Coso

SOX Illustrated:
An Easy-To-Understand Guide to the SarbanesOxley Act

Bill Douglas
President Cost Advisors, Inc.

Editorial Director: Cost Advisors, Inc. Cover design: PlusTwoCollective Cover photo: Zeth Lorenzo/StockXchange.com Composition and production: Bill Douglas © 2007, 2008 by Cost Advisors, Inc. All rights reserved. Reproduction or translation of any part of this workwithout permission of the copyright owner is unlawful. Request for permission or further information should be addressed to Cost Advisors, Inc. 737 NW 92nd Place Suite 201, Portland, OR 97229 503.646.3500  sales@costadvisors.com This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that we arenot rendering legal, accounting, or other professional services. If expert assistance is required, Cost Advisors, Inc. consulting services are available by contacting us at the address, phone number, or e-mail address above.

Table of Contents
Acknowledgements .............................................................................................................. i Introduction........................................................................................................................ ii About the SOX Illustrated Book ........................................................................................ ii Chapter 1: A Review of Sarbanes-Oxley Rules from the SEC, COSO, and PCAOB ......... 1 Part 1: A Review of the Sarbanes-Oxley Act................................................................... 1 Part 2: SEC vs. PCAOB ................................................................................................ 13 Part 3: COSO ................................................................................................................ 16 Part 4: Gaps and Deficiencies....................................................................................... 22 Chapter 2: Project Scope, Schedule & Resources ........................................................... 40 Part 1: Documentation & Testing ................................................................................... 40 Part 2: Project Guiding Principles .................................................................................. 43 Part 3:Project Organization .......................................................................................... 45 Part 4: Project Team Staff .............................................................................................. 46 Part 5: Materiality .......................................................................................................... 50 Part 6: Documentation andTesting – Processes vs. Risks............................................ 54 Part 7: Hierarchy ........................................................................................................... 58 Part 8: Project Size........................................................................................................ 61 Part 9: Account Risk andAssertions.............................................................................. 66 Part 10: Process to GL Map .......................................................................................... 70 Part 11: Project Timeline ............................................................................................... 71 Chapter 3: Analysis of Risks and Controls....................................................................... 76 Part 1: Wedding Cake-Entity Level Controls ................................................................. 76 Part 2: Business Process Flowcharts ............................................................................ 84 Part 3: The Risk and Control Matrix – Assertions .......................................................... 86 Part 4: Controls...