Enzi, one of the legislators who helped write the Sarbanes-Oxley Act in 2002 which created the PCAOB in the wake of some high profile public company financial meltdowns, has been especially concerned with the affect new rules may have on smaller companies. He commended the PCAOB's latest proposal on auditing internal controls over financial reporting required by the Sarbanes-Oxley Act (SOX).
"I'm pleased that the Public Company Accounting Oversight Board listened to small businesses. The SEC listened when I suggested the formation of the Advisory Committee on Smaller Public Companies and this proposal, at least in part, shows the PCAOB has listened to that committee. The changes will still assure that business reporting and auditing is to a high standard and is solid - but I believe the changes should save numerous duplications of effort and reduce the cost of compliance in both time and dollars. As the Senate's only accountant, I also appreciated their constant updates on the process to achieve this landmark change," said Enzi.
The PCAOB proposed standard, issued Wednesday, incorporated several principles developed during PCAOB Small Business Forums and two SEC roundtables held in 2005 and 2006. The primary purpose of the new standard is to lower audit costs by incorporating the work of multiple auditors into a single framework.
The new proposal would replace the board’s existing internal control standard, Auditing Standard No. 2.
"The proposed new standard on internal control is a principles-based standard designed to focus the auditor on the most important matters, increasing the likelihood that material weaknesses will be found before they cause material misstatement of the financial statements. The proposed standard also eliminates audit requirements that are unnecessary to achieve the intended benefits, provides direction on how to scale the audit for a smaller and less complex company, and simplifies and significantly shortens the text of the standard," the PCAOB said in a statement.
The standard would:
•Allow auditors to consider and incorporate the work of other auditors and management assessments in their audits.
•Require the auditor to understand the relevant activities of other audits and determine how the results of that work may be incorporated into future audits, eventually creating a single audit framework;
•Emphasize a top-down, principles-based auditing method that will give closest scrutiny to the most risky areas of a company’s financial controls.
Enzi said the new standard would also require auditors to consider the size of a company when testing controls, understanding that the same segregation of duties may not exist in a smaller public company. He believes this revision could cut implementation costs significantly for smaller companies.
The PCAOB will seek comments on the proposed standard and other proposals for 70 days. Comments will be posted on the Board's Web site under Rulemaking. Following the close of the comment period on Feb. 26, 2007, the Board will determine whether to adopt a final standard. Any final standard adopted will be submitted to the Securities and Exchange Commission for approval.
Enzi plans to send in a comment letter and encourages all those affected by the proposed standard to contribute their comments.
The proposed standard and related proposals are available on the Board’s Web site under Rulemaking at www.pcaobus.org.