SOX Update

SEC Roundtable reevaluates 404; PCAOB issues A.S. No. 2 guidance

By Andi McNeal, CFE, CPA

SEC reevaluates SOX Section 404 at one-year mark
On April 13, the Securities and Exchange Commission hosted the Roundtable on Implementation of Internal Control Reporting Provisions to discuss the issues and concerns stemming from the first year of implementing the requirements of Sarbanes-Oxley Section 404. Panelists at the public forum included representatives from public companies, auditors, investors, and members of the legal community, as well as all SEC commissioners and PCAOB board members.

Overall, the panelists believed that the legislative internal control requirements are yielding positive results, including increased awareness and oversight, additional transparency, and the remediation of existing internal control problems. Several companies even reported improved cost efficiency brought about by elimination of internal control redundancies discovered during their initial controls assessment. Likewise, investors reported that they find the requirements and intended outcomes of Section 404 extremely valuable. However, many panelists also asserted that the costs and time needed to effectively implement the internal control provisions have exceeded their expectations. In some cases, companies claimed the costs of compliance have been so great that they far outweigh the perceivable benefits.

Also among the implementation issues discussed during the forum were the increase in auditing fees many companies are experiencing, new communication problems arising among companies and auditors, the role of controls based on information technology, and the amplified importance of the "tone at the top." At the conclusion of the roundtable, PCAOB Chairman William McDonough announced that the Board would dedicate its next Staff Advisory Group meeting to the issue of internal controls. Additionally, McDonough said that the Board plans to form a working group specifically to address the problems affecting smaller firms in complying with Section 404.

An archived audio/video Web cast of the Roundtable is available at

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