Washington (June 21, 2004) -- The Securities and Exchange Commission gave its approval to a Public Company Accounting Oversight Board standard related to internal control reporting and disclosure.
The standard, Auditing Standard No. 2, addresses the work that is required to audit internal control over financial reporting and the relationship of those audits to the audits of the financial statements. The standard is effective for audits of accelerated filers (U.S. companies with public float exceeding $75 million) for fiscal years ending on or after Nov. 15, 2004, and for other companies is effective for fiscal years ending on or after July 15, 2005.
Last June, in response to Section 404 of the Sarbanes-Oxley accounting reform legislation, the commission amended its rules to require companies to include in annual reports a report by management on their internal control over financial reporting and an accompanying auditor's report. The auditing standard applies to the auditor's involvement and report.
The SEC said that it received 31 comment letters on the standard from issuers, registered public accounting firms, professional associations and others. The SEC said that, in general, issuers opposed the standard, while accounting firms, professional associations and others were in support of it. The SEC said that issuers and many of the professional associations expressed concern with the cost of compliance in terms of management time, consultant fees and audit fees.
"The management and auditor reports on internal control will impact companies of all sizes," said SEC chief accountant Donald Nicolaisen. "We anticipate working with others in our continuing effort to address the concerns of smaller companies."
The SEC said that it and the PCAOB will provide implementation guidance for issuers and their auditors to address recent acquisitions, consolidated but non-controlled subsidiaries, and equity investees, as well as concerns raised by issuers surrounding qualification of the report on internal controls, transition periods, disclosure requirements relating to significant deficiencies and material changes made in internal controls, and the timing of assessment of internal control over financial reporting in relation to certain foreign subsidiaries.
-- WebCPA staff
