Months of protests by public companies and discussions with the Securities and Exchange Commission about the expense and difficulty of compliance with the Sarbanes-Oxley Act's Section 404 have finally brought proposed changes.
The SEC has recommended revisions of Section 404 requirements that would give public companies more freedom to determine which of the internal controls pose a risk—and thus would require monitoring and reporting under the law. Officials term it a "scaleable" approach, one in which the size of the public company, as well as the complexity of its business or industry, will figure.
A companion proposal by the Public Company Accounting Oversight Board to cut back Section 404 audits in size and scope is intended to reduce work and costs, especially for the smaller public companies that have not yet undergone Section 404 reviews. Those small public companies would reap the greatest benefits from the proposed changes.
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