Accounting Board Officials To Weigh Sarbanes-Oxley Update
Carrie Johnson, Staff Writer
Saturday, November 11, 2006
Leaders of the Securities and Exchange Commission and the panel
that oversees the accounting industry will meet Sunday in an
effort to resolve differences over how to overhaul a
controversial corporate accountability measure that business
groups have targeted as overly expensive.
Tension over a part of the 2002 Sarbanes-Oxley law, which
requires companies to review their financial controls and to
have auditors pass judgment on them, spilled into public view
this week after the release of portions of a letter by SEC
Chairman Christopher Cox proposing changes.
The Public Company Accounting Oversight Board, which reviews the
work of auditors, met privately for 90 minutes yesterday to
consider how to respond to Cox's letter, which urged the board
to be flexible and cost-conscious in response to complaints from
businesses. Cox and former Federal Reserve Board official Mark
W. Olson, who now leads the accounting panel, are to meet this
weekend to discuss the issues.
The exact language in Cox's letter has not been made public.
Both agencies declined to release it yesterday. But speculation
raged after reports suggested that Cox had proposed that small
and mid-size companies could avoid reviews of their internal
controls altogether or that regulators could render the reviews
virtually useless by significantly heightening the standard for
what kinds of transactions were important enough for auditors to
Cox, in a telephone interview yesterday, rejected the notion
that regulators would gut the internal control standard, which
was put in place to help detect fraud and financial errors.
Instead, he said, the goal was to retool the provision using
"the lessons learned from the past four years," including making
sure that "things that don't have to do with financial
statements don't have excessive attention" and ensuring that
small companies do not bear "disproportionate" cost burdens. Cox
declined to be more specific, adding that some of the language
mentioned earlier in the week was flatly inaccurate or had
already been "overtaken by events."
Several of Cox's ideas spring from a report last year by a
committee of small business leaders, which entreated the agency
to exempt their companies from internal control reviews. Cox
publicly rejected that option. But concern has persisted over
the wording of the changes, and what they mean in practice,
which can be difficult to grasp for anyone who is not an
Any formal proposals from the session between Cox and Olson
would be unveiled at open meetings next month and subject to
public comment, after which they could be modified, regulators
from both agencies noted.
After years-long and increasingly intense lobbying,
congressional leaders including the presumptive chairman of the
House Financial Services Committee, Barney Frank (D-Mass.), and
Senate Banking Committee member Charles E. Schumer (D-N.Y.) have
called on regulators to ease the burden for industry.
Regulators are racing against the clock. The SEC and the
accounting oversight board need a plan in place by March or
April at the latest to influence the next round of corporate
The nation's biggest accounting firms have reaped record profits
from more-intense audits since Congress passed the law after
scandals at Enron Corp. and WorldCom Inc. four years ago.
PricewaterhouseCoopers LLP, Deloitte & Touche LLP, KPMG and
Ernst & Young renewed a plea this week to insulate themselves
from liability for failed audits. Because the firms insure
themselves, they say they are at risk of financial disaster if
they are deceived by a team of executives engaged in fraud. It
is unclear whether the industry, which was tarnished after
failing to detect widespread accounting fraud in recent years,
has recovered sufficient clout to move ahead with liability
The ongoing and increasingly heated debate over the internal
controls provision also renewed tensions between the accounting
oversight board, whose members and budget are approved by the
SEC, and securities regulators. The board, which was created
under the Sarbanes-Oxley law, has struggled to maintain its
independence after early skirmishes over leadership. In
February, the Free Enterprise Fund sued the board, arguing among
other things that it lacked authority under the U.S.
Constitution. A federal judge in Washington is considering the
case and has requested argument from both sides next month.