Marchetti Book Chapter 8: Ongoing Compliance Challenges

This set of vocabulary flashcards covers key terms, regulatory requirements, and organizational strategies discussed in the context of ongoing Sarbanes-Oxley (SOX) compliance challenges and optimization.

Section 404

A mandate requiring annual reports to include an internal control report and, for accelerated filers, an external auditor's attestation to management's assessment of internal controls.

Accelerated Filers

Large organizations for whom initial and year one compliance efforts often strained company resources while still leaving internal control issues.

Nonaccelerated Filers

Smaller organizations that have filed initial certifications more recently and are not required to submit an auditor attestation with their certification.

Inverted Pyramid Affect

A phenomenon created by the Sarbanes-Oxley Act (SOX) where most entity focus was directed toward compliance achievement, documents, and testing, while risk assessment and management were disregarded as an afterthought.

Tone at the Top

The ethical culture and integrity of an organization established and reinforced by senior leadership and executive management.

Enterprise Risk Management (ERM)

A comprehensive program involving the identification and assessment of risk, development of response strategies, and documentation of control activities.

Financial Close Process

A typically complex process involving high-risk activities performed in a short time period to provide information reported on financial statements.

Statement of Auditing Standards 70 Type II Letter

A document from a vendor that outlines the expectations and details of the vendor's control environment for an organization's outsourced functions.

Control Self-Assessment Questionnaire

An effective tool for addressing all relevant issues in the risk assessment process by interviewing key members of management and process owners.

Section 302 Compliance

A requirement that all future quarterly and annual financial reports include a certification executed by the chief executive office and the chief financial officer (CFO).

Business Performance Management (BPM)

A strategic initiative that, when combined with ERM, provides a complete view of past, present, and future performance to support rapid decision making.

Rightsizing

The adoption of tools and practices in year $3$ of compliance and beyond to facilitate sustainability through increased efficiency and streamlined business processes.

Control Testing

Procedures including inquiry, observation, inspection, performance of control activities, and examination of evidence to determine the operational effectiveness of internal controls.

Auditing Standard No. 2

A pronouncement from May $2005$ affirming that external auditors can rely on the work of independent third parties, such as internal auditors, if the testing is independent of management testing.

Business Continuity Plan

A formally approved and tested plan focused on the recovery of cross-functional business operations and resources in the event of a natural or man-made disaster.

Ongoing Compliance Cost Percentage

The estimate that between $40\%$ and $70\%$ of the cost of initial compliance is being spent by organizations on ongoing compliance.