By unanimous vote, the five members of the Securities and Exchange Commission cleared new guidance for corporate management that addresses Section 404 of the Sarbanes-Oxley law, which requires checks on "internal controls" of financial statements.
The changes are aimed at making it easier for managers to check their companies' financial records for misstatements or fraud.
The guidance allows managers to satisfy the requirements of the law by identifying the biggest risks to their companies' books, rather than carrying out extensive checks.
The guidance, originally proposed in December, applies to firms of all sizes. In particular, small companies should benefit, said SEC Chairman Chris Cox.
"Investors will benefit from reduced compliance costs," Cox also said at the opening of the SEC's meeting. Commissioner Annette Nazareth said companies will need to review their own circumstances when carrying out their internal-controls checks.
The revised guidance "encourages innovation instead of a one-size-fits-all approach," said Nazareth, a Democrat.
Congress passed the Sarbanes-Oxley Act in 2002 following the high-profile scandals at Enron and WorldCom. But businesses and some lawmakers have heaped criticism on Section 404, saying it's expensive and time-consuming. The aim of Section 404 is to ensure accurate financial statements and to catch fraud.
The guidance approved Wednesday tries to find the "sweet spot" between efficiency of controls checks and investor protection, said Commissioner Roel Campos, the panel's other Democrat.
The criticism prompted reviews by the SEC and the Public Company Accounting Oversight Board, scheduled to vote Thursday on a final auditing standard for internal controls over financial reporting.
In December, the board floated a new rule that would allow auditors to focus on those portions of corporate books deemed to pose the highest risk of fraud or error. Cox praised Sarbanes-Oxley for restoring investor confidence in the wake of corporate scandals but acknowledged that Section 404 needed to be tweaked.
"The challenge has been to find the right balance," Cox said Wednesday.
Regulators had been working to put the new guidance in place before the 2007 audit season