Regulators to begin SOX reviews

"Over the last two years, the board has heard a consistent message that compliance with the internal control provisions of the [SOX] act has required greater effort and resulted in higher costs than expected," PCAOB officials said in a report. "The board agrees that auditors should perform internal control audits as efficiently as possible for companies that are required by the SEC's rules to obtain an audit report on internal control."

As part of its considerations, the group said it is reviewing whether the existing standard encourages auditors to perform procedures that are not necessary merely in order to meet the requirements of SOX.

The PCAOB said it will ultimately seek to eliminate unnecessary procedures, simplify and shorten audits by reducing their detail and specificity, and make the audits more reasonable for smaller and "less complex" companies.

New rules that are being proposed would instead focus on requiring auditors to focus on "the most important" SOX controls and emphasize the importance of risk assessment.

Other proposed changes seek to clarify the role of materiality in relations to financial reporting, remove requirements to evaluate management processes, permit consideration of information obtained during previous audits and direct auditors to tailor tests to reflect the attributes of smaller companies, among other provisions.

If the PCAOB issues the proposals, it will suggest a 70-day period during which outsiders can make recommendations about the rules. Following the close of the comment period, the board will determine whether to adopt the suggestions and make any additional amendments.

Any final rules will be submitted to the SEC for approval.

While the cost of complying with SOX remains high, research indicates that public companies spent 23 percent less to keep up with the legislation in 2006 than they spent in 2005, according to a report from Financial Executives International, based in Florham Park, N.J.

Based in the group's tests, SOX compliance cost businesses an average of $2.92 million in 2006, compared with $3.8 million in 2005.

FEI said that 78 percent of the 200 companies participating in its survey indicated that even with savings garnered from their increased experience dealing with SOX, the regulation's costs still outweigh its benefits.

"This drop is largely attributed to increased efficiencies, a positive learning curve, and use of technical systems and computer software," Michael Cangemi, president of FEI said in a statement. "While there is still work to be done, we have come a long way."