While Section 404 of Sarbanes-Oxley says management is responsible for establishing and reporting on a company's system of internal controls, more than half of 329 companies reporting control deficiency disclosures did so because their external auditors identified and reported those weaknesses, according to a report by the Financial Executives Research Foundation.

The Public Company Accounting Oversight Board revoked the registration of a New York public accounting firm and disciplined three of its partners for concealing information from the board and submitting false information in connection with a PCAOB inspection.

A bipartisan coalition of members of the U.S. Senate Finance Committee, including chairman Charles Grassley, R-Iowa; ranking member Max Baucus, D-Mont.; Ron Wyden, D-Ore.; and Jon Kyl, R-Ariz., have introduced legislation to repeal the alternative minimum tax.

Reiterating the Financial Accounting Standards Board's 2005 goal of simplification, FASB Chairman Robert Herz told attendees at the American Institute of CPAs Spring Meeting of Council that the regulatory climate has reopened such issues as differential standards and the codification of generally accepted accounting principles, thus intensifying the need to hone standards and reduce the number of accounting guidance outlets.

The American Institute of CPAs lauded the introduction of legislation this week that would amend the privacy provision of the Gramm-Leach-Bliley Act applicable to CPAs.

In response to requests from tax practitioners and professional organizations for clarification, the Internal Revenue Service and the Treasury Department issued revisions to the new Circular 230 standards -- rules related to written tax advice issued last December.

In response to concerns raised at a Securities and Exchange Commission roundtable last month on implementing internal control reporting provisions, the Public Company Accounting Oversight Board has published additional guidance for auditors on how to implement its standard related to the audits of internal controls over financial reporting. The guidance on Auditing Standard No. 2 is expected to lower the costs associated with internal control audits, the board's chairman and chief auditor said Monday. PCAOB Auditing Standard No. 2, which refers to the auditor's attestation as an audit of internal control over financial reporting, is the standard that auditors must use to satisfy their obligations under Section 404 of the Sarbanes-Oxley Act. The main purpose of the guidance is to "clarify Auditing Standard No. 2 and to show that if it is applied correctly, the way we meant it to be applied, in addition to being very important, it should be cost-beneficial," PCAOB Chairman William McDonough told reporters during a conference call. "We're working on improving the methodology, and the improvement in methodology will result in lower costs," McDonough said. PCAOB chief auditor Douglas Carmichael noted that if companies are successful in integrating their financial statement and internal control audits, "they'll have some reduction in cost in each audit." "Fees should come down for a variety of reasons," said Carmichael. "The integration of the audits, and the learning curve -- companies will get better at doing this. With our new FAQs, we're giving specific advice on things that can be done to make audits more effective and more efficient. That way, companies can spend less time in areas that are truly low-risk." The guidance includes a board policy statement on the implementation of the standard, which McDonough said passed last Friday in a unanimous vote, and a series of staff questions and answers that he said gives "more technical guidance to issuers and especially auditors." The Board Policy Statement and the FAQ both focus primarily on the scope of the internal control audit and how much testing of a company's internal control over financial reporting is required, which the PCAOB said are the issues that primarily drive cost. According to the policy statement, auditors should: * Integrate audits of internal control with financial statement audits, so evidence gathered and tests conducted in the context of either audit contribute to completion of both audits; * Exercise judgment to tailor audit plans to the risks facing individual clients, instead of using standardized "checklists" that may not reflect an allocation of audit work weighted toward high-risk areas; * Use a top-down approach that begins with company-level controls, to identify for further testing only those accounts and processes that are, in fact, relevant to internal control over financial reporting, and use the risk assessment required by the standard to eliminate from further consideration those accounts that have only a remote likelihood of containing a material misstatement; * Take advantage of the flexibility that the standard allows to use the work of others; and, * Engage in direct and timely communication with audit clients when those clients seek auditors' views on accounting or internal control issues before those clients make their own decisions on such issues, implement internal control processes under consideration, or finalize financial reports. "Auditors didn't seem to be engaging in as full a dialogue with client as is legal and makes sense," McDonough said. "The concentration on retaining independence may have led people to exaggerate how little communication they can have. This is easily managed by the issuer asking for a view on something they already think rather than asking the [auditor], 'What should I do?'" The board's Standing Advisory Group will meet on June 8 and 9 to discuss implementation of the standard. "We'll have the opportunity to consult with them to see if any additional administrative clarification is necessary or if it's necessary to reopen [AS2]. It's not likely, but not impossible," McDonough said. "Some fine-tuning may be needed in the future, but that doesn't appear to be the case now. But we need clarification to applied so we get more cost benefit out of it." He added, "If we have to reopen [the standard], then we get into rulemaking and that would take about six months. What we can do administratively is much more beneficial."