One brutally hot summer I worked a short stint as a landscaper for a no-nonsense immigrant from Bari, Italy, whose name was, I kid you not, Joe DiMaggio.Joe's idea of relaxation was a 75-hour work week in lieu of 90 hours, and 30 minutes for lunch instead of our customary 15.
One afternoon when the temperature was flirting with triple digits, we were laying roughly 100 yards of sprinkler pipe. I casually remarked to him that it was the hardest work I'd ever done. He glared at me with eyes as black as death and told me in broken English that if it was easy, he'd get his three-year-old daughter to do it.
I can't compare digging sprinkler ditches under a searing July sun to the difficulty of certifying internal controls under Sarbanes-Oxley Section 404. From what I've been told, it's equally arduous. But the recent proposal from the Public Company Accounting Oversight Board, if approved, is designed to ease that arduous and costly compliance process.
Last month the audit watchdog put forth a proposal that scales back the 404 testing process by encouraging auditors to focus on only the riskiest controls - or ones that would have the greatest material effect on financial reporting or misstatements. It also dispenses with management's evaluation for assessing their controls, and provides direction on how to scale down the audit for smaller companies.
My space here does not allow me to go into great detail about the PCAOB's proposal, which, if approved by the SEC, would supercede the board's current Auditing Standard No. 2.
But it was encouraging that the regulator did not bow to the vocal faction that lobbied vigorously for exemptions and rollbacks on Sarbanes-Oxley in general and 404 specifically.
Small companies complained about disproportionate costs in comparison to larger SEC issuers - a fair point, to be sure - while a number of other channels complained that SOX had ushered in a climate of non-competitiveness in U.S. markets. As evidence, critics pointed to the unbalanced ratio of initial public offerings conducted overseas as opposed to, say, in New York's financial center.
As I've mentioned on several occasions, I came into this position about the time the fit hit the shan with regard to a spate of massive accounting scandals and the legislative cry for auditor independence.
The aftermath is familiar to all of you, so it would be pointless to rehash it here. And to its credit, the profession has subsequently clawed its way back from the nadir of 2001-2003.
At this point, I think it would be difficult to speculate on the effects of the PCAOB's most recent standard; it will, I think, be several years before its effects can be accurately quantified.
But if a three-year-old suddenly becomes qualified at internal controls compliance, then I think we have a problem.
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