SOX (Sarbanes-Oxley) Compliance Interview Questions and Answers!

General SOX Compliance and Governance

1. What is SOX compliance?

SOX compliance requires public companies to enforce policies and procedures that ensure reliable financial reporting, integrity in internal controls, and transparency in governance. This involves regular audits, managerial certification, and detailed documentation to prevent fraud and protect investors.

2. Why was SOX enacted?

The U.S. Congress passed SOX after high-profile scandals like Enron and WorldCom. These events exposed widespread financial manipulation, loss of investor assets, and deep erosion of trust in corporate reporting, highlighting the need for robust reforms.

3. What is Section 404 of SOX?

Section 404 obligates management and external auditors to assess, test, and certify the effectiveness of internal controls over financial reporting, with annual disclosures in SEC filings.

4. Who regulates SOX auditors?

The Public Company Accounting Oversight Board (PCAOB) was created by SOX to register, supervise, and discipline firms conducting audits for public companies, ensuring audit quality and independence.

5. What are management’s SOX responsibilities?

Executives must certify the accuracy of financial statements, design/control systems for reliable reporting, identify/report deficiencies, and lead remediation efforts as needed.

6. What are the consequences of SOX non-compliance?

Non-compliance can result in heavy fines, criminal prosecution (including jail for executives), lawsuits, market delisting, and loss of stakeholder confidence.

7. What are SOX internal controls?

These controls protect against errors and fraud in financial reporting. They include policies, procedures, IT system safeguards, physical checks, authorizations, reconciliations, and independent reviews.

8. How does the COSO framework relate to SOX?

COSO is the primary model for establishing internal controls, dividing them into five components and 17 principles. SOX references COSO for structuring, documenting, and evaluating controls, especially for Section 404 compliance.

9. Case Study:

After failing a SOX Section 404 audit, a retail company found weak controls in purchase order approvals. It instituted segregation of duties and implemented purchase approval thresholds. In the next audit cycle, no deficiencies were found, restoring investor confidence.

Control Activities & Test of Controls (TOC)

10. What is a Test of Controls (TOC)?

A TOC evaluates whether a control operates as intended—methods include sample testing, review of documentation, walk-throughs, and staff interviews.

11. Example of a preventive SOX control:

User access reviews in payroll systems: HR grants access only after receiving documented management approval, reducing unauthorized pay changes.

12. Example of a detective SOX control:

Monthly bank reconciliation—finance team compares bank statements with cash records to catch unrecorded/unauthorized transactions.

13. How are key controls tested?

Sample key transactions, review documentation, observe processes, review system logs, and interview process owners.

14. What is a key control?

A control specifically designed to address significant risks. For example, requiring a controller to review and approve all journal entries above INR 500,000 helps prevent large misstatements.

15. What if a key control fails during TOC?

The failure is reported. The auditor evaluates potential financial impact, tests compensating controls, and management must remediate and retest before sign-off.

16. Journal entry control failure case:

IT detected changes in posted journal entries without required approval in Q2. The company implemented a system lock requiring dual approval and added exception monitoring, which resolved the weakness before year-end.

17. What is a SOX control deficiency?

When a control does not operate as intended or is missing, increasing the chance of error or fraud. Deficiencies may be less severe (significant) or raise the risk of a material weakness.

18. Define material weakness:

A deficiency (or group) significant enough that a material misstatement might occur and not be detected or corrected promptly. Often requires public disclosure.

19. What is remediation in SOX?

Management corrects the root cause of a deficiency—e.g., redesigning process steps, training staff, or upgrading systems—then auditors retest for effectiveness.

Risk, RCM, and Process

21. What is a Risk Control Matrix (RCM)?

An RCM is a table mapping key business processes, risks, controls, and associated testing methods/ownership—facilitates documentation and auditability.

22. How do you create an RCM?

Identify all process steps, define potential risks for each, list the controls mitigating those risks, assign control owners, and specify test procedures (e.g., for payroll: risk = overpayment; control = dual approval).

23. SOX and IT controls:

SOX covers IT General Controls (user access, program change management), ensuring only authorized activity affects financial data. E.g., restricting access to financial applications, tracking changes to finance-related code.

24. Case—RCM in payroll:

Risk: Unauthorized adjustments to salaries.
Controls: Access limited to HR, dual approval of changes, periodic audit of changes.
TOC: Check samples of payroll change logs for evidence of dual approval.

25. Importance of segregation of duties (SoD):

Ensures that no individual has end-to-end control over a process, reducing the risk of fraud. E.g., the person processing vendor payments cannot also approve them.

The Master Blaster of SOX compliances course by CA Tushar Makkar offers a comprehensive guide for understanding processes, conducting walkthroughs, performing RCM and control testing, discussing observations with clients, and preparing documentation to ensure readiness for a SOX compliance/ ICFR role. This course provides practical insights, real-world case studies, and a recognized certificate to enhance your expertise in financial reporting and compliance.

26. How is risk assessment performed in SOX context?

Review process objectives, identify possible misstatements or fraud types, assess risk likelihood/impact, prioritize, then design and implement controls for the most significant risks.

27. How does risk drive control testing?

Higher inherent risk in a process (like revenue recognition) demands more rigorous and frequent testing than low-risk areas (like petty cash).

28. Preventive vs. detective control in expenses:

Preventive: Expense submission requires pre-approval and policy compliance (e.g., travel limits).
Detective: Post-payment reviews/analysis to spot out-of-policy claims.

29. How are SOX controls documented?

In process narratives, flowcharts, and RCMs—each control lists objectives, owner, frequency, documentation, and link to related risks.

30. Case—RCM after acquisition:

After buying a startup, a tech firm updated its RCM to include new risks (legacy system access, duplicate payees), instituted new controls, and tested these in quarterly reviews.

Walkthroughs, Sampling, and Audit Procedures

31. What is a SOX walkthrough?

Step-by-step tracing of a sample transaction—from initiation to reporting—verifying each control point and documentation.

32. How are samples determined for TOC?

Select sample size and frequency based on transaction volume, risk rating, and control frequency; can use statistical or judgmental sampling.

33. Handling exceptions in walkthroughs:

The issue is documented, risk and root cause evaluated, tested for compensating controls, and management is alerted with recommendations for corrective action.

34. Example: Order to Cash walkthrough:

Select a random sales invoice. Verify order approval, shipment, invoicing, and receipt of payment, ensuring different staff handled creation, approval, and collection stages.

35. What are entity-level controls?

Controls that apply company-wide: Code of ethics, whistleblower policies, and senior management oversight.

36. Entity-level vs. process-level controls:

Entity-level are broad (e.g., holding monthly review meetings); process-level are specific (e.g., matching invoice to purchase order and receipt).

37. What is a compensating control?

An additional control that reduces risk where a primary control is missing or inadequate. For example, if only one person approves expenses, an independent monthly review can compensate.

38. How should SOX audit findings be addressed?

Assess severity, involve process owners, develop and implement a remediation plan, and ensure the fix is tested and documented.

39. Automated vs. manual controls—testing approaches:

Automated: Review system configuration, logic, and exception reports.
Manual: Inspect sample documents for manager signoff, date stamps, and supporting evidence.

40. Reporting control failures:

Document the control, deficiency, and potential impact. Communicate findings with recommendations to management and, if significant, to the audit committee.

COSO Framework and Principles

41. What are the five COSO components? 
Control Environment Risk Assessment Control Activities Information & Communication Monitoring Activities

42. Describe the 17 COSO principles:

Each component has 3–5 principles. For example, Control Environment includes of integrity/ethics, board independence, structure/authority, competence, and accountability (full list available in COSO documentation).

43. Case: COSO risk assessment example:

A SaaS company migrated to cloud billing but failed to reassess associated risks—leading to errors in new revenue recognition. After an audit, the risk assessment principle was enhanced with regular IT and finance collaboration, resolving the exposure.

44. What does “tone at the top” mean?

Senior leadership demonstrates ethical behavior and enforces accountability, setting culture for compliance and oversight across all levels.

45. Which COSO principles are typically hardest to demonstrate?

Monitoring and risk assessment, as these require ongoing, documentable activities and can be subjective in how risks are evaluated and improvements are tracked.

46. COSO monitoring activity example:

Monthly internal control self-assessment surveys, quarterly internal audits, and annual management certification of control effectiveness.

47. Information & communication control illustration:

Policy updates distributed via email and company intranet, confirmed by mandatory read-and-acknowledge checklists.

48. What if one COSO principle isn’t addressed?

Controls are expected to “substantially” cover all 17. If a gap creates a reasonable possibility of material misstatement, SOX compliance is compromised and must be remediated.

49. How do SOX controls map to COSO?

Each SOX control is mapped to at least one COSO principle in the company’s RCM or controls library, aiding structured documentation, testing, and regulatory reporting.

50. Why is COSO the de facto standard for SOX?

It provides a comprehensive, recognized methodology for designing, assessing, and documenting the full range of controls that SOX mandates, and is cited by PCAOB and SEC in their guidance.

This detailed set covers regulatory knowledge, hands-on process examples, real-world scenarios, RCM and risk approaches, TOC, and a deep dive into COSO and its principles—ensuring you excel in technical SOX interviews for risk, compliance, audit, or financial control positions. If you'd like more case studies or expanded answers for any question, just let me know!

Reference Links:-

Ultimate Guide to the COSO Framework: Meaning, Components & Implementation!
What is Sarbanes-Oxley (SOX) Compliance? How to Do SOX Compliance: 2025 Complete Guide