The Securities and Exchange Commission (SEC) okayed a new Sarbanes-Oxley approach based on regulatory principles rather than iron-clad rules – a move that is in line with a private-sector group that has been pushing for eased business laws and regulations, according to an Associated Press report.
The proposed changes endorsed by the SEC would:
- allow tailoring of company audits to take into account the “particular circumstances” of a business.
- encourage auditors to use their own judgment in the process.
- allow flexibility for auditors in determining when they can rely on work previously done by others.
Officials say the changes help them strike a balance between protecting investors and reducing the arduous financial recordkeeping now required of corporations.
The proposed changes are intended “to eliminate waste and duplication” for companies that must comply with Sarbanes-Oxley, particularly smaller companies that will be governed by the law later this year, according to the SEC (See SEC Small Co. Fiscal Control Audit Standard Set for Wed. Release ).
“These needed improvements in the Sarbanes-Oxley process are especially urgent for smaller companies,” said SEC Chairman Christopher Cox, according to the Associated Press report.
The vote by the five SEC commissioners was unanimous to support building more leeway into the rules, especially rules for auditors being written by the independent board that oversees the accounting industry. Sarbanes-Oxley, which arose from the 2002 corporate scandal, requires that public companies assess the strength of their internal checks and balances to guard against fraud.
According to the news report, Commissioner Paul Atkins said the current law contains numerous duplications in the process and “an incredible amount of needless work.” Commissioner Roel Campos raised concerns about auditors potentially focusing only on the financial controls that present the biggest potential financial risk.
The SEC and the Public Company Accounting Oversight Board (PCAOB) have been working for several months to resolve differences over the rules. A number of experts and investor advocates complain that the SEC is strong-arming the board in a bid to weaken current regulatory standards.
The Commissioners urged the SEC staff to continue to work with the PCAOB to make the internal controls provisions of Section 404 of “more efficient and cost effective,” the commissioners said in a statement .
Under the Sarbanes-Oxley Act, PCAOB audit standards must first be approved by the SEC. The Commission expects the new PCAOB standard will be submitted for SEC review by the end of May or early June, in time for the 2007 financial statement audits, the SEC statement said.