Professional Services Monitor: Today

Once again, SOX 404 internal controls audit requirements have been postponed for so-called “micro-cap” companies, those with market capitalizations below $75 million. In a speech today before the New York Society of CPAs, Conrad Hewitt, chief accountant at the SEC, said that the deadline has been extended until at least 2008. “For micro-cap companies … they will not have to have an internal control audit until 2008, and if we don’t see the cost-benefits are in line by then we’ll have to defer it even more,” Hewitt said. “We will come up with something different if AS5 does not help the companies to keep the cost down. We’ll have to wait and see for another year whether that 2008 requirement could be deferred again.”

Reuters: SEC may extend SOX deadline for small US companies

The PCAOB released a public report today, “Observations on Auditors’ Implementation of PCAOB Standards Relating to Auditors’ Responsibilities with Respect to Fraud,” that focuses on common issues the board found over the course of its firm inspections. The report does not name any specific firms nor proposes changes to any PCAOB standard.

In the board’s press release on the report, Mark Olson, board chairman, said, “This report is a constructive way to remind all auditors of what the Board’s standards require of them in these areas. Careful attention to these requirements is important to best position auditors to detect material misstatements caused by fraud.”

Among the issues cited by the board is an overall checklist approach by auditors. Instead designing testing based on the particular situation, the board finds that auditors often check-off items in standard audit programs. PCAOB inspectors also found instances failed to expand audit procedures when addressing identified fraud risk factors, an approach the board calls “mechanical” in the report.

A PDF copy of the report can be obtained from the PCAOB website.