Sarbanes-Oxley's "Cascade" in Full Swing, Melancon Warns

Las Vegas (Jan. 23, 2003) -- Sarbanes-Oxley, the federal law that restricts the services auditors can provide their public company clients, is already having a significant "cascade" effect on other parts of the accounting business, American Institute of CPAs president Barry Melancon declared at the Winning Is Everything practitioners symposium here Tuesday.

This year, some 20 states are expected to move toward adopting new accounting regulations that emulate portions of Sarbanes-Oxley, including extending that law to audits of privately held companies, Melancon said. He added that there is growing concern that some government-regulated industries, such as banking, may also be subject to new audit restrictions.

"The states are responding that they have a mandate," Melancon said, citing a provision in the Sarbanes-Oxley law that says states "should make an independent determination" of their standards for auditors of privately held companies. He urged practitioners to get familiar with the AICPA’s new "Special Committee on State Regulation," which is monitoring state activity in this area.

He said that concern is growing that the federal government may adopt Sarbanes-Oxley-like rules for banking and other regulated industries because of the regulations that just took effect for the auditors of government entities. Those General Accounting Office restrictions on practitioners that provide "yellow book" audits could conceivably be extended to other regulated areas, Melancon said.

States’ movement toward Sarbanes-Oxley-type regulations on private company audits may be unstoppable, according to David Costello, president of the National Association of State Boards of Accountancy. "They’re all going to do something; the public expects it," he said, after making his own presentation at the conference.

Costello said his organization’s new mission is to ensure that the states all adopt the same standards in revising their audit requirements. Establishing one set of standards will be a focal point of NASBA’s next regional membership meeting in June.

"We hope the states hold off until our June meeting," Costello said.

-- John M. Covaleski

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