The Securities and Exchange Commission is giving serious thought to putting off corporate implementation of some of its rulemaking initiatives in order to give senior managers and auditors time to comply with Sarbanes-Oxley’s internal controls provisions in a letter-perfect way.
No telling yet what type of breathing room the Securities and Exchange Commission has planned, but recent public comments by chief accountant Donald Nicolaisen issued last week suggest that the delay is partly based on a fear that the current schedule of accounting reforms is overloading auditors and corporate clients.
Nicolaisen, who spoke at the American Accounting Association’s annual meeting in Orlando, Fla., on August 10, said in his prepared remarks that the difficulty of preparers in implementing the new Section 404 rules of Sarbox issued by the Public Company Accounting Oversight Board (PCAOB) is a major cause for concern for both companies and their auditors. The PCAOB rules concern attestations auditors must make of their public-company clients’ attestations of their internal controls.
“It is absolutely critical that we get the internal control requirements right,” Nicolaisen said. “In fact, it’s so important that the SEC staff is considering whether to recommend that the implementation of other initiatives be delayed, at least temporarily, because we want management and their auditors to put the appropriate emphasis on these requirements and to get them right the first time around.” He did not specify in his remarks which initiatives could be place on hold.
As the timetable currently stands, accelerated corporate filers will be required to comply with Section 404 for fiscal years ended after Nov. 15, 2004, while the cut-off date for smaller companies and foreign private issuers will be July 15, 2005.
“I realize that we are doing a lot in the standards-setting and rulemaking arenas, and I know that there is a concern with overload,” he told AAA members. “During the commission’s Sarbanes-Oxley rulemaking initiatives, we received many comments focusing on the increased burden that the proposed rules would place on smaller-sized public companies.”
About that, he acknowledged, the struggle will be to find a balance. “The burden to smaller companies can be disproportionate and needs to be appropriately weighed against the protection of investors,” he said. “This balancing act is something that I will continue to closely monitor, and it is also an important consideration for FASB and the PCAOB.”