Accounting Observer > Public Blog - Atkins: Still Wailing On 404

The AAO Weblog covers accounting issues and current events as they relate the practice of investment analysis. All posts prior to September, 2007 are in the public domain, but after September 4, 2007, only subscribers to The Analyst's Accounting Observer will see all posts going forward. Only selected, occasional posts will be released to the public domain from September 4 forward.

Atkins: Still Wailing On 404

Location: Blogs AAO Weblog (Public)
Posted by: Jack Ciesielski	1/26/2007 5:11 AM
Commissioner Paul Atkins delivered a speech at the Corporate Directors Forum and as usual, unleashed himself on one of his favorite topics: Section 404 of the Sarbanes-Oxley Act. Atkins, like the Paulson Committee and Bloomberg/Schumer, worry about the US markets' place in the world rather than investor information - as if the two were mutually exclusive. His speech contained the usual complaints about the "costs" of 404. (As if there are no costs to investors or the economy as a whole for audit failures.) He cited in particular the costs incurred for compliance procedures performed by firms that were subsequently ignored by auditors. Seems like the answer is to make the auditors snap to attention, not gut the rules. While the PCAOB and the SEC continue to revise Auditing Standard 2, it's good to note that their efforts aren't wasted on Commission Atkins: "I think almost all players in this debate have recognized the flawed approach that was initially rolled out. Last month, the SEC proposed additional guidance for management's assessment of internal control. Around the same time, the PCAOB proposed replacing AS 2 with a new audit standard, AS 5, for an outside auditor's attestation of internal controls. Far from being a rollback or lessening of standards, I think the new proposals go a long way towards implementing the original vision of Sarbanes-Oxley. I look forward to seeing the comments on these proposals." We'll see how satisfied everybody is with the new, improved AS 5 in about another month. While Atkins notes that Sarbanes-Oxley has been around for almost five years (its birthday is in July), there have only been two complete 404 inspection seasons. (No - wait a minute. Those small cap firms that never seem to have control problems are still being granted waivers.) Simply by virtue of the learning curve experienced by most sentient human beings, the process has to get better. Revising the audit guidance is part of the learning process. But it will be interesting to see if the critics are content with evolutionary change and continue to demand more "relief."

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