The SEC is evaluating ways to reduce the cost and complexity of complying with the controversial Section 404 of the Sarbanes-Oxley Act while preserving its benefits, William H. Donaldson, SEC chairman, testified today. The provision requires that "management assess the effectiveness of a company's internal control over financial reporting and that external auditors attest to, and report on, that assessment," according to his prepared remarks before the House Committee on Financial Services. Implementation costs "have been higher than we and public companies anticipated," according to Mr. Donaldson. "(W)e also heard that some costs may have been unnecessary." The SEC and Public Company Accounting Oversight Board are "working to provide appropriate guidance in order to clarify these issues for the 2005 audit cycle."
The SEC is also working with foreign company registrants to accommodate their concerns by extending their compliance for a year and identifying other issues regarding their implementation, he added.
Mr. Donaldson's speech also noted that the SEC authorized distribution of $5.2 billion in civil penalties from 100 cases to help compensate harmed investors. Before the act, all civil penalties were paid into the Treasury.
He also noted that the SEC is seeking authority to impose civil penalties to compensate investors where currently there is no "ill-gotten gain - or disgorgement - to be obtained from a particular individual but against whom it is appropriate to impose a penalty."