Auditing standards
Even before President Bush told an enthusiastic Wall Street audience in January that, while Sarbanes-Oxley doesn’t need to change, “we need to change the way the law is implemented,” the Public Company Accounting Oversight Board (PCAOB) had taken steps to do precisely that. However, as it advances an openly “principles-based” approach, more like that followed in Europe than the US “rules-based” approach, some question whether a new audit standard is certain to fail unless it’s backed up by new law.
In an effort to make auditing internal controls more efficient, the new Audit Standard No. 5 no longer requires auditors to offer an opinion on management’s evaluation of internal controls. Instead, it instructs auditors to cover the areas of greatest risk, rather than obliging them to visit operations, and permits them to rely on previous audits rather than start from scratch each year. While the new rule is subject to revision and approval from the SEC, it looks likely to be passed. The SEC has applauded the changes and notes that its own guidance on the topic takes a similar principles-based approach.
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