TheCorporateCounsel.net

As reported by CFO.com, the PCAOB and the SEC are working together to rewrite the internal controls auditing standard – Auditing Standard No. 2 – so that it’s much shorter and clarifies the respective roles of the internal auditor and management in the internal controls process. However, the core principles of AS #2 will not change.

CFO.com also posted this survey with an interesting perspective from CFOs, including questions on Section 404 and putting liabilities for pensions and leases on the balance sheet. The survey results seem to run counter to the critics who content that Section 404 needs a complete overhaul as 70% say that they have seen at least some improvement in their business due to the new law.

SOX 404 – Moving Forward

Yesterday, Corp Fin Director John White delivered this speech on internal controls. I’m still catching up on my emails after being away two days at our Conference and haven’t read it yet…

The New “Committee on Capital Markets Regulation”

But I have read this article from the NY Times’ Floyd Norris about a new Commission – the “Committee on Capital Markets Regulation” – being formed to make legislative recommendations to Congress about how to “fix” Sarbanes-Oxley. Bizarre timing given all the scandals in the papers this week; Bristol-Myers, Hewlett-Packard, etc.

Here is a list of the Committee’s members – and here is an excerpt from the NY Times article:

“The Committee on Capital Markets Regulation, announced today, includes representatives of every industry group interested in relaxing regulation of securities markets, and of increasing regulation of those who would sue them. It is not an official body, but it includes former close associates of Treasury Secretary Henry Paulson, and the news release announcing the formation of the group included praise from Mr. Paulson.

As such, it provides a road map to what some people hope will come out of the current anti-regulation mood, and it calls for a lot more than relaxing Section 404 of the Sarbanes-Oxley Act, which requires that companies have their internal control systems audited. Other areas to be explored include finding ways to limit liability for auditors, directors and bankers, and to assure that no future Eliot Spitzer comes out of state government to impose new regulations on investment banks.

It will also look at shareholder rights, such as whether activist hedge funds should be curbed, and will consider whether the Securities and Exchange Commission should be required to pay more attention to the cost of its regulations. It may even suggest giving some other part of government the right to block S.E.C. rules on the ground they are too costly.

There are professors and chief executives galore on the committee, and even a lobbyist and a corporate lawyer. But there are no former members of the S.E.C.

Hal Scott, the Harvard law professor who will direct the committee and helped choose its members, told me that was deliberate. “We would not want to put people in the position who had formulated these rules in the past,” he said. “They may have a lack of objectivity.”

The committee plans to get a report out in November, a schedule that committee co-chairman W. Glenn Hubbard told me was suggested by Mr. Paulson. Mr. Hubbard, a former chairman of President Bush’s Council of Economic Advisers and now dean of the Columbia University Business School, said that there would be plenty of S.E.C. knowledge because “Many of these people have S.E.C. interaction on a regular basis.”

Mr. Scott says he assumes Congress will not act on any recommendations until next year, but there is a scenario that might lead to quicker action, during a post-election session of the Congress. There is a pending lawsuit filed by the Free Enterprise Fund challenging the constitutionality of the Public Company Accounting Oversight Board. If a judge were to agree with the premise of the suit, that could create a crisis that would seem to require quick Congressional action. This committee’s recommendations would then be available to anyone hoping to reduce the regulatory burden.”