The Big Four accounting firms criticized in the Public Company Accounting Oversight Board’s (PCAOB) first-ever regulatory report cards issued in 2004, have made progress addressing their “significant accounting and audit issues”, according to Marketwatch. If the firms had not addressed these problems cited within 12 months of the issuance of their report cards, the confidential portions of their reports would have been made public. This information would have been made public as a provision of the Sarbanes-Oxley Act (SOX) of 2002.
Speaking in a prepared statement, PCAOB Acting Chairman Bill Gradison said, “Our initial experience with the process generally validates the premise of the approach set out by Congress. The large firms are responsive to the board’s supervisory model, and as a result of the process, the board believes that the firms have crafted and undertaken important steps that, if conscientiously implemented, will have beneficial effects on audit quality.”
Unreleased details of audit reports are not relegated to the Big Four, either. Full audit reports concerning the tax-funded operations of the Colorado Springs City Council have been replaced with one or two-page audit summaries. The Colorado Springs Gazette reports all the members of the council, except for one, defend this practice. Apparently, releasing full audit reports would violate the Colorado Open Records Act.
The Colorado Springs Gazette reports that Jeff Litchfield, the city auditor, said privacy is critical to receiving the cooperation he needs to complete his tasks. The details of the summary audit reports can be made public, but the full reports are working drafts and not considered finalized.
Litchfield told the Colorado Springs Gazette, “People are more willing to be honest in the audit process if they know that we will come in and identify anything that needs to be changed and it's not going to show up on the front page of the newspaper.” He finished, “It’s a very efficient system. It’s a very workable system. They view the city auditor as someone who’s there to help.”
Full disclosure to the Nth degree is another story when it comes to application of Section 404 of SOX on public companies. Small business owners have been trying to justify the costs and benefits of their compliance to the newest section of SOX. In a letter to the PCAOB voicing these concerns, Robert Gallagher wrote that Section 404 “continues to miss the boat,” according to CFO.com., Gallagher’s company, Stratasys, Inc., took in revenue of $83 million last year. He is CFO of the company.
Gallagher asserts that the goals of the company and the auditors are at odds with each other. Referring to the certifications required for Sections 404 and 302, he said, “Many small companies are spending enormous sums looking for signatures and it’s hard to convince auditors these signatures are not necessary.” CFO.com reports that Gallagher said SOX “has a great intent” concerning internal controls, but the effort is not effectively applied, especially to small businesses. He finished by saying that more than 98 percent of public companies are “striving hard to provide accurate information, yet we are spending time on non-value-added items to comply” with SOX. Gallagher thinks these efforts are a waste of time.