As your company prepares for the FY2026 Sarbanes‑Oxley (SOX) compliance cycle, now is an ideal time for Internal Audit teams to identify opportunities to improve efficiency, strengthen control precision, and enhance audit readiness.
This article, the fourth of a focused series, guides you through next steps so you can approach SOX compliance in 2026 with clarity and confidence.
A Balanced Approach to SOX Compliance
The Sarbanes-Oxley Act (SOX) requires both management and the external auditor to assess the design, implementation, and effectiveness of internal controls over financial reporting (ICFR). For many organizations, external auditors have significant influence over SOX scoping, sample sizes, and testing approaches. This is to reduce audit friction, minimize the risk of adverse audit outcomes, limit time spent by management pulling support for SOX testing, and ultimately, attempt to reduce the overall cost of compliance. Other organizations maintain their own risk-based approach to scoping and testing, which may not always align directly with their external audit teams. There are pros and cons to each model, leading many to adopt a blended approach to their SOX methodology. Here are some of the key factors to consider when developing an alignment approach that works best for your organization:
Key Benefits When External Auditors Play a Primary Role in the SOX Approach
1. Increased Predictability and Reduced Audit Risk
One of the primary benefits of building a SOX approach that relies heavily on the external auditor’s approach is increased predictability in SOX audit outcomes. Aligning scoping decisions, sample sizes, and testing methodologies with the external auditor’s expectations reduces the number of samples requested from management, the likelihood of last-minute scope expansions, retesting, or control challenges. This predictability can be especially valuable for organizations with limited SOX resources or those operating in highly regulated environments.
By using auditor preferences, management may also reduce the risk of significant deficiencies or material weaknesses being identified late in the audit cycle due to disagreements over testing sufficiency.
2. Financial Statement Audit Cost-Reduction through External Auditor Reliance
External auditor-driven SOX testing can create efficiencies by enabling higher reliance on internal audit’s work. When testing approaches and documentation standards are designed to meet auditor expectations from the outset, auditors are more likely to rely on the testing rather than performing redundant procedures. This can reduce total audit hours, internal disruptions, and overall compliance costs allowing management to invest those dollars in other areas of the business.
3. Benchmarking Against External Standards
External auditors bring a broad market perspective, informed by regulatory trends and PCAOB inspection results. Aligning SOX testing approaches with the external auditor can help an organization align with evolving expectations and avoid outdated or insufficient practices in assessing controls. This can be particularly helpful in areas of heightened scrutiny, such as Information technology risks, management review controls, and controls involving estimates.
Key Benefits When Management Plays a Primary Role in Defining the SOX Approach
1. Alignment with Management’s Risk Assessment
There is always a potential for differences between management’s view of risk and the external auditor’s perspective. When management drives the scoping approach, an organization can ensure time spent testing controls is aligned to the highest-risk and evolving areas of the business. Typically, this approach will materially overlap with the external auditors in-scope processes, but may exclude lower-risk, well-established processes that could be brought into scope from external auditors to meet financial statement coverage requirements.
Aligning the SOX approach to management’s risk assessment allows management to expand their view from lower-risk historical areas to current or emerging business risks, which align with the organization’s ever-changing organization’s risk profile.
2. SOX as a Risk Management and Insight Tool
When management drives the SOX approach, alignment on sample size and in-scope processes may differ from their external audit team. Many times, the approach determined by management to opine on the design and operating effectiveness of controls may be less time-intensive than what would be required by external auditors. To align with firm methodologies and regulatory requirements, external audit firms may require larger sample sizes, more frequent testing, and increased documentation requirements relative to what management might otherwise determine based on risk. Management owning the SOX approach can help shift the perception of SOX within the business from a compliance exercise and regulatory requirement to a source of value-added actionable business insight.
3. Ownership and Accountability for Internal Controls
When management owns the SOX methodology, management and process owners may have a higher focus on their own ongoing risk management responsibilities. Companies that rely more on external audit’s approach may associate control effectiveness with audit outcomes, and many times, the process owners will say they perform tasks because it’s required for the auditors. Shifting the focus to proactive risk ownership supports execution of controls for risk mitigation and reinforces that management is responsible for assessing and concluding on the effectiveness of internal control over financial reporting (ICFR).
Striking the Right Balance
The challenge for organizations is not whether to align with external auditors, but how much alignment is appropriate. Effective SOX programs are grounded in management’s own risk assessment, with external auditor input serving as an independent perspective rather than the primary driver of scoping and testing decisions. Management can retain ownership over judgments related to risk, testing strategies, and where incremental testing provides the most value, while still engaging auditors early to promote reliance and reduce the potential for surprises.
By clearly articulating management’s risk rationale and linking SOX testing to business objectives, organizations can maintain the integrity and value of their SOX programs while continuing to meet external audit expectations.
Explore the rest of the series for more actionable insights:
- Strengthen SOX Compliance: FY2025 SOX Close‑Out and Lessons Learned
- Strengthen SOX Compliance: FY2026 SOX Scope and Risk Assessment
- Strengthen SOX Compliance: External Auditor Alignment
If you have questions about refining your SOX approach or want to discuss how to strengthen your internal processes, reach out to the Schneider Downs team at [email protected].
About Schneider Downs Risk Advisory
Our team of experienced risk advisory professionals focus on collaborating with your organization to identify and effectively mitigate risks. Our goal is to understand not only the risks related to potential loss to the organization, but to drive solutions that add value to your organization and advise on opportunities to ensure minimal disruption to your business.
Explore our full Risk Advisory Service offerings or contact the team at [email protected].
