Christopher Cox, the Securities and Exchange Commission (SEC) Chairman, said Monday that regulators were still working on revisions to its rule requiring companies to adopt internal controls and procedures for financial reporting but said he was “confident” that the result would “improve the reliability of public company financial statements and better protect investors,” the Washington Post reports. The SEC will issue its proposed revision on December 13. Mark Olson, Chairman of the Public Company Accounting Oversight Board (PCAOB), said last week that his agency would issue its own changes to the implementation standard some time before Christmas.
Trade groups and members of Congress have been pushing for changes in the standard because implementation has proved so costly for many companies. The U.S. Chamber of Commerce, community bankers and organizations representing small-cap and mini-cap businesses that have not yet implemented the standard – “think biotech” says BusinessWeek.com -- have been leading the effort.
These groups want the regulators to make the external audits more risk-based, and scale back the requirement for small companies. More precise definitions of what is “material” to the company’s financials and which controls are “significant” would help to focus the audits and reduce the costs.
“There’s blame at the SEC and PCAOB for the high cost of Sarbanes-Oxley (SOX) compliance,” says Richard T. Roth, chief research officer at The Hackett Group, a strategic consulting firm, BusinessWeek.com reports. “But there’s also blame at the senior-level executive suite. They were approaching compliance with belts and suspenders, using excessive processes to make sure there were no issues.”
Auditors claim they are already working to streamline their procedures and lower the cost based on input from regulators. The PCAOB has been reaching out to industry and acting on feedback from the annual inspections of the largest accounting firms.
But the auditors “are not going to err on the side of not checking something,” says one accounting industry lobbyist, according to BusinessWeek.com, and defining what is material will help with audit costs.
The SEC and PCAOB also need to put greater trust in the auditors and industry. “It’s very important that we write specifically into the rule a provision to allow more judgment on the part of auditors and management,” says Wayne Koling, national assurance director at BDO Seidman, BusinessWeek.com reports.
Fear of shareholder lawsuits also drives compliance costs and the regulatory agencies are being asked to provide some sort of legal shield for companies.
Changes to the audit rule and implementation standard will be open for public comment for two months before the SEC issues its final revisions. Reform will be limited to the changes that can be made at the agency level, BusinessWeek.com says, because business is not expected to pressure the new Democrat-controlled Congress for a rewrite of the Sarbanes-Oxley legislation. Statute will limit the changes the SEC can make to relieve the burden on small businesses.