SOX 404 Internal Control and AS2 Audit Reforms

Just recently, at the end of May, the SEC and Public Company Accounting Oversight Board announced new standards for inspecting controls for financial reporting.On May 23, the SEC voted to relax the standards for public companies to comply with Sect. 404 of the Sarbanes-Oxley Act of 2002, so that their management could focus on those internal controls posing “a reasonable possibility” of leading to errors on financial statements. This is expected to minimize the amount of time auditors have to spend scrutinizing multiple controls.

Meanwhile, on May 24, the PCAOB decided to scrap its controversial Auditing Standard No. 2 with a new Auditing Standard No. 5. Assuming SEC approval in the coming weeks, the rigid, checklist-style AS2 gives way to a much shorter, more principles-based rule for how outside auditors should inspect clients’ controls and SOX 404 compliance.

There’s no time to waste cheering, however. Companies of all sizes will need to alter their reviews this year to meet the SEC’s new Sect. 404 guidance, so that their 2008 annual reports reflect the changes. In other words, there won’t be any further compliance extensions for smaller companies, i.e. those with market capitalizations of $75 million or less.

Meanwhile, auditors will have to start following a new “material weakness” definition during a transition period. And, they could opt to comply with the new AS5 as early as November.

Listen as our authoritative panel of accounting profession experts gets you prepared immediately to thrive under the new SEC and PCAOB standards. They discussed how to move your accounting firm or company into the new environment by:

• Taking a top-down, risk-based audit approach and getting away from opining on the adequacy of company management’s process of evaluating controls.
• Focusing on the objectives for stopping fraud, not the mechanics.
• Establishing which of a company’s geographic locations presents the greatest risks to financial statements.

Our panel includes:

John Fodera is a director in the internal audit and risk management services group at Eisner, the New York-based accounting firm. He has more than 20 years of audit and business management service, and conducts training classes on Sarbanes-Oxley Sect. 404 requirements. John previously was a risk consulting and advisory services manager at BDO Seidman.

Eric Miles is the quality assurance coordinator for SOX 404 compliance at Moss Adams, based in the Portland, Ore. office. He’s a senior manager for internal audits with the firm’s business risk management and control group. Eric has been the project leader on several major SOX 404 engagements for the firm.

Craig Crawford is an audit partner and partner-in-charge of KPMG’s professional practice department, based in New York. He’s in charge of monitoring PCAOB, AICPA and SEC standard-setting for the firm. Craig is also a member of the AICPA’s Auditing Standards Board.

*******************************************************************************

TELECONFERENCE CD
Purchase a CD-ROM of the full conference proceedings (available three weeks after the program).

CONTINUING PROFESSIONAL EDUCATION
CPE is not available for CD purchases.

RELATED NEWSLETTERS AND PRODUCTS: Sales & Use Tax Monitor. State Income Tax Monitor. Tax Incentives Alert. Tax Teleconferences. Tax Products.