliance with SOX standards.

  4. Incorporate continuous monitoring: Utilize tools like Breach and Attack Simulation (BAS) and Automated Penetration Testing (APT) to continuously assess and improve security controls.

  5. Train and document: Ensure that all employees are trained on SOX compliance and maintain proper documentation for auditing purposes.

By following these steps and leveraging the right tools, companies can maintain strong SOX compliance and mitigate the risks associated with non-compliance.