Washington (Nov. 20, 2002) -- The Securities and Exchange Commission agreed Tuesday to propose two new rules to more tightly regulate audit activities by accounting firms, but top SEC officials made it clear that additional tweaking may be necessary before the regulations can be finalized in January.
The proposals drafted to implement provisions of this year’s Sarbanes-Oxley accounting reform law include a laundry list of record keeping, personnel, and compensation changes in audit practices to restore investor confidence in corporate financial reporting.
One proposal would require auditors to retain work papers from their audits for at least five years. The other proposed rule prohibits arrangements that reward auditors for securing non-audit business from the firm’s audit clients. A separate provision would require rotation of audit teams every five years – a change that commission officials concede would be problematic for smaller firms.
Outoing SEC Chairman Harvey Pitt called the two proposals, "another critical milestone in the implementation of the Sarbanes-Oxley Act."
But SEC Commissioner Paul S. Atkins said it was "a great disappointment." that the rules being proposed weren’t voluntarily adopted by accounting profession years ago.
-- Ken Rankin
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