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Financial Statement Close and Reporting process – recommended activities for SOX 404 readiness

Financial Statement Close and Reporting process – recommended activities for SOX 404 readiness

Financial Close and Reporting - SOX 404 Readiness What internal control or SOX 404 readiness activities are recommended or required for the financial statement reporting close process of a company preparing for an IPO or public company readiness?

Sub-processes include:

  1. Chart of accounts management
  2. Journal entry creation and approval (important to have the person approving journal entries be separate from the person creating them)
  3. Accruals
  4. Account reconciliations and analysis
  5. Budget-to-actual analysis (or budget-vs-actual)
  6. Intercompany transactions, consolidation
  7. Financial statement preparation
  8. SEC reporting
  9. System administration and SOC1 Type 2 report review
 
Recommended Scope of Work for Each Process:
 
  • Assess control gaps (interviews)
  • Document process and controls (narrative or flowchart)
  • Create Risk Control Matrix
  • Conduct walk-through (test of design or TOD)
  • Perform testing (test of effectiveness – time permitting)
 
Notes:
 
  1. Most external auditors now require flowcharts instead of narratives to document processes and controls. Flowcharts with separate swim lanes allow you to easily see proper segregation of duties (or not).
  2. Concentrate your focus and resources on designing controls, training process owners, and doing a walk-through to make sure the controls are performed accurately and timely.  If time allows, then perform testing.
  3. The walk-through is a hands-on way to assess the control gaps that might only be found through an actual example. The walk-through lets you refine your process and evaluate your actual risks as you tailor your controls to suit your needs.
Check out our video on YouTube for more information.