Most CFOs won't forget Alan Beller. He is credited with overseeing the implementation of more than 15 rule-making efforts related to the Sarbanes-Oxley Act, including those requiring certification of the accuracy of financial reports by chief executive officers and chief financial officers. As head of the Securities and Exchange Commission's Division of Corporate Finance, Beller also oversaw the rule-making that produced the most significant reforms in decades to the securities offering process, and the first comprehensive SEC rules for registration and disclosure for the asset-backed securities market.

In February, Beller decided to return to private industry after serving a little more than four years at the SEC. On August 1, he will rejoin law firm Cleary Gottlieb Steen and Hamilton, where he had been for 25 years prior to his government service. He will be based in the firm's New York City office and will focus on securities, corporate governance ,and other corporate law matters.

Beller recently spoke with CFO.com about a wide range of critical topics, including the Sarbanes-Oxley Act—including Section 404; the SEC's proxy access proposal; and the majority vote movement as it relates to the election and ratification of corporate directors. Here's what Beller had to say.

CFO.com: Why did you decide to leave the SEC earlier this year?
Alan Beller:I actually stayed one to two years longer than I expected to. [Former SEC chairman Harvey] Pitt and I talked about me coming down for two or three years to work on significant reforms of the disclosure system and the securities offering process. [But] the job I had was not the job I accepted. The first two years were dominated by a process that was more reactive than proactive, calming the turmoil at the commission and [in the] markets and implementing Sarbanes-Oxley.

That was a big accomplishment.
One of the things I am most proud of is playing a successful role in [implementing Sarbanes-Oxley].

Do you think Sarbanes-Oxley has been a success?
Except for 404, [the Sarbanes-Oxley Act] has been, on the governance and disclosure side, an absolute unqualified success. It has changed the way CEOs, CFOs, and top management think about disclosure. The biggest thing is—by making CEOs and CFOs certify [to the accuracy of financial statements]—is that with the stroke of a pen you have changed the dynamic of company disclosure. One thing I saw in the 1990s was a suspension of skepticism. SOX brought back healthy, robust skepticism.

Critics of Sarbox cite Section 404—the internal control provision—as being too onerous. Is the criticism legitimate?
I think 404 is a work in progress. The first go around, for a variety of reasons, was too burdensome and way too expensive by any stretch of the imagination. I think the objective of the internal control provision is a good one. A lot of people say internal controls won't prevent fraud. So get rid of it. I don't think [Sarbox] was just about fraud. It was triggered by fraud and addresses fraud. But parts are intended to improve the corporate system that goes beyond fraud.

Where will those improvements manifest?
Over time, [Sarbox] will increase the reliability of financial reporting. You can't argue that's a bad thing. But, the first-time cost was too high.

Do you agree with the critics who claim that Section 404 was too financially burdensome?
The first-time burden, in terms of management time, in which managers had to worry about 404 instead of strategic decisions, was skewed. [The initial experience] was not as good as it could have been because there was too much focus on counting all of the grains of sand in the ocean, rather than on what was important. [Compliance] was difficult for the biggest companies—those with 60,000 to 70,000 controls [over financial reporting systems].

What will ease the burden going forward?
It is time to amend AS2 (Auditing Standard No. 2).

How will changing the Public Company Accounting Oversight Board's AS2, which governs the way auditors conduct Section 404 audits, help companies?
The combination of a prescriptive approach and the pressures accountants are operating under—they fear zero tolerance for their faults—has turned AS 2 into a rule that discourages application of judgment, and turned it into a rule that operates below an appropriate level of materiality. Too often it leaves management judgments the sideline, trumped by auditor judgment at times when the auditors should defer to the manager.

In light of the difficulties large companies have complying with Sarbox Section 404, do you think smaller companies should be exempt from 404 requirements?
Let's start with a statistic. Companies under $75 million in float represent nearly half of public companies or more, but represent 1 percent of the total U.S. public market cap[italization]. Some people have taken that as an invitation to exclude them, but it doesn't make sense. A real eye opener for me as a director at the SEC was the disproportionate incidence of trouble, of one sort or another, at smaller companies, sometimes rising to the level of fraud. So, to say don't look at [small companies] is not the right thing to do. On the other hand, a system for small companies [should not be put in place] until you are confident that you have a system that works.

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