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FYI for all - SEC set to ease anti-fraud law rules Small firms likely to win audit break

Associated Press

December 12, 2006

WASHINGTON -- Proposed revisions to the landmark Sarbanes-Oxley anti-fraud law will include relaxing some rules for small public companies in a bid to curb what they say have been excessive costs related to audits, the Securities and Exchange Commission's accounting chief said yesterday.

SEC Chief Accountant Conrad W. Hewitt said regulators are trying to balance the costs and benefits of the 2002 law's Section 404, which requires companies to file reports on internal financial controls and to fix any problems.

Smaller firms especially have complained about the costs of complying with the requirements.

Reducing testing and documentation for businesses of $75 million to $700 million in market capitalization is in the works, and creating a minimum revenue requirement for companies is also a possibility, Hewitt told reporters after a speech at a conference of the American Institute of Certified Public Accountants.

SEC officials are in daily communication with the independent board that oversees the U.S. accounting industry as both bodies work on their own revisions to the rules, he added.

"The proposal will be designed to focus auditors on areas that pose higher risk of fraud or material error in order to achieve cost savings," Mark W. Olson, who chairs the Public Company Accounting Oversight Board set up by Sarbanes-Oxley, said in his speech. The board responds to what the SEC does and will deliver an audit standard that applies to whichever companies the commission says are covered, Olson told reporters after his speech. But there has been a lot of focus on tailoring the rules differently, depending on the size of the companies.

Rep. Michael G. Oxley, the Ohio Republican who is departing as chairman of the House Financial Services Committee, acknowledged that Section 404 was more expensive for companies than originally expected, but said compliance costs were declining over time and blamed the costs issues on "overzealous implementation."

The SEC is scheduled to tentatively adopt its revisions tomorrow, and the Public Company Accounting Oversight Board is set to hold its a meeting Dec. 19 to vote on changes to the auditing standard.

"We're working very hard to get unanimity, but it's a free country," Olson said, adding the intent is for the new rules to be fully implemented next year.

Another area of concern is the litigation environment accounting firms work in.

"We do not want to see another Arthur Andersen," Hewitt said, referring to the now-defunct accounting firm that was convicted in 2002 of obstruction of justice in its audit work for Enron Corp. (The U.S. Supreme Court later reversed the conviction on grounds of a flawed jury instruction.)

New liability legislation "could help," Hewitt said. "We do not want to put an external auditing firm in a position where it couldn't perform as it normally would."