10-Step SOX Compliance Checklist for Tech Companies

Imagine this: you are the CEO or the CFO of a rapidly growing startup or tech company. 

Cheered on by your investors, you’re building fast, evolving constantly, and months away from going public.

This is the dream for many startup founders and C-level executives. But then, as you work with your auditors preparing for your all-important initial public offering (IPO), they flag a major SOX reporting issue you didn’t know existed.

This is more than a headache. It’s the kind of issue that can torpedo your startup’s reputation and delay or even prevent a company from going public.

Sarbanes-Oxley (SOX): Legislation From a Different Era

The challenge is that Sarbanes-Oxley (SOX) was written in 2002, a completely different era of business.

Today’s finance teams are lean, tech-forward, and managing complex stacks of cloud systems and third-party tools. SOX makes CEOs and CFOs personally responsible for the financial reporting tools and systems their companies have. This is often a major burden for growing companies, and it’s a burden that often falls on finance teams already working with limited time and resources. This is especially true for companies who must manage SaaS sales tax and tax remittance.

In this guide, we’ll provide a clear, modern, SOX compliance checklist for companies operating in the modern era. If you are a CEO or CFO at a startup or growing company, this article gives you practical steps. You can use these steps to build a SOX-compliant financial control system while your company grows quickly.

Why SOX Compliance Still Trips Up Growing Finance Teams

Of all the things your finance team wants to be doing in a growing startup, SOX compliance is probably not high on the list. 

For this reason, it’s all too easy for growing companies to put off building SOX control systems in favor of more growth-related activities.

The Hidden Complexity Behind Internal Controls

Being SOX compliant means it’s not enough to have accurate financial statements.

SOX compliance means companies must show they have effective systems. These systems ensure financial reports are accurate. They also handle documentation, security controls, audit trails, and governance.

For tech companies, this complexity compounds quickly. Financial data that used to be managed by a team of accountants now flows through highly-automated ERP systems, billing platforms, payroll tools, reporting software, and data warehouses.

Each platform has its own risk, especially when access to company-wide systems (such as your ERP) isn’t tightly controlled.

This “move fast and break things” mentality may serve a startup well in the early days of its growth. But as a company moves toward an IPO, the need for SOX-compliant, audit-ready reporting increases dramatically. 

Mistakes That Lead to Non-Compliance

SOX failures most often come from operational gaps rather than a lack of intent. Common SOX failures include:

• Weak documentation
• Poor audit trails
• Human error
• Insufficient change management
• Unauthorized access

Each of these failures can lead to criminal penalties against the company, the CEO, or the CFO. They also risk damaging investor trust and may lower IPO valuations as a result.

The 10-Point SOX Compliance Checklist for Finance Teams

If your company needs to build SOX-compliant systems, this 10-point checklist will help you get started.

1. Conduct a Comprehensive Risk Assessment

As a first step, start by identifying where you have risk. 

Have your finance team identify and evaluate financial, operational, and IT risks that could impact your financial statements. Look for risk that might be related to:

• Revenue recognition
• Expenses
• Financial close processes
• Systems access
• Data integrity

Use your assessment of internal controls to document which systems and business units are in scope for SOX. This documentation will become the basis for your SOX program moving forward.

2. Establish Internal Controls Over Financial Reporting (ICFR)

Once you’ve identified what’s in scope, the second step is to establish internal controls over your financial reporting, often referred to as ICFR. This step will put you in alignment with SOX Section 404.

Your ICFR will define all your financial reporting processes and map controls to each process. These will include documentation for:

• Journal entries
• Reconciliations
• Revenue recognition
• Financial close

You will also document controls for your IT systems, including:

• Systems access
• Authentication
• System changes

These steps are critical for companies preparing to go public. The goal is to create systems that are well-designed, well-documented, and effective enough that they can be audited regularly without issue.

3. Document All Policies, Controls, and Procedures

After you’ve defined your procedures, take the time to create clear documentation.

This will include process narratives, flowcharts, and control descriptions for each financial and IT system that’s in scope for SOX compliance. Ensure you also have a process in place to record change logs and timestamps.

Build your SOX system so that it can be examined regularly by external auditors. Auditors will expect to see evidence that controls were designed correctly and followed consistently. 

4. Implement Role-Based Access Controls and Segregation of Duties

Unauthorized access is a common SOX failure in audit findings.

If your IT systems don’t have role-based access controls, put those in place as soon as possible. Then restrict your financial system access to only those who need it. No individual should be able to initiate, approve, and record the same transaction.

After you set up role-based access control and segregation of duties, assign someone to monitor access. This person should watch for unauthorized access or tampering.

5. Manage IT Change Controls Effectively

Does your company frequently change its tech stack, especially third-party, cloud-based SaaS systems?

If so, you’re not alone. Many tech companies frequently change IT providers, adding, subtracting, and integrating data streams as they work to grow fast while staying lean.

While that’s great for business, every new system introduces SOX risk.

As much as the other areas of your company may dislike it, your finance and IT functions must demand all technology changes follow SOX-related change management procedures.

Doing so will align with IT general controls (ITGC) guidance and ensure system changes are tested and do not affect financial data integrity. 

6. Monitor and Maintain Real-Time Audit Trails

Next, lock in a clear process for tracking what happens inside your systems.

Think of your systems like a security camera for your financial data. They record who logged into what system, what they changed, and when they did it. If someone edits a number or updates a setting, the system should create a clear record.

Store these logs in a safe place and ensure they’re automatically backed up. Auditors rely on these logs to test controls, identify problems, and confirm compliance.

Real-time audit trails are also incredibly useful when something goes wrong.

If you have a data breach, for example, instead of guessing or having to rely on interviews with the people involved, you’ll be able to start by reviewing a log of exactly what happened. 

Just having automated logging in place helps keep everyone accountable, which eliminates a lot of problems before they start. 

7. Conduct Regular Internal Audits and Control Testing

Pull out your calendar and pre-schedule quarterly or twice-a-year tests of your SOX systems.

Your goal with a control test is to confirm your systems are working as intended prior to an audit. To do this, use walkthroughs, sampling, and control rationalization techniques to see how your controls perform in real situations.

Check how your controls are designed and how they’re operating on a daily basis. 

Could an auditor see every activity related to a transaction or a journal entry if needed? Could they see who accessed your systems, when, and what they changed? 

Document the results of these tests and track them throughout the year so you can spot trends and fix issues before the real auditors begin their work. 

8. Remediate Control Deficiencies Promptly

As you develop and test your internal control systems, you’re certain to find SOX deficiencies from time to time.

When you find a problem, act to resolve it quickly. Start by classifying the severity of the deficiency (e.g., significant deficiency vs. material weakness). Then create documented remediation plans with ownership, deliverables, and clear expectations for what needs to be done and by when.

Make these remediation plans a high priority for your team. If you get pushback, remind your team about the potential impact of non-compliance on the public reputation of the company (e.g. possible lower IPO valuation, lower stock prices, etc.)

After your team has completed a remediation plan, retest the system to ensure you’ve fixed the issue. 

9. Coordinate with External Auditors

Auditors must be independent from your company, but that doesn’t mean you can’t engage them early as you build your SOX system. 

Instead, work with your auditing team early and often. Ask them what they need you to have in place, then make sure you’re giving it to them.

Share ICFR documentation, control test results, and proof of fixes before auditors ask for them. Make sure you’re ready to provide real-time financial data. And be ready to provide details about the whistleblower processes required in SOX Sections 302 and 906.

10. Certify and Report Financial Controls Annually

The final step in this checklist is to create a process for an annual management report detailing your internal controls. Every year, you and your team should prepare this report, which details everything you have in place related to SOX. 

Then have the CEO and CFO sign the report to confirm the numbers are accurate and the controls in place are doing their job.

These signatures carry real legal weight under SOX, so treat them seriously. Follow SEC and PCAOB (Public Company Accounting Oversight Board) requirements and double-check your work to make sure the controls you’re certifying will hold up to an auditor’s scrutiny. 

What Are the Core SOX Compliance Requirements?

The full Sarbanes-Oxley Act is 66 pages, a relatively short piece of legislation. Despite its brief length, its sections imposed vast new reporting requirements on publicly traded companies. 

Sections That Matter Most

For our purposes, here are the SOX sections that matter most when setting up financial control systems. These sections play a direct role in how company executives and finance leaders manage risk, reporting, and accountability. 

Section 302: Corporate responsibility for financial reports

Section 302 puts accountability at the top. 

The CEO and CFO must review financial reports and personally certify that they are accurate. They also confirm that internal controls exist and have disclosed any known issues. 

In short, leadership owns the numbers.

Section 404: Internal control reporting

Section 404 requires companies to design, document, and test internal controls over financial reporting. Management must prove that these controls work as intended, and external auditors must review the results.

This section often requires the most time, testing, and documentation to ensure compliance. Most of the items from the checklist above are designed to create systems that are compliant with this section.

Section 409: Real-time issuer disclosures

Section 409 requires that when something important changes, companies must disclose those changes quickly. For example, if a major system failure or control breakdown happens, the company must disclose those events in a timely manner. 

The goal of this section is to ensure financial disclosures inform investors of any incident management that may impact the current and future value of the company.

Section 802 and 906: Criminal penalties and accuracy certifications

Sections 802 and 906 add real consequences.

They set penalties for actions such as destroying or falsifying records, and they require executives to personally certify that financial statements are accurate. If it is found that leaders knowingly signed off on false information, they could face serious legal action, including both fines and imprisonment. 

Stakeholders and Oversight

SOX compliance requires a corporate governance team, and every team member has a role to play.

CEO and CFO

The CEO and CFO are at the top of the list. They must review financial reports, sign them, and take personal responsibility for both the accuracy of the numbers and the strength of the company’s control systems.

Board-level audit committee

Many companies form an audit committee, a group of board members who oversee financial reporting, risk management, and internal controls. Their job is to ask the difficult questions to ensure company executives are making SOX compliance a priority.

Public Company Accounting Oversight Board (PCAOB)

For public companies, the Public Company Accounting Oversight Board (PCAOB) sets the rules auditors must follow. It also decides how external audits work and checks that accounting firms do their jobs correctly.

Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) is the enforcement agency that oversees compliance with SOX. It reviews filings, investigates issues, and steps in when companies fail to meet SOX requirements. 

SOX Compliance Audits: What to Expect

SOX audits will probably always feel intimidating, but if you’ve built strong control systems, they don’t have to be painful. And when you know what auditors care about and prepare ahead of time, audits can become far more manageable.

What Internal and External Auditors Look For

Auditors want to see proof that your controls are effective in real situations, not just in your documentation.

They will dig into your financial records, user access logs, change logs, and evidence of remediation of past issues. Auditors pay close attention to audit trails, especially who made changes and when those changes were made.

This is why building quarterly or twice-annual control testing is so crucial to a SOX-compliance system. When teams skip documentation or fail to test their systems, auditors take notice.

This often leads to more questions, more testing, and longer, more painful audit cycles. 

How to Prepare for and Pass Audits

Preparing for audits should be an ongoing process within your organization. A few best practices include:

• Keep all compliance documentation in one place so teams can find what they need quickly. 
• Schedule your internal control structure tests so they happen prior to audits.
• Keep your SOX evidence current at all times rather than scrambling to gather documentation at the last minute.

For many of your systems, automated reporting tools can do a lot of the work for you, creating real-time logs of what’s happening. The more you automate the SOX documentation process, the less manual data gathering your team will have to complete prior to an audit.

SOX Considerations for Startups and Pre-IPO Tech Companies

As we said in the introduction, modern tech companies don’t run like the businesses Sarbanes-Oxley was written to regulate.

This creates a variety of unique challenges for startups and pre-IPO tech companies.

Scaling Challenges Unique to Tech

Tech companies grow fast, and they change fast. 

The modern idea of cloud computing barely existed when Sarbanes-Oxley was passed in 2002. Today, most tech companies run their entire business using cloud technology. 

Tech companies add tools, update software, and shift responsibilities often as org charts grow and evolve. The third-party, cloud-based systems they use change just as quickly, with most running continuous release cycles instead of the quarterly or annual updates, which were common just a short decade ago.

Continuous integration pipelines are getting faster. Continuous development pipelines are also getting faster. This makes it harder to create SOX-compliant systems for data security, change management, and systems control.

Finance and IT teams in public and pre-IPO companies must find ways to lock down access, manage permissions closely, and keep cybersecurity tight, even as systems scale. 

These control systems aren’t “nice-to-haves” for public companies or those preparing for an IPO. SOX regulations require it.

IPO Prep and Investor Scrutiny

If your company is preparing for an IPO, be ready for a major increase in scrutiny. 

Auditors will expect much stronger documentation, deeper testing, and clean audit results prior to an S-1 filing. 

Many companies experience significant growing pains in this phase of their IPO preparation. You’ll almost certainly have to restrict employees from accessing as much data as they had in the past, and you’ll likely have to build all-new reporting and logging systems to become SOX compliant.

The work is worth it.

Strong SOX readiness sends a clear signal to investors that your company runs with discipline and takes its financial reporting seriously. 

That confidence can make a real difference when markets start paying attention.

How Sphere Helps Streamline SOX Compliance

At Sphere, we work closely with companies in all phases of their growth cycle—including private, public, and soon-to-be public companies. 

While we don’t automate every area of SOX compliance, Sphere helps companies automate indirect tax compliance, a major piece of SOX compliance. This includes international tax compliance software and payroll tax compliance software, among other features we offer.

Because of this, we’ve worked hard to build a platform that automatically creates audit trails for financial transactions, manages system access, and provides reporting in real time.

By automating busywork, Sphere helps you reduce the time you spend doing manual work in spreadsheets. We’re also specifically built to support finance teams managing global compliance.

Ready to simplify SaaS sales tax compliance?

Schedule a demo with Sphere today.

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Make SOX Readiness a Competitive Advantage

As a final thought, SOX compliance does more than keep regulators and auditors happy.

It builds trust with everyone who matters to your business, including current and future investors.

When your numbers are accurate, your control systems work, and your documentation stays current and clean, investors and partners feel confident. And regulators see a company that takes its responsibilities seriously.

We doubt SOX compliance will ever be called “fun.” But SOX compliance can become a competitive advantage. 

For tech companies, the right systems and tools often make all the difference. Automation, smart access controls, and clear change management processes can turn SOX from a constant headache into a manageable routine. 

For startups and growing companies specifically, SOX readiness sends a clear message that you have a mature company that’s ready to scale. It also reduces audit risk, supports global expansion, and helps private companies move to public markets with confidence.

If your company is on its way toward an IPO, do the work today to ensure you have everything in place to be SOX compliant as soon as possible.

By doing so, you’ll send a clear signal to every future investor that you can be trusted from day one of your public offering.