AP News, December 11th, 2006
Revisions to a landmark 2002 anti-fraud law will include relaxing some rules for small public companies in a bid to curb what they say have been excessive costs related to audits, the Securities and Exchange Commission's accounting chief said Monday.
SEC Chief Accountant Conrad Hewitt said regulators are trying to balance the costs and benefits of the Sarbanes-Oxley law's Section 404, which requires companies to file reports on internal financial controls and to fix any problems. Smaller firms especially have complained about the costs of complying with the requirements.
Reducing testing and documentation for businesses between $75 million and $700 million in market capitalization is in the works, and creating a minimum revenue requirement for companies is also a possibility, Hewitt told reporters following his speech at an American Institute of Certified Public Accountants conference.
The SEC is in daily communication with the independent board that oversees the U.S. accounting industry as both bodies work on their own revisions to the rules, he added.
"The proposal will be designed to focus auditors on areas that pose higher risk of fraud or material error in order to achieve cost savings," Mark W. Olson, chairman of the Public Company Accounting Oversight Board, said in remarks delivered to the accountants' conference.
Rep. Michael Oxley, R-Ohio, outgoing chairman of the House Financial Services Committee, acknowledged that Section 404 was more expensive for companies than originally expected, but said compliance costs were declining over time and blamed the costs issues on "overzealous implementation."
The SEC is scheduled to tentatively adopt its revisions on Wednesday and the PCAOB is set to hold its public meeting Dec. 19 to vote on changes to the auditing standard.
Another area of concern is the litigation environment accounting firms work in. "We do not want to see another Arthur Andersen," Hewitt said, referring the now-defunct firm that was convicted in 2002 of obstruction of justice in its audit work for Enron Corp.
New liability legislation "could help," Hewitt said, adding that "we do not want to put an external auditing firm in a position where it couldn't perform as it normally would."
