SEC Votes to Ease Audit Requirements
Securities regulators unanimously embraced a plan that they said would slash costs and restore common sense to an audit rule attacked as too expensive by business groups and lawmakers.</br></br>The Securities and Exchange Commission voted 5 to 0 yesterday to instruct corporate managers to focus their reviews on the areas that pose the greatest risk of fraud on financial statements.</br></br>Congress required executives and auditors to scrutinize corporate financial controls in the 2002 Sarbanes-Oxley Act, which was passed after huge frauds at Enron and WorldCom. The rule, which cost businesses millions of dollars more than regulators anticipated, has been a lightning rod almost ever since, becoming what SEC Chairman Christopher Cox called "the single biggest challenge" in the accountability law.</br></br>SEC staff members said that under the new proposal, they would urge corporate managers to use their best judgment in evaluating controls, rather than requiring them to scrutinize specific things such as the integrity of executives and the accuracy of petty cash accounts. But, rejecting an approach advocated by some business interests, regulators refused to create special exemptions for small companies. Instead, they said their plan encourages managers to develop tailor-made reviews based on the size and complexity of their businesses.</br></br>Corporate managers have criticized outside auditors for performing unnecessary and expensive work to protect themselves from liability and make more money. Accounting firms argue that the high costs were the result of long-deferred maintenance and have since declined. The Public Company Accounting Oversight Board, which oversees the accounting industry, will make companion proposals for accountants on Tuesday.