SEC eyeing first revision of Sarbanes-Oxley rules

Long Island Business News, Jun 22, 2007 by Laura Theis

Accounting regulators have adopted revisions to Sarbanes-Oxley that give local auditors added decision-making powers and could reduce costs for public companies by as much as 30 percent.

AS5 - short for Auditing Standard No. 5 - was adopted late last month and awaits approval by the Securities and Exchange Commission, expected by early July. It eliminates some of the act's cut-and-dry guidelines and allows for more judgments by local auditors, according to Duaine Smith, the client and service engagement partner at PricewaterhouseCoopers.

Sarbanes-Oxley was passed in 2002 in the wake of accounting scandals at companies such as Enron and WorldCom. It was designed to force firms to create internal controls, test their reliability and accuracy and then have an auditor double check the math. The new standards permit companies to take a more risk-based approach, requiring testing only on controls that would result in what accountants call "a material misstatement" if they failed, Smith said.

This allows companies with lower-risk controls to do less testing, and companies with high-risk controls to focus only on those areas, he said.

The new regulations will help remove a lot of "unnecessary details" tied to Sarbanes-Oxley, said Larry Waldman, partner in charge of commercial audit practice development at Holtz Rubenstein Reminick.

"It will be very helpful in the streamlining process," he said.

Separately, smaller companies are facing a Dec. 15 deadline to become Sarbanes-Oxley compliant. While large firms have dealt with the act since 2004, following a two-year implementation period, companies with less than $75 million in market capital were given until late this year to comply. That occurs with their first year- end report after Dec. 15, unless an extension is granted, according to Alon Kapen, a corporate attorney at Farrell Fritz in Uniondale.

"There are a lot of small companies on Long Island that this deadline is going to affect," Kapen said.

Large companies can absorb compliance costs, but smaller companies aren't as lucky, he added. But while AS5 will make it easier for small companies, Smith said, it will not water down the act's intended goal of oversight.

"Fraud is what got us here in the first place," he said.