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Howls Of Protest Greet 404 Rule

Execs worry that PCAOB's draft audit standards will mean spike in costs

By Staff Writer | Updated on December 01, 2002

The Public Company Accounting Oversight Board (PCAOB) got an earful of harsh criticism recently about its proposed standards for the work auditors should do before signing off on management assessments of companies’ internal controls. Most of the 186 comment letters received by the chief auditing regulator were from finance executives, and their common theme was the likely cost the standards would impose on companies. “It’s the addition of a costly independent audit attestation that people are objecting to,” says Curtis Verschoor, professor of accounting at DePaul University. “That’s where the battle lines are drawn.”

Arguing that the PCAOB is misinterpreting Congress’s intent in Section 404 of the Sarbanes-Oxley Act, the critics assert that Congress only meant for auditors to evaluate these internal assessments, not undertake the much bigger task of conducting their own audit of the underlying controls. Even worse, the proposed PCAOB standard calls for outside auditors to use their own work as the “principal evidence” in determining whether company controls are adequate, rather than relying on work done by internal corporate auditors.

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