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5 Considerations for Starting Your SOX Program on the Right Foot for 2023

As public real estate entities with a calendar year-end close the chapter on 2022, it is helpful to reflect on the challenges you may have seen throughout this past audit process.  Any audit is a demand on time and resources; for a company that has gaps within its internal controls, that demand on time is amplified. For the last several years, the most common areas in which companies and independent auditors have cited material weaknesses in internal controls over financial reporting include information technology general controls, controls over accounting estimates and judgments, controls over the completeness and accuracy of spreadsheets and reports that impact the financial statements, and controls over complex financial transactions. As the regulatory environment becomes tighter, real estate entities should be asking themselves and reflecting on the following questions:

1. Have you had either a material weakness or significant deficiency in internal control during this current year, or an unremediated material weakness or significant deficiency in internal control from the prior year?
2. Are you a smaller reporting company with limited resources to formally document your processes and controls, or do you have a set of processes and controls, but need assistance with enhancing and/or organizing your documentation?
3. Are you a newly formed private real estate entity with aspirations of going public pursuant to Regulation A, through a Form 10 filing, or via Form S-11, and need to put a risk assessment program in place?
4. Does your organization outsource the IT function and ticketing to a third party, and are the individuals with your organization responsible for the SOX process unfamiliar with the technical requirements for maintaining appropriate Information Technology General Controls (ITGC)?
5. Has a key process owner for a significant business process left your organization, leaving a gap in either initiating, processing, or recording of transactions?

We’re cognizant that all public filers with calendar year ends will be focused on their first quarter 2023 10-Q flings.  However, if the answer to any of these questions is “YES,” your real estate entity may need assistance.  Whether you are an accelerated filer or a smaller reporting company, Sarbanes-Oxley requires the principal executive and financial officers to certify in their quarterly and annual filings:

• That disclosure controls and procedures are properly designed and operating effectively
• Whether or not any material changes to internal controls over financial reporting occurred and what that change was if it occurred
• That they informed the audit committee and independent auditors of any:
  • Significant deficiencies and/or material weaknesses in internal controls over financial reporting
  • Fraud involving management or other employees

If a company does not have the appropriate systems and processes in place to adequately comply with the above certifications, this can often lead to increased risks for both the principal executive and financial officers as well as the company’s board of directors.

As you reflect on the challenges faced during your 2022 audits, the observations your auditors raised, and how a helping hand may provide that extra assistance needed, start 2023 on the right foot to see how Centri can support you. Contact us to learn more.