Everyone’s Been HackedEveryone’s Been HackedNow What?Now What?

OakRidge

What happened?

Other Hacks

What 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 Realities

What data needs to be and what does NOT need to be on the network

How should data be transmitted?

The effect of IT controlson financial reporting

Grant, Miller & Alali (2008)

The effect of IT controlson financial reporting

Grant, 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

SOX

PCAOB AS #5

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?

SOX 404

404 (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

COSO & IT

General IT Controls

Ensure proper operations

Application IT Controls

Ensure proper functioning of software

Processing of transactions

Storage of Data

Findings

IT 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)

SOX 404 Reported Internal Control Weaknesses: A Test of COSO Framework Components and Information

TechnologyKlamm and Watson (2009)

Overview

Examined 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 MWs

What is your assessment of the IT MW’s?

COSO Components

Control 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.

Findings

Weak 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)

Information Security and Sarbanes-Oxley Compliance: An Exploratory StudyWallace, Lin, and Cefaratti (2011)

SOX 302

What 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 404

Assess Effectiveness of Internal Control

No Prescribed Framework

Section 409

Issuers are required to disclose to the public, on an urgent basis, information on material changes in their financial condition or operations.

Section 802

all audit or review papers must be maintained for a period of 5 years

How are audit/review papers maintained in 2012?

Frameworks

COSO

Model for controlling and managing Internal Control

COBIT

IT Governance / NOT IT Security Specifically

What needs Controls

ISO

Specific IT Security Controls

How To

ISO

1. 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

Findings

What 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 Common

Protecting 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?

Training

Auditors 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 lens

Stoel & Muhanna (2011)

IT internal control weaknesses and firm performance: An organizational liability lens

Stoel & Muhanna (2011)

Internal Control

SEC 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 Controls

Pertain 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?

Overview

What 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?