November 10, 2006
Section 404 in Sarbanes-Oxley
This is pathetic. The WSJ headline today on page one is "Business Lobby Wins Fight to Ease a Costly Sarbanes-0xley Rule" (Kara Scannell and Deborah Solomon). Read the article. There is no change in the statute; there is no change in the rule; there is only an offer of new forthcoming SEC "guidance" on how to use the rule. We do not know what the guidance will be. Good be good could be bad. Pathetic. First, note that there is so much desperation on Section 404 that the mere mention of a possible improvement makes the front page of the Wall Street Journal. We do not even know what, when or how. Second, Barney Frank has declared that he will not touch the statute but that the SEC could cut back a bit on the Rule. This is the news. The SEC has been a combination of timid and self-righteous on cries to fix the Section. No big changes, other than general exhortations from the SEC for auditors to "be reasonable" and "principles" from the PCAOB ("choose audit for circumstances") will emerge; we have already seen such efforts. Third, accountants will continue to do what they do now. They are conservative and fear liability and will follow excessive caution in responding to general directions. Furthermore they have procedures in place that justify huge bills; why should they change?? Pathetic. Without some leadership in Congress this is hopeless. We need to rewrite the audit section to apply only to "central" or "crucial" "overarching" internal control procdures (not "practices") with a red flag rule (if it smells, look) on practices.
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