2nd UPDATE: SEC Weighs In On Revisions To Audit Standard
Last update: 4/4/2007 7:10:31 PM
(Adds comment from consumer group in final two paragraphs.)
By Judith Burns
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--The Securities and Exchange Commission voted unanimously Wednesday to approve recommendations to guide its staff in upcoming discussions with the Public Company Accounting Oversight Board staff on changing how companies and auditors comply with a 2002 law to combat accounting fraud. SEC Chairman Christopher Cox said the SEC's input should help resolve remaining differences between proposals issued last year by the SEC and the accounting oversight board, allowing the changes to be put in place this summer in time for 2007 audits. The changes are intended to make it less costly for companies, including smaller firms, to comply with the 2002 law. Some consumer groups complain, however, that the SEC appears more concerned with helping businesses cut costs than with protecting investors. Whether the SEC's action smoothes over differences between the two regulatory bodies remains to be seen. PCAOB Chairman Mark Olson, who spoke at the SEC meeting, said the board is committed to working in partnership with the SEC, but added that it is "premature" to predict what changes the PCAOB will make to its proposal. Regulators first proposed changes in December amid criticism that complying with the 2002 Sarbanes-Oxley Act has been too expensive for public companies and has provided more benefit to auditors than to investors. A requirement for public companies to assess their financial reporting controls annually, with further review by the firm's outside auditor, has been especially controversial. Larger firms already subject to the requirement have balked at the time and expense entailed, while smaller firms now exempt from the task fear it could be crushing for them. In the face of criticism, the SEC proposed guidance for corporate managers, which it had not issued previously, while the oversight board proposed retooling its standard for auditors, which stressed the need to work efficiently, using the work of others where appropriate. While regulators said reaction to the changes has been largely positive, they have been urged to ensure that the guidance and standards are complementary, not confusing or contradictory. Regulators also face the prospect that if they do not resolve concerns about compliance costs, Congress may revisit the 2002 law. Last week, Reps. Steve Israel, D-N.Y,. and Mark Kirk, R-Ill.,introduced legislation that would require regulators to tailor the internal financial-reporting controls requirement for small businesses. Reps. Gregory Meeks, D-N.Y., and Tom Feeney, R-Fla., have introduced a bill that would go even further, freeing smaller firms from having to comply with the requirement. "We have no choice but to get it right here the second time around," Republican SEC Commissioner Paul Atkins said at Wednesday's meeting, noting the bipartisan push in the U.S. House to rethink the Sarbanes-Oxley requirements. On Wednesday, the SEC voted 5-0 to approve recommendations for its staff to better align the SEC's proposed guidance for managers and the oversight board's proposed new auditor standard for evaluating the effectiveness of management's financial-reporting controls. While the two documents need not be identical, SEC staffers said the SEC and oversight board should use the same definitions of key terms, for instance. The recommendations approved Wednesday also stress the need for a new audit standard to be flexible enough to apply equally well to smaller companies, and to be more flexible, efficient and less costly - in part by encouraging auditors to use their judgment and to use the work of others where appropriate. Some of the changes likely will result in editing the audit standard with a careful eye toward words such as "must" and "should." "We know that we must get the language of the standard calibrated correctly," said the PCAOB's Olson. However, he said getting the standard right is only part of the job, predicting that it will be just as important to train auditors in applying the new approach. Jeffrey Steinhoff, managing director for financial markets and assurance at the Government Accountability Office, who also spoke at Wednesday's meeting, said the watchdog agency supports changes to simplify compliance with the 2002 law. Done correctly, Steinhoff said the reforms should spur auditors to spend less time on needless paperwork, freeing them to focus on riskier areas and problems that could wreak havoc on investors if uncorrected. Consumer Federation of America director of investor protection Barbara Roper lamented the SEC's approach in a letter to SEC Chairman Cox late Wednesday, calling it "unseemly" for the SEC to elevate 'business concerns over investor concerns, and appearing to strong-arm the PCAOB into doing the same." "We can only hope that the PCAOB will assert its independence and produce a strong standard" that passes muster with the SEC, Roper wrote.
-By Judith Burns, Dow Jones Newswires; 202-862-6692; Judith.Burns@dowjones.com (END) Dow Jones Newswires
April 04, 2007 19:10 ET (23:10 GMT)
