Unintended consequence of implementing Section 404 707



  • May 16, 2005, ‘Staff Statement on Management’s Report on Internal Control Over Financial Reporting’
    http://www.sec.gov/info/accountants/stafficreporting.htm
    Very interesting:
    ‘Feedback from both auditors and registrants revealed that one potential unintended consequence of implementing Section 404 and Auditing Standard No. 2… Historically, the external auditor may have provided management with advice, based on the auditor’s knowledge, experience and judgment in accounting, auditing, and financial reporting matters. Since introduction of the Act and the new auditing requirements, the staff understands that management at times has hesitated to ask auditors technical accounting, auditing, and financial reporting questions or to provide auditors with early drafts of the financial statements (which, due to their draft nature, may contain errors), because of a concern that these actions could result in the unwarranted identification of internal control deficiencies by the auditors. Additionally, the staff understands that auditors also have a heightened concern that providing management with advice might impair the auditor’s independence’
    Sounds interesting?
    Sounds true?



  • Sounds potentially true, but also incredibly stupid. It just goes to show the level of paranoia in the business community in relation to SOX.
    Sometimes a bit of perspective is needed - not every error results from a control deficiency - and consulting your auditors on matters of judgement remains good practice.



  • It just goes to show the level of paranoia in the business community in relation to SOX.
    Denis, it is exactly what I thought when I read the ‘Staff Statement on Management’s Report on Internal Control Over Financial Reporting’



  • I agree as well. Our auditors, while cautious, did continue to work with us on accounting interpretations, still taking questions to their national office for guidance when necessary.



  • Kymike, that is really good. I always believe that the cooperation with the external auditors is of paramount importance



  • I’ve seen numerous examples of companies maintaining one auditor for daily operational issues and another for SOX 404 certification.
    There appears to be a real fear in the market that seeking counsel from your certifying accountant isn’t best practice. I’m sure some of this sentiment is related to the exorbitant fees certifying firms charge. I suspect another issue relates to the increased liabilities involved in certification.
    I wonder how financial advice differs between these two classes of auditors on typical matters?



  • May 16, 2005, ‘Staff Statement on Management’s Report on Internal Control Over Financial Reporting’
    http://www.sec.gov/info/accountants/stafficreporting.htm
    Very interesting:
    ‘Feedback from both auditors and registrants revealed that one potential unintended consequence of implementing Section 404 and Auditing Standard No. 2… Historically, the external auditor may have provided management with advice, based on the auditor’s knowledge, experience and judgment in accounting, auditing, and financial reporting matters. Since introduction of the Act and the new auditing requirements, the staff understands that management at times has hesitated to ask auditors technical accounting, auditing, and financial reporting questions or to provide auditors with early drafts of the financial statements (which, due to their draft nature, may contain errors), because of a concern that these actions could result in the unwarranted identification of internal control deficiencies by the auditors. Additionally, the staff understands that auditors also have a heightened concern that providing management with advice might impair the auditor’s independence’
    Sounds interesting?
    Sounds true?
    Interesting YES. However, this ‘Staff’ thing SOX. It’s like an illegitimate child, SEC abuses as a valve but all the disclaimers make this a totally useless BS.


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