Sarbanes-Oxley audit rules eased

The U.S. Securities and Exchange Commission intends to enact a series of actions to improve the implementation of certain internal control requirements of the Sarbanes-Oxley (SOX) Act. These actions include issuing SEC guidance for companies and working with the Public Company Accounting Oversight Board (PCAOB) on revisions of its internal control auditing standard. “The steps we are announcing today are designed to further improve the reliability of financial statements and to better protect investors while making the Section 404 process more efficient and cost effective,” SEC chairman Christopher Cox says. Section 404 of the SOX requires corporate management to disclose internal financial controls to shareholders and for auditors to review.Audit rules written into the 2002 SOX Act will become easier for companies to comply with and less expensive to apply internally under the expected revisions.However, the SEC says that while the changes include “a brief further postponement of the Section 404 requirements for the smallest company filers,” that eventually smaller companies will also have to comply with internal control reporting requirements. “As we go forward, we will consider the special concerns of all companies that fall under our jurisdiction large and small, foreign and domestic,” Cox says. He explains the SEC will ‘get it (compliance to SOX) right’ in part by, providing practical guidance to companies and working with the Public Company Accounting Oversight Board on their forthcoming revised standard for auditors.Ensuring all public companies come into compliance, according to the SEC, will likely take about two years.The cost to comply with SOX under the 2002 rule, was extremely taxing to smaller companies and as such political venues took the concern to the commission, recommending the provisions of SOX should be reconsidered. Therefore, a bill exempting smaller companies from SOX compliance rules was proposed to the commission. Most companies have been working toward compliance, however companies with less than US$75 million of public stock. However, complaints related to the cost of audits resounded. Guidelines implemented by the SEC in 2005 that worked toward reducing the cost of audits will now be added into the auditing standard. The SEC will also offer guidance to corporate level management in regards to internal control assessment implementation and operation.The SEC commission came to agreement on these revisions which include smaller companies being required to assess internal controls as of the fiscal year after Dec. 16, or the 2007 calendar year. 2006. No discussions were addressed in terms of when auditing of these assessments would begin, nor when foreign companies would be affected by Section 404.Under the new proposed bill, any company with a market value of less than US$700 million, revenue under US$125 million, or with fewer than 1,500 owners of record, would be exempted from the rule.