AICPA Takes Stand on Sarbanes-Oxley Implementation

The American Institute of Certified Public Accountants has submitted comments to the SEC regarding the implementation of three areas of the Sarbanes-Oxley bill, including internal control, the makeup of audit committees and a code of ethics.

In a press release issued this week, the AICPA states its case in the three areas:

Internal Control Reporting

The AICPA has long supported a requirement that management of a public company report on the effectiveness of internal control over financial reporting. "One of the most critical components of reliable corporate reporting is strong and effective internal controls. A company’s commitment at the highest levels of an organization can help ensure reliable financial reporting and increased investor confidence," said AICPA President and CEO Barry Melancon.

Melancon noted that the Committee of Sponsoring Organizations of the Treadway Commission (COSO) had already established a thorough framework on which management can make assessments and report on internal controls. Besides control over financial reporting, these include establishing a corporate control environment which includes integrity, ethical values and competence. "The COSO framework, which the AICPA helped develop, is the most comprehensive framework that corporations can look to in establishing their internal control systems and encompasses the control objectives desired to be achieved by the Sarbanes-Oxley Act," Melancon added.

In addition, the AICPA’s Auditing Standards Board currently is looking at how auditors will evaluate management’s internal control assessment as required by the Sarbanes-Oxley Act. According to James Gerson, Chair of the Auditing Standards Board, auditors will need to increase their testing of controls beyond what is necessary for the purpose of expressing an opinion on the financial statements. "Under the Act, auditors will now have to test controls to a much greater extent since they will now be required to provide an opinion on whether management maintained effective internal control over financial reporting," Gerson said.

Audit Committees

The Sarbanes-Oxley Act shifts significant responsibilities from the management of a corporation to its audit committee. A primary focus of the attention about the audit committee will be the financial acumen of the members. The Sarbanes-Oxley Act requires that at least one member of a company’s audit committee be a "financial expert." The AICPA recommends the SEC consider going even further when it writes its final rule.

"We believe that all audit committee members should have financial experience, preferably with a majority of them having significant financial experience," Melancon said. "Requiring all members of the audit committee to have financial expertise will minimize the reliance of the committee on one individual and guarantee that it is at least as capable as management in interpreting and assessing the information that comes into its deliberation," he said.

Code of Ethics

The AICPA supports expanding the requirements in the Sarbanes-Oxley Act from requiring only that the chief financial officers have a code of ethics to requiring that companies adopt and disclose a code of ethics for directors, officers and employees, and that companies promptly disclose any non-de minimis waivers of the code. Moreover, the AICPA advocates that each year, all board members, officers and employees should be required to review the code of ethics and sign a statement indicating their compliance with it. Any exceptions should be reported to the appropriate level of management or board for resolution.


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