A Sarbanes-Oxley Action Plan for Cloud Companies

ARTICLE - If complying with The Sarbanes-Oxley Act of 2002 (SOX) is a headache for your cloud company, you are not alone.

Cloud companies face unique challenges with it comes to SOX compliance due to the nature of their business. This article shows how best practices and technology can help cloud companies become SOX compliant.

What is Sarbanes-Oxley?

The Sarbanes-Oxley Act of 2002 was enacted in response to high-profile financial scandals that resulted in billions of dollars in losses for investors. The act requires companies to establish and maintain internal controls over financial reporting to ensure the accuracy of financial statements.

While the act applies to publicly traded companies, private companies that are considering going public may also need to comply with SOX.

SOX compliance challenges

Becoming SOX compliant can be a challenge for cloud companies for several reasons, including:

• Data security: Cloud companies must ensure that their customers' data is secure and protected against unauthorized access, breaches, or theft. SOX requires companies to maintain a high level of security and to monitor their systems for any vulnerabilities. However, the cloud infrastructure is shared between multiple customers, making it difficult to ensure that each customer's data is isolated and protected.
• Data location: SOX requires that financial data be stored in a secure location that is accessible only to authorized personnel. However, cloud companies often store data in multiple locations, which can make it difficult to ensure that all data is stored securely, and that unauthorized access is prevented.
• Audit trails: SOX requires companies to maintain detailed audit trails of all financial transactions. However, cloud companies often use complex, distributed systems, making it difficult to track transactions and ensure that they are properly recorded.
• Third-party vendors: Many cloud companies use third-party vendors to provide services such as infrastructure or software. SOX requires companies to ensure that their vendors are also compliant with the regulations. However, it can be difficult for cloud companies to verify that their vendors are complying with SOX.

The distributed nature of cloud infrastructure and the shared responsibility for security and compliance between the cloud provider and the customer can make it harder for cloud companies to become SOX compliant. But the right systems and processes can overcome these challenges.

How cloud companies can become SOX compliant

Here are some steps that cloud companies can take to become SOX compliant.

• Understand your obligations: The first step for cloud companies to comply with SOX is to understand what they need to do. SOX compliance requires companies to establish and maintain internal controls over financial reporting. This includes controls over financial statements, disclosures, and supporting documentation. Cloud companies should identify which of their services fall under the scope of SOX compliance and which do not.
• Assess existing controls: Once SOX requirements are identified, cloud companies should assess their existing controls. This includes reviewing policies and procedures related to financial reporting, access controls, and data security. The assessment should identify any gaps in the existing controls and identify areas where improvements are needed.
• Develop a SOX compliance program: Based on the assessment of their existing controls, cloud companies should develop a SOX compliance program that includes policies and procedures for financial reporting, access controls, and data security. The program should also include a plan for monitoring and testing the effectiveness of the controls.
• Assign responsibilities: Assigning responsibilities is a critical step in the SOX compliance process. Cloud companies should assign roles and responsibilities for the development, implementation, and monitoring of the SOX compliance program. This includes identifying a SOX compliance officer who will be responsible for overseeing the program.
• Train employees: SOX compliance requires the involvement of all employees in a company. Cloud companies should provide training to employees on the policies and procedures related to financial reporting, access controls, and data security. The training should also cover the consequences of noncompliance with SOX. Everyone needs to understand their role.
• Automate: Cloud companies can leverage technology solutions to help with SOX compliance. This includes implementing solutions that are native in NetSuite and provide access controls and data security measures, such as encryption, two-factor authentication, and role-based access. By using an ePayables solution that is native in NetSuite, a cloud company can be sure that all transactions are contained within NetSuite, and there are no outside applications. With a cloud-native solution, all configurations and backups also are stored in NetSuite. And the controls in cloud-native ePayables solutions can be customized for any business need. Cloud companies should also consider implementing an automated financial reporting system to help with the accuracy and timeliness of financial reporting.
• Monitor and test controls:The final step in the SOX compliance process is to monitor and test the effectiveness of the controls. Cloud companies should conduct regular testing to ensure that the controls are working as intended. This includes testing the accuracy of financial reporting and reviewing access logs to ensure that only authorized users are accessing sensitive data. Have a plan for adjusting processes based on test results.

These steps will help ensure that a cloud company complies with SOX.

Let’s discuss your needs

Becoming SOX compliant can be a complex process for cloud companies due to the nature of their business. However, by understanding what your company needs to do to become SOX compliant, assessing existing controls, developing a SOX compliance program, assigning responsibilities, training employees, implementing technology solutions, and monitoring and testing controls, cloud companies can become SOX compliant. Achieving SOX compliance is not only a legal requirement but also an opportunity for cloud companies to improve their internal controls and build trust with customers and investors.

Want to learn more about becoming SOX compliant. Contact iCloudAuthority to chat about your needs and learn how our automated solutions can help.