First, the picture that’s worth a thousand words:
SEC chairman Christopher Cox is taking a first step to rationalize Sarbanes Oxley for smaller companies. The New York Times
reports that the chairman will proposed revised standards later this week. Not a total exemption for these companies, but one that might lower some of the costs of compliance.
The proposal will, for the first time, impose a â€œmateriality standardâ€ â€” that is, auditors will be advised to scrutinize only those controls that could have a reasonable risk of having a material impact on the financial statements. It is expected to encourage auditors to rely on prior yearsâ€™ work as a basis for testing controls and discourage auditors from multiple testing of the same controls. And it will encourage the auditors to use a â€œrisk assessmentâ€ to focus the audit on the areas of greatest potential concern.
Commission officials said last week that the proposal would not be an unequivocal victory for smaller companies because it would not give them what they wanted most: a blanket exemption from Section 404. Nor would it impose a sharp restriction that would limit the auditors to looking at the design of the financial controls.
It will be interesting to see how this develops and how Chairman Cox works with the new Democratic majority. SarbOx namesake Sen. Paul Sarbanes is retiring; no word on what he thinks about changes to his signature piece of legislation.