Audit reform: the half-loaf solution
Filed in archive Accounting by leon on December 21, 2006

The PCAOB's new accounting game plan proposes looser guidelines that would direct beancounters to focus on the integrity of corporate managers and the most risky aspects of a company's financial reports. Under the new proposals, auditors would have to look for problems that have a "reasonable possibility" of producing a weakness in a company's finances, as opposed to the existing Provision
which instructs auditors to consider issues with a "more than remote" chance of causing problems. Auditors will be encouraged to examine how companies close out their books at the end of each quarter and examine managers' integrity and ability to overrule in-house accountants.The proposed changes, which comes days after the Securities and Exchange Commission came out with its own proposals to ease the controls burden, are not going to make everyone happy. Many smaller companies were hoping for partial or full exemptions from Section 404. What they have to settle for instead is guidance.
But as Bill Carlino, editor in chief of Accounting Today put it, the SEC proposals (and by implication the PCAOB changes announced this week) amount to a half-loaf solution. And that's better than no loaf.
"It may be some time before regulators approach the issue of SOX reform, so for better or worse, smaller filers will soon discover if half a loaf is better than half a restatement."
Still, with the PCAOB now fighting for its existence, we can expect this debate to go on for some time.
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Mr Wong
