The Securities and Exchange Commission plans to address the Sarbanes-Oxley compliance burden by scaling-back testing and documentation requirements for smaller public companies.

Top officials from the SEC and the Public Company Accounting Oversight Board gave the accounting profession an advance peek at its plans during a meeting with American Institute of CPA members in the nation’s capital. SEC Chief Accountant Conrad Hewitt spilled the beans during the institute’s National Conference on Current SEC and PCAOB Developments.

In his address to that meeting, PCAOB Chairman Mark Olson explained that his organization’s separate but parallel plan to revise accounting standards for internal control disclosures will also involve “scalable implementation” of the internal control rules -- an approach designed to make compliance more affordable for smaller companies.

The SOX rules at issue require public companies to include assessments of internal controls with their annual reports. Although PCAOB extended the deadline for smaller firms to comply with these SOX “Section 404” rules, critics of the standards have called loudly for outright repeal of the internal control auditing requirements for small companies.

During the meeting, however, representatives from both federal regulators made it clear that they are not prepared to go that far. Instead, standard setters said that they are moving to scale back the testing and documentation obligations of smaller firms -- an approach similar to the one used to ease SOX compliance for foreign companies.

Exactly which “small” companies would qualify for the lighter disclosure requirements remains to be seen.

Under current rules, businesses with a market capitalization of between $75 million and $700 million have been declared small firms eligible for additional time to comply with the internal control audit rules that already apply to larger firms. But the SEC may replace the market cap standard with a new definition of small businesses based on corporate revenues, Hewitt said.

Today, the SEC is scheduled to officially unveil the details of their SOX rule rewrite at a public meeting. The PCAOB will offer its response, and own take, early next week.

“The PCAOB is working closely with the SEC to ensure that our goals are carefully aligned,” Olson told the accountants. “It is important that these two initiatives are closely coordinated and that they are available for public consideration concurrently.”

Olson also said that the revisions planned by his organization are designed to “focus auditors on what really matters, which is identifying material weaknesses in a company’s system of internal control before those weaknesses result in material misstatements.”

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