Ready to Report

Just before the new year, the SEC and the Public Company Accounting Oversight Board held extensive meetings and hearings to consider new rules to guide companies in complying with the Sarbanes-Oxley Act, which sets financial reporting requirements for public companies. Considered overly burdensome, the Sarbanes-Oxley Act has been under constant fire from the business community. The new guidelines may address some small-business concerns.

The main Sarbanes-Oxley provision affected, Section 404, currently requires management to evaluate the company's internal controls over financial reporting and to have that evaluation reviewed by an independent auditor. The new guidelines extend the deadline by which management of smaller companies must evaluate their internal controls and implement independent auditors' requirements.

Likewise, because many management teams were uncertain how to conduct the initial evaluation of their own financial reporting controls, the new SEC guidelines provide clearer standards for that process. Having standards promulgated by the SEC frees companies from having to seek advice from auditors on this step--another potential savings.

"Both documents were designed to ease the burden on companies and auditors," says Trent Gazzaway, managing partner of corporate governance for Grant Thornton LLP in Charlotte, North Carolina. "The net impact [is that] this is going to foster further efficiency improvements," which over time will bring the cost of compliance down even further.

The SEC and the PCAOB have each issued formal guidance letters on recommended changes and sought public comment on them. After the public weighs in, the agencies will have final votes on whether to adopt the changes.