Everyone’s Been HackedNow What?
OakRidgeWhat happened?
Other HacksWhat other hacks were mentioned?
We know about HB Gary
So.....Kaminsky says, “No one knows how to make a secure network right now.
Do you know if you’ve been hacked?
According to Richard Bejtlich, chief security officer for computer security firm Mandiant, which has helped Google and many other companies conduct forensics and clean up their networks after an attack, the average cyberespionage attack goes on for 458 days, well over a year, before a company discovers it’s been hacked.
So if hackers are everywhere and everyone has been hacked, what’s a company to do?
New RealitiesWhat data needs to be and what does NOT need to be on the network
How should data be transmitted?
Sarbanes OxleyInformation Technology Weaknesses
Background QuestionsWhat is SOX?
How/Why did it come about? What are SOX requirements?
Which if any rely on or are related to IT controls?
The effect of IT controls on financial reportingGrant, Miller & Alali (2008)
What Standards does paper use for support? How are these standards used? What do they say (not
say) about IT controls? SAS 94
“The nature and character of an entity’s use of technology in its information system affects the entity’s overall internal control structure”
SOX PCAOB AS #5
SOX 302What are the requirements?
The signing officers have reviewed the report
The report does not contain any material untrue statements or material omission or be considered misleading
The financial statements and related information fairly present the financial condition and the results in all material respects
The signing officers are responsible for internal controls and have evaluated these internal controls within the previous ninety days and have reported on their findings
A list of all deficiencies in the internal controls and information on any fraud that involves employees who are involved with internal activities
Any significant changes in internal controls or related factors that could have a negative impact on the internal controls
SOX 404404 (a)
Management statement of responsibility over Internal Controls &
Assessment of Internal Controls
404 (b)
Auditors must attest and report on managements assessment
Report Material Weaknesses in Internal Control and Remediation Plan
What are/define MW’s?
Most Companies use COSO as Internal Control Framework
Section 409Issuers are required to disclose to the public, on an urgent basis, information on material changes in their financial condition or operations.
Section 802all audit or review papers must be maintained for a period of 5 years
How are audit/review papers maintained in 2012?
What IT deficiencies did the paper look at?IT deficiencies include controls related to
software programs program implementations segregation of duties associated with access to
computer accounting or financial reporting records problems with access to electronic data and programs
What other controls might be important for accounting/auditing?
Why weren’t they investigated?
COSO & ITGeneral IT Controls
Ensure proper operations
Application IT ControlsEnsure proper functioning of softwareProcessing of transactionsStorage of Data
FindingsIT Deficiency ranked 6th among all MWs (20% so 1 in 5)
IT Deficiency -> Internal Control deficiency
IT Deficiency -> accounting errors (Why?)
revenue recognition
receivables, investments, and cash issues
inventory, vendor, and cost of sales issues
financial statement, footnote, US GAAP, and segment disclosures issues
IT Deficiency -> Higher Audit Fees
SOX 404 Reported Internal Control Weaknesses: A Test of COSO Framework Components and Information TechnologyKlamm and Watson (2009)
OverviewExamined IT and non-IT Controls Material Weaknesses with respect to COSO Components
Material Weaknesses were mapped to a specific COSO component
IT Vs. non-IT MWsWhat is your assessment of the IT MW’s?
COSO ComponentsControl environment
Foundation
Sets tone of the firm
integrity, ethical values, competence, philosophy, and operating style of the firm’s managers and employees
Risk assessment
identification, analysis, and management of (operating, economic, industry, regulatory) risks that may prevent a firm from achieving its objectives
Management implements control activities
segregation of duties, approvals, reviews, reconciliations, and authorizations
Information & Communication
timely capture and dissemination of pertinent information on internal and external events
communication among and between management, employees, suppliers, and customers
Monitoring
continual evaluation of the other components’ effectiveness.
FindingsWeak Control Environment is related to other weaknesses in COSO components
Weak Monitoring is related to weak risk assessment and control activities
Financial Statement reliability is affected by the number of weak COSO components
IT related MW’s are associated with a greater amount of non-IT related MW’s
IT related MW’s are related with:
More misstatements
Greater overall number of MWs
Information Security and Sarbanes-Oxley Compliance: An Exploratory StudyWallace, Lin, and Cefaratti (2011)
FrameworksCOSO
Model for controlling and managing Internal Control
COBIT
IT Governance / NOT IT Security Specifically
What needs Controls
ISO
Specific IT Security Controls
How To
ISO1. Security Policy
2. Organizational Security
3. Asset Classification and Control
4. Personnel Security
5. Physical and Environmental Security
6. Communications and Operations Management
7. Access Control
8. Systems Development and Maintenance
9. Business Continuity Management
10.Compliance
In all there are 124 recommended IT controls
What did the research find?
FindingsWhat is the Extent that ISO controls are in place?
Most Common:Controls such as deploying antivirus software and authenticating remote users accessing the network
Least CommonProtecting equipment from unauthorized access and tracking the location of removable computer media
“Not Sure” ResponsesCPA’s selected “not sure” more frequently than non-CPA’s
CISA’s selected “not sure” less frequently than non-CISA’s
Certified Information Systems Auditor
What Is ISO Category 8? 9?
TrainingAuditors with IT Training
35 more controls were likely to be implemented
IT employees participate in SOX Compliance
55 more controls were likely to be implemented
IT personnel received SOX compliance training
65 more controls were likely to be implemented
IT internal control weaknesses and firm performance: An organizational liability lensStoel & Muhanna (2011)
Internal ControlSEC definition:
policies and procedures for the recording of transactions and maintenance of financial records
Since modern enterprises are heavily dependent on integrated computer- based systems
“internal control over financial reporting” process regulated by the SEC must include controls over the accounting and management process as well as over the organizational IT infrastructure and systems.
Statement of Auditing Standards No. 94 (SAS 94) affirmed that the nature and characteristics of a company's use of information technology affect the company's internal control over financial reporting and requiring auditors to consider information technology as an integral part of overall internal controls (AICPA 2001).
Therefore, SOX requires review of Accounting Internal Control as well as IT controls
IT ControlsPertain specifically to IT systems, processes and infrastructure
used to capture, process and record raw transactional data corresponding to economic events
as well as support the preparation of financial reports
Encompass the management, operational, and technical safeguards or countermeasures prescribed for the firm's information systems to protect the
Confidentiality
Integrity
Availability
of those systems and their information
What framework does this definition come from?
When examining a companies IC – which framework do companies use? Which are prescribed?
What does PCAOB AS #2 say about IT controls?
OverviewWhat is the business value of IT Controls?
What is the relationship between IT Quality and ROA?
IT Control MW’s -> Lower ROA (Why?)What were the ROA for the 3 segments examined in this study?
The consequences of Internal Control Weaknesses on Management Information Systems: The Case of SOX Internal Control Reports
Li, Peters, Richardson, Watson, 2012
What do the researchers assert?Quality of financial reporting system output.
In what form? What can impact quality?
IT ControlsHow are these determined?How are they coded?How did the authors categorize them?
1. Data Processing Integrity2. Systems Access and Security3. System Structure and Usage
FindingsWhat did they find?
A content Analysis of auditors reports on IT internal control weaknesses... (Boritz, Hayes, and Lim, 2013)
What is this about?Why did they do it?
What did they find?Are any of these categories correlated with each
other? If so what might be an explanation?
What didn’t they find?Or what keywords might you expect that didn’t turn
up or turned up infrequently?What might this mean?Can it be fixed?
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