A new concept for the PCAOB’s Auditing Standard No. 2 for measuring the effectiveness of internal controls could partially or completely exempt small businesses from section 404 of SOX. Analysts at InfoWatch believe the authorities have simply pressured the SEC into editing the audit standard.
The US Securities and Exchange Commission (SEC) has heeded complaints from business and started a review of controversial Sarbanes-Oxley (SOX) accounting rules by seeking feedback on ideas to guide public companies in implementing the law. Over a 60-day period the SEC is seeking feedback from businesses on ways to improve the law, Reuters reports.
In the introduction of the latest document the authors stress that the methods of conducting assessments of internal control over financial reporting should not be identical for all companies. For example, appropriate methods should be applied in each individual case depending on the size of the company. The SEC also justified the use of the Public Company Accounting Oversight Board’s Auditing Standard No. 2, which came into force in 2004 and has dictated the rules of assessing internal controls in companies of all sizes ever since. The authors point out that in 2004 the PCAOB could not differentiate between firms of varying sizes because its requirements were part of a stringent provisional framework, and there was also no experience of using section 404 in practice at that time. It is now quite possible that after some consideration the SEC could partially or wholly exempt small businesses from the provisions set out in section 404 of SOX.
The concept release can be downloaded from the SEC’s official site.
“It has all come down to this. From the very beginning it was obvious that there would be no changes to the federal SOX law. That would have required the intervention of the US Congress, and getting all those politicians moving is no easy task. As a result, the powers that be have gone down a different road – they have applied pressure to the SEC and the PCAOB, asking them to revise section 404. I use the word ‘pressure’ here because the SEC has repeatedly said that it would never make any changes or exemptions for small businesses. The new concept release is obviously a change in that stance,” says Denis Zenkin, marketing director at InfoWatch.
Source: Reuters
