SEC Okays Controls Rule, Pledges to Eye Auditors

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Not all the comments about AS5 have been positive. Earlier this week, Nasdaq sent out a press release calling for further changes and quoted one of the lead legislators behind Sarbox, Michael Oxley, who is the stock market's vice chairman. Nasdaq said "materiality" should be better defined in the rule and the PCAOB should create a so-called ombudsman office that would serve as an advocate for companies "that feel their internal controls are being over-audited." Said Oxley: "While AS5 represents improvement over the previous standard, it does not go far enough to help decrease regulatory complexity and reduce the risk for overzealous auditing."

At the hearing, Atkins implied that the standard could contain clearer guidance and questioned if auditors had enough guidance on how to judge a what a "material weakness" entails. Zoe-Vonna Palmrose, SEC deputy chief accountant for auditing and professional-practice issues replied that the standard is purposely more principles-based than AS2 and that the SEC is looking at the term "materiality" in a broader context outside of auditing standards.

Before giving his support, Atkins admitted the standard wasn't perfect. But it was good enough for his vote. "We might not be completely happy with it but happy to at least put AS2 out of its misery," he said.

The SEC also voted unanimously on a definition for the term "significant deficiency" in their rules. Under the new definition, a significant deficiency in internal control over financial reporting "is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of a registrant's financial reporting."