SEC approves guidelines to ease auditing compliance

May 24, 2007|By Bloomberg News

The Securities and Exchange Commission, responding to executives' complaints that the Sarbanes-Oxley Act has been too costly to implement, approved guidelines yesterday that will make it easier to comply with the law.

The measure will allow executives to focus their attention on factors most likely to trigger financial misstatements. Companies have complained that without specific instructions, they've done expensive, time-consuming work that was then duplicated by their auditors.

"The challenge has been to find the right balance between financial reporting and efficiency in achieving it," said SEC Chairman Christopher Cox. The agency's action "is intended to right-size the evaluation and assessment efforts of management," he said.

The SEC has been under fire from business groups and lawmakers who blame the Sarbanes-Oxley law for driving companies to less-regulated markets overseas. The agency's guidelines, combined with a revised auditing standard from the Public Company Accounting Oversight Board, are aimed at ending more than a year of debate over whether the law's costs outweigh its benefits.

President Bush signed Sarbanes-Oxley into law in 2002 after accounting scandals at Enron Corp. and WorldCom Inc. eroded investor confidence. Under the law, corporate managers must assess whether they have sufficient safeguards to catch fraud and bookkeeping errors. They must also have those controls certified by an outside auditor.

Companies spent $2.92 million on average last year complying with those provisions, according to a survey of larger companies by Financial Executives International, about 35 percent less than in 2004, the first year companies had to adhere to Sarbanes-Oxley's audit rules. The group's estimates include what companies pay their auditors.

The SEC in 2003 estimated all companies, including smaller firms, would spend an average of $91,000 a year, excluding audit fees.

Cox has resisted demands from members of Congress to exempt small companies from the law. Instead, he has tried to reduce corporate audit fees by eliminating a requirement that accountants assess how companies review their internal controls. Auditors will still be required to provide opinions on the effectiveness of those controls in companies' financial statements.

"Investors will benefit from reduced compliance costs," Cox said.

The SEC guidance will be coordinated with changes to audit rules that the Public Company Accounting Oversight Board will vote on today.

Companies with less than $75 million worth of shares available to the public won't have to fully adhere to Sarbanes-Oxley's audit rules until 2009. SEC Deputy Chief Accountant Zoe-Vonna Palmrose said the new guidelines are tailored to help small companies comply with the law, making further delays unnecessary.

Sen. John Kerry, who has urged Cox to postpone small-firm compliance for at least a year, said he was "disappointed" with the SEC's decision.

"These companies need more time to fully digest and execute the changes in the Sarbanes-Oxley rules," said Kerry, a Massachusetts Democrat. "It is not too late for the SEC to change direction and grant small companies the extension they deserve."

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