The Securities and Exchange Commission’s Public Company Accounting Oversight Board issued guidance to external auditors Monday to relieve some of the burden for publicly traded companies in complying with the auditing requirements of Section 404 of the Sarbanes-Oxley Act.
Auditors should tailor their audits to the risks facing individual companies and not use “standardized checklists” to uniformly test all internal controls, the board said. Auditors should use a risk-based approach in deciding which processes and accounts of a particular company pose bigger risks, and therefore demand more attention.
The guidance was issued in response to a roundtable the SEC held last month with companies about Section 404 compliance problems. Hundreds of companies missed the deadline for complying with the requirements; hundreds more, including dozens of small banking companies, have delisted their stocks or sold themselves to avoid the requirements.
Banking trade groups applauded the board’s guidance and expressed hope that auditors would abide by them.
