Opening remarks from SEC Chairman Cox and from PCAOB Acting Chairman Bill Gradison suggest that Accounting Standard No. 2 is going to be a major focus of much of today's discussion.
Cox opened by recognizing both successes and problems with 404, noting that it has "great potential to improve the accuracy and reliability of financial reporting — and its already done so." But he added — in a not-so oblique reference to the fact that he was one of the legislators who passed Sarbox — that the potential of 404 " can only be realized if we implement the statute as congress intended." Indeed, he said, "in practice, it hasn't always worked out that way." He added that "I have no doubt the PCAOB shares that commitment." I wonder if the panelists share his confidence on that score?
Cox threw out a few statistics, notable that in the first year, some 16 percent of companies reported that their controls were not effective, whereas in the second year, the number was 7 percent.
Issuers will be delighted to hear Cox say "We and the PCAOB . . . are particularly eager to hear whether there are actions we can take." Moreover, he immediately moved to cite the PCAOB's AS2. But he didn't necessarily suggest it need be changed. Rather, he emphasized that "No similar guide exists for companies and their management," essentially forcing companies to base their assessment on AS2.
Small companies got little to celebrate in Cox's statements — he lumped the SEC's own advisory committee report together with a GAO report suggesting the SEC be restrained in easing rules for smaller companies.
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