SEC Keeps Momentum Going on Easing of Internal Control Mandates

With the issuance of the SEC's concept release on management's reports on internal controls, it appears that the drive towards ameliorating the impact of Section 404 on public companies is moving inexorably to the provision of some form of relief from the burdens imposed by that statute. The other front in this offensive is the PCAOB and its Auditing Standard No. 2, which some have called mind-boggling. The Board has basically committed to amending Auditing Standard No. 2. What is heartening about this two-prong effort is that the SEC and PCAOB will coordinate the reform offensive. The May 2005 guidance from the SEC and the Board, while helpful, does not appear to have done the job. More will be needed. One interesting question posed in the concept release is why the majority of companies, both foreign and domestic, selected the COSO framework rather than the UK's Turnbull Report. While the SEC did not mandate a particular internal controls framework, COSO has become the de facto framework, even for foreign companies.