How to Write a SOX Compliant Risk Assessment

When it comes to compliance, you can’t afford any mistakes. This article will teach you how to write a SOX compliant risk assessment that will satisfy regulators and keep your company out of trouble. You’ll learn about the purpose and importance of an assessment, what information should be included in one, and how to draft a SOX-compliant risk assessment plan for your organization. Once you learn, you’ll be able to automate SOX compliance for your organization.

Purpose and Importance of an Assessment

The purpose of a risk assessment is to identify areas within your organization that are at high risk for fraud. This includes identifying the people who have access to sensitive information, what systems might be vulnerable and how they can be compromised, and any other issues or factors that increase the likelihood of financial crimes such as embezzlement, bribery, money laundering, etc.

Risk assessments also help you figure out which controls will provide the best protection against these risks so you can establish an effective compliance program across all departments in your company.

What Should Information be Included in One?

When drafting a plan for your risk assessment, you should consider the following:

  • What are the risks of financial crimes within my organization, and how can they be mitigated?
  • How do these threats impact our business objectives? What is at stake if we don’t take action to reduce or eliminate them?
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Before You Draft

Now that you know what goes into an effective SOX compliant risk assessment document, there are some things you need to keep in mind before writing it up.  Be sure to follow these steps closely, so your audit doesn’t turn into a disaster. 

  • Ensure all related parties understand their responsibilities throughout the process, including collecting data on potential risks, drafting the assessment report based on that data, presenting it to company management for review, etc.  It’s important that every department is properly represented throughout this process, or you risk losing your chance at regulatory compliance.
  • Be sure to treat all information as confidential during the entire assessment. This includes not only sensitive material related to financial crimes but also any other internal processes used by key business units within your organization (i.e., R&D) because if word of those gets out, competitors could exploit them to gain an edge on the market which would be devastating for long term success.
  • Make sure everyone follows each step outlined in the plan without skipping ahead or leaving anything out so you can trust that their contributions are valid.

Drafting a SOX Compliant Risk Assessment Plan for Your Organization

There are two main components of an effective risk assessment plan that you need to follow:  the process itself and the documentation involved in each step along the way. The following steps will walk you through how to do both effectively, but first, make sure everyone knows their role within this process before starting. That means having all parties sign off on responsibilities, including who is responsible for data collection/analysis, drafting reports, etc. Otherwise, your audit can turn into a disaster quickly.

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Once everyone has signed off on these roles and understood them completely, there are five simple steps to take when drafting a document like this: 

  • Develop criteria throughout the entire assessment based on company-specific risks.
  • Create a timeline for the assessment itself with deadlines, milestones, and deliverables clearly outlined.
  • Use appropriate data collection methods to evaluate each risk area identified throughout this process, including the use of questionnaires, interviews, etc.  Ensure that all parties involved are being equally represented in these efforts, or you may have biased results, which will impact your ability to effectively draft an accurate report later on down the line resulting in penalties against your company.
  • Conduct analysis based on collected information from step three above, identifying areas at high risk along with specific recommendations to mitigate those risks moving forward, so they don’t reoccur within your organization again in the future. This is also where you establish measures (i.e., policies, procedures, etc.) you will implement to help achieve compliance with SOX.
  • Document your entire assessment process along with results and recommendations in an easy-to-follow report for executive management. It may present it to the board of directors, audit committee, or other governing bodies depending on the size/industry of the organization once complete. This makes everyone aware of potential risks within the company and steps being taken to protect against them moving forward, which can increase overall financial performance & success.

These simple steps should be followed every time a risk assessment like this needs to take place throughout your organization, no matter what industry you’re in or how large you are. It creates a clear roadmap that anyone involved understands completely and knows where they stand at all times while also ensuring everyone’s voices are being heard and that they’re represented equally throughout the process.

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