Rules Let Auditors Be More Flexible

Accounting firms should be more flexible in reviewing their client companies’ compliance with key provisions of the 2002 Sarbanes-Oxley corporate reform law, federal regulators said in new rules issued Monday.

The moves by the Securities and Exchange Commission and the Public Company Accounting Oversight Board, which oversees the auditing industry, were aimed at addressing a torrent of criticism that the Sarbanes-Oxley law has become a compliance nightmare for many businesses.

Legions of companies have complained that the law’s provisions mandating stronger internal financial controls are too burdensome and costly, and should be eased. Smaller firms have been the most vocal, and they have found a sympathetic ear in Congress -- where there are rumblings of a possible legislative fix to the anti-fraud law.

In the new rules, the accounting board said auditors should exercise judgment “to tailor their audit plans to the risks facing individual” companies rather than using boilerplate “checklists.”

William McDonough, the board’s chairman, said although tighter auditing rules have “the potential to significantly improve the quality and reliability of financial reporting,” it had become clear to the board that “the first round of internal-control audits cost too much.”

The SEC also urged flexibility in how auditing firms judge whether a company’s internal controls are adequate to ensure accurate financial reporting.

The SEC said accounting firms “should recognize that there is a zone of reasonable conduct by companies that should be recognized as acceptable.”

A number of industry groups praised the regulators’ actions.

“This new guidance will help our member companies save money and ease the unnecessary and unfair burden Sarbanes-Oxley ... has placed on companies of all sizes,” said William Archey, president and chief executive of AeA, a trade group representing 2,500 U.S. technology companies.

David Chavern, an executive at the U.S. Chamber of Commerce, said the guidelines are “a solid first step, but there are obviously still a lot of issues out there and still a lot of hard work to be done.”