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:
- Chart of accounts management
- Journal entry creation and approval (important to have the person approving journal entries be separate from the person creating them)
- Accruals
- Account reconciliations and analysis
- Budget-to-actual analysis (or budget-vs-actual)
- Intercompany transactions, consolidation
- Financial statement preparation
- SEC reporting
- 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:
- 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).
- 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.
- 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.
