Submits Letters to SEC and PCAOB
Encourages Agencies to Work Together to Align Management Guidance and
External Audit Standards
FLORHAM PARK, N.J., Feb. 26 /PRNewswire-FirstCall/ -- In separate letters
submitted to the Securities and Exchange Commission (SEC) and the Public
Company Accounting Oversight Board (PCAOB), Financial Executives
International's (FEI) Committee on Corporate Reporting (CCR) and Small Public
Company Task Force (SPCTF), voiced concerns with recent changes proposed by
the SEC and PCAOB to Section 404 of Sarbanes-Oxley. The letters, which come
in conjunction with today's comment deadline on proposed auditing standards
and management guidance by the SEC and PCAOB, emphasize the importance of
alignment between both agencies. Through the letters, the FEI committees also
suggest additional clarifications and enhancements to the proposed guidance.
"FEI supports the recent efforts of the SEC and the PCAOB in proposing
management guidance and a new audit standard, respectively, for implementing
Section 404 internal control requirements," commented Michael P. Cangemi,
President and CEO of FEI. "Though we appreciate the thought and effort put
forth by both agencies, we feel that the proposed PCAOB standards, although
improved from the existing PCAOB Audit Standard No. 2, are still more detailed
and prescriptive than the proposed SEC guidance. We strongly believe that
these differences will result in external audits that are more conservative
than management assessments, causing companies to incur unnecessary costs to
remain aligned with their external auditors."
Principal comments found in FEI's CCR and SPCTF letters include:
* The committees support the risk-based top down approach to
implementation proposed by both agencies.
* The committees believe that the proposed management guidance allows
for
a high level of judgment in applying the principles to individual
company situations, moving away from the one-size-fits-all approach
that
many companies and their external auditors have been following.
Critical concerns:
* Management guidance and external audit standards must be aligned.
* For companies to implement the proposed guidance successfully in
alignment with their external auditors, the auditors must be assured
that the inspection practices of the PCAOB will align with the proposed
auditing standards.
- If the auditors do not receive that assurance, they will be reluctant
to change their approach until after inspection cycle (more than a
year from the time of audit).
- If auditors do not change their approach, companies will continue to
incur unnecessary costs and fail to achieve the objective of more
efficient and effective assessments.
Suggestions for clarifications or enhancements to proposed guidance
itself:
* Focus on change in controls for testing, allowing for rotational
testing
of controls that have operated effectively in the past and have not
changed.
* Increased reliance on entity-level controls to reduce process-level
testing.
* Elimination of the "interim" financial statement component from the
definition of material weakness.
The full text of the letters, along with a summary of the responses, is
available at:
SEC response:
http://www.fei.org/eweb/upload/FEI/FEI%20Combined%20SEC%20404%20Response%202-26-07.pdf
PCAOB response:
http://www.fei.org/eweb/upload/FEI/FEI%20Combined%20PCAOB%20404%20Response%202-26-07.pdf
FEI summary:
http://www.fei.org/eweb/DynamicPage.aspx?site=_fei&webcode=main_detail&key=80eb233b-79b7-48a3-bea8-efdef09a1cbc
"FEI believes that the heightened emphasis on internal controls, corporate
governance and the enhanced role of financial executives brought about by
Sarbanes-Oxley have all been very positive," added Grace Hinchman, Senior Vice
President of Government Affairs for FEI. "However, available cost data,
including FEI surveys, indicates that the rules and standards related to the
implementation of Section 404 of the Act still require significant attention
in order to achieve effective and efficient implementation of Section 404 with
an approved cost-benefit ratio."
According to a 2006 FEI survey of 274 public companies on SOX compliance,
the total average cost for Section 404 compliance for public companies, though
down from previous years, was $3.8 million during fiscal year 2005.
The full results of FEI's 2006 Survey are available at:
http://www2.fei.org/news/404_survey_4_6_06.cfm.
About FEI
Financial Executives International is the leading advocate for the views
of corporate financial management. Its 15,000 members hold policy-making
positions as chief financial officers, treasurers and controllers. FEI
enhances member professional development through peer networking, career
management services, conferences, teleconferences and publications. Members
participate in the activities of 85 chapters, 74 in the U.S. and 11 in Canada.
Visit http://www.fei.org for more information.
SOURCE Financial Executives International
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Related links:
http://www.fei.org/
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CONTACT:
Kristen Crofoot of Financial Dynamics,
+1-212-850-5692, kcrofoot@fd-us.com
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