SEC and PCAOB Reform and Harmonize SOX 404 Requirements

By: Valerie Ford Jacob, Stuart H. Gelfond, Richard A. Steinwurtzel, Anita J. Finkelstein, Frank Aum

As anticipated, the Securities and Exchange Commission and the Public Company Accounting Oversight Board have acted to reform and harmonize their guidance to public companies and public company auditors on compliance with Section 404 of the Sarbanes-Oxley Act. The SEC adopted guidance which, for the first time, provides public company managements with instruction regarding SOX Section 404 compliance separate and apart from that provided by the PCAOB to auditors. In a coordinated action, the PCAOB adopted new Auditing Standard No. 5 and rescinded Auditing Standard No. 2. The new auditing standard greatly simplifies guidance to auditors, while harmonizing it with the final SEC guidance. The agencies' actions come in response to widespread criticism and complaint about the cost and complexity of Section 404 compliance.

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