SOX 404 Internal Control and AS2 Audit Reforms

Description

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.

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.

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.