404 Compliance Back at Square One?

by Erin McCune on March 13, 2007

in Regulatory Environment

CFO.com reports that CFOs think the revised SEC and PCAOB standards for internal controls won't change anything because they cancel each other out.

Mismatches between the internal-controls proposals of the Securities and Exchange Commission and the Public Company Accounting Oversight Board will keep compliance with Section 404 of the Sarbanes-Oxley Act overly burdensome and costly, CFOs think.

In letters to the SEC and the PCAOB commenting on the regulators' proposed revisions to their guidelines, senior finance executives say the tone and wording of the rules are too different to accomplish their main goal: to get senior top corporate management and audit firms on the same page in assessing and attesting to a company's internal controls over financial reporting.

The SEC and PCAOB released their proposed standards for public comment on December 19 and December 20, respectively. Before the comment deadline of February 26 for both, the regulators had each received more than 150 letters. One-fifth of the responses for AS5 — as the PCAOB's proposed new auditing standard for independent auditors is informally known — came from finance executives. The SEC and PCAOB have yet to say when they will announce the next steps for their proposals.

CFOs used words like "disconnect" and "significant gap" to describe the relationship between the SEC's proposed 404 corporate guidance and AS5. Because the suggested standards aren't aligned, some executives predicted, auditors will ignore the regulators' push to have them focus on the highest-risk areas.

Instead, some of the CFOs said that to meet the PCAOB's requirements, audit firms will continue to take the overly conservative approach that has been widely blamed on the existing auditing standard, AS2. Many, however, had hoped the revisions would lead to cheaper auditing bills and more leeway for the use of professional judgment.

Read more at CFO.com

CFOs: 404 Compliance Back at Square One
Sarah Johnson
March 12, 2007

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