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Managing IT in the real world A Practical IT Approach To Sarbanes-Oxley Compliance
Managing IT in the real world
A Practical IT Approach To Sarbanes-Oxley Compliance
Managing IT in the real world
Ecora and Sarbanes-Oxley Compliance
Agenda • Sarbanes-Oxley -- What is It?• Some Definitions• Where are companies in compliance effort?• Why should I care?• Why a Framework?• COSO
– COSO IT Controls
– IT General Controls
• Example of compliance work with a customer• Summary
Managing IT in the real world
Sarbanes-Oxley – What is it?
Federal law that imposes strict new financial reporting requirements for publicly traded companies.
Places burden on management to devise safeguards around the financial reporting process
Specifically identifies IT as a key component of process and audit activity
Managing IT in the real world
Sarbanes-Oxley – Definitions
Section 302 – Quarterly and annual reporting – set up internal controls. CEO and CFO own it.
Section 404 – Management Assessment of Internal Controls
» Annual evaluation of internal controls» Quarterly filing of material changes to
internal controls» Independent audit of internal controls» Recognized control framework required for
assessment
Managing IT in the real world
Sarbanes-Oxley – Definitions
• PCAOB – Public Company Accounting Oversight Board – established to oversee audits…
• Audit Standard No. 2 -- 200 page document defines SOX auditing standards
• COSO -- Committee of Sponsoring Organizations of the Treadway Commission – Internal Control – Integrated Framework, PCAOB referenced framework
• CobIT – Control Objectives for Information and Related Technology – another well known framework
• Internal Control – A process designed….to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles…. (SEC Definition)
Managing IT in the real world
Sarbanes-Oxley – Definitions
• Internal Control (cont.) – Internal control is not “one-size-fits-all,” and the nature and extent of controls that are necessary depend, to a great extent, on the size and complexity of the company. PCAOB Auditing Standard No. 2
• Control Deficiency – exists when design or operation of a control does not allow management or employees …to prevent or detect misstatements on a timely basis.
• Significant Deficiency – control deficiency (or combination of CDs) that adversely affects company’s ability to initiate, authorize, record, process, or report external financial data reliably
• Material Weakness – significant deficiency (or combination of SDs) that results in more than remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected
Managing IT in the real world
Where are companies in the process?
Two Groups < $75M Market Cap – 11/15/04
64% Testing 34% Documentation 2% Reporting
> $75M Market Cap – 7/15/0560% Testing34% Documentation 3% Reporting 3% Planning
Ernst&Young 2004
Plan Document Test Report
Managing IT in the real world
Sarbanes-Oxley – Why should I care?
SOX is changing IT
– No more IT closed “black box”
– Auditors – with technical expertise -- are now looking closely at IT
– E&Y projects that next year IT portion of SOX audit will grow from 10% to 25%.
Managing IT in the real world
Sarbanes-Oxley – Why should I care?
IT an integral part of the financial reporting and control process
• Management’s heavy dependency on IT
» High degree of automation in processing day to day transactions
» IT data elements are the primary source of data used in decision-making
» IT availability / integrity critical to the financial statement close and reporting processes
Managing IT in the real world
Why a Framework?
1. SOX Mandate -- Assessment of effectiveness requires “..suitable, recognized control framework...”
• Must be identified in annual report• COSO is specifically referenced by PCAOB and forms
foundation of its Auditing Standard No. 2.
2. It makes sense• Provides structure
• Identifies functional areas of focus
Managing IT in the real world
Monitoring
Information and Communication
Control Activities
COSO Framework
A common sense approach to implementing internal controls
Risk Assessment
Control Environment
Managing IT in the real world
Control Activities
COSO IT Controls
COSO identifies two broad groupings of information system control activities.
Application Controls
General Controls
Application controls – apply to business processes and designed within applications to prevent/detect unauthorized transactions.
General Controls – apply to all information systems, support secure and continuous operation. They support all other controls
Managing IT in the real world
IT General Controls
IT general controls are foundation for all IT controlsSignificant Accounts in Financial Statements
Balance
Sheet
Income Stateme
nt
SCFP Notes Other
Business Processes/ Transaction ClassesProcess 1 Process 1 Process 1
Financial ApplicationsApplication X Application Y Application Z
IT Infrastructure ServicesDatabase
Operating System
Network
Application Controls
General Controls
Adapted from IT Control Objectives for Sarbanes-Oxley by the IT Governance Institute
Managing IT in the real world
IT General ControlsIT General Controls are IT processes and related controls that are generally applied to support the computer application level. However, they may be performed on a single platform or application.
IT general controls provide a focus for IT to identify, assess, and develop internal controls around defined areas of operation as they relate to financial controls
Tests for controls are specific activities or processes that demonstrate and document proof that the controls are real and in place.
Remember -- the whole point of SOX is financial reporting – the objective is to provide documented proof that IT systems associated with financial reporting are locked down.
Managing IT in the real world
Network Access
System (OS) Access to System
System (OS) Access to Data
Database Access
IT General Controls
Financial Reporting
Data
Your infrastructure figuratively surrounds you’re your financial reporting data. You need controls at each level.
Managing IT in the real world
How Ecora helps with IT General Controls
IT Infrastructure ServicesDatabase
Operating System
Network
General Controls
Ecora Auditor maps to IT general controls. We provide documented proof that you are complying with internal controls for IT systems that impact financial reporting.
Ecora Enterprise Auditor
Ecora Infrastructure Coverage
Operating System Windows, Solaris, HP-UX, AIX, Red Hat Linux, Novell
Network Cisco
Database MS-SQL, Oracle
Managing IT in the real world
Client Example
Database Internal ControlsInternal Control Test of Internal Control Ecora Report for Test
A process exists to review and confirm access rights.
Ensure each DBA has own account and no generic accounts used to bypass audit trail of DBA activity
DBA Accounts
Ensure appropriate Authentication Mode is configured
Authentication Mode
Ensure all logins have passwords and not default password
Login Password
Review role memberships and permissions to ensure appropriate access and privileges to databases
Role Permissions &
Memberships
Set file system privileges to prevent unauthorized access to database server data files, log files, and backup files
System Privileges
Ensure Verify Function exists and valid to ensure user passwords are validated and strong password criteria required
Verify Function
Managing IT in the real world
Client Example
Database Internal ControlsInternal Control Test of Internal Control Ecora Report for Test
Prove adequate password validation in place
Password Lifetime, Password Grace Period, Password Reuse Time, Failed Login Attempts, Password Lock Time
Appropriate controls exist to review and manage remote network access
Audit and review list of linked and remote servers
External Servers
Identify all public database links. Review and replace with private links as appropriate to restrict access to confidential data
Public Links
Managing IT in the real world
Database Internal ControlsInternal Control Test of Internal Control Ecora Report for Test
Controls exist to insure data is collected for tracking user activity
Set Initialization Parameters to provide security and ensure database auditing is active
Initialization Parameters
Enable audit events to provide audit trail of user activity
Auditing Enabled
Audit and review DB owner for each database
DB Owner
Enable Archive Log Mode to allow point in time recovery to ensure data not lost when recovering
Archive Log Mode
Client Example
Managing IT in the real world
OS Internal ControlsInternal Control Test for Internal Control Ecora Report for Test
A control process exists to review and confirm access OS rights.
Audit and review user privileges on each system
User Privileges
Audit and review system access permissions to sensitive files
NTFS Permissions
Ensure systems configured to restrict anonymous remote access to your systems.
Remote Access
Select sample of terminated employees and determine if their access has been removed
User Access
Client Example
Managing IT in the real world
OS Internal Controls
Internal Control Test for Internal Control Ecora Report for Test
Procedures for protection against malicious programs are in place through the use of anti-virus and other software and measures
Ensure systems are updated with appropriate service packs and hotfixes
Patch Levels
Ensure anti-virus software installed on systems
Computer without Ant-virus Installed
Client Example
Managing IT in the real world
OS Internal ControlsInternal Control Test for Internal Control Ecora Report for Test
Procedures exist to maintain effectiveness of authentication and access mechanisms
Ensure built-in local administrator account is renamed
Built-in Admin Renamed
Ensure strong password and account lockout policies are implemented.
Password Policy
Ensure all services are configured appropriately and that only required services are running to protect system from unauthorized access
Services Summary
Audit and review list of local administrators to ensure only appropriate accounts have full admin privileges
Admins Group Report
If using SNMP ensure appropriate Community String(s) defined to prevent unauthorized users from obtaining systems status information
SNMP
Client Example
Managing IT in the real world
OS Internal ControlsInternal Control
Test for Internal Control Ecora Report for Test
IT administration insures appropriate audit mechanisms are in place to allow detail event tracking
Ensure strong audit policy configured to ensure audit trail of events is recorded to provide audit trail of user activity (e.g. account login events, policy change, object access, process tracking, etc..)
Audit Policy
Ensure event log setting are configured to retain recorded events for appropriate time and prevent guest access to logs
Event Log
Client Example
Managing IT in the real world
Summary
Sarbanes-Oxley is here to stay – annual and quarterly
Internal controls defined by each company
IT will bear an increasing burden of SOX compliance
Framework can be guide
IT general controls are foundation of all controls
Sustainability is requirement
Automation tools will make your job easier
Managing IT in the real world
And now a word from our sponsor…
• Enterprise Auditor automates the collection of configuration data from the major infrastructure applications, databases, OSs, and network components and delivers audit ready reports.
• Ecora’s Enterprise Auditor forms the foundation for Sarbanes-Oxley IT internal controls. It gives you a platform for, and proof of compliance with IT internal controls.
• Solution Express combines Enterprises Auditor and an Ecora Systems Engineer (no-charge) to get your IT Sarbanes-Oxley compliance effort on a fast track.
Ecora Software, Inc. and Enterprise Auditor
