Activities of the Professional Practice Group
in the SEC's Office of the Chief Accountant
Brian T. Croteau, Associate Chief Accountant,
Office of the Chief Accountant of the SEC
Audrey A. Gramling, Kennesaw State University,
Chair of the Auditing Section’s Auditing Standards Committee
This column is intended to provide a brief summary of some of the current activities of the Professional Practice group in the U.S. Securities and Exchange Commission's Office of the Chief Accountant (OCA).
The Office of the Chief Accountant is organized into three complimenting groups: Accounting, Professional Practice, and International Affairs. These groups collaboratively serve as the principal adviser to the Commission on accounting and auditing matters. See the Spring 2006 issue of The Auditor’s Report for background information on these groups and their activities (http://aaahq.org/audit/Pubs/Audrep/06spring/item06.htm).
This update focuses on some of the recent activities in OCA including: (1) hiring of new personnel; (2) consideration of matters related to internal control reporting; and (3) matters related to oversight of the Public Company Accounting Oversight Board (PCAOB). This report highlights current activities and provides relevant links that provide additional detail.
OCA Welcomes New Personnel
In July 2006 Chairman Cox announced the appointment of Conrad Hewitt as the Commission's Chief Accountant (http://www.sec.gov/news/press/2006/2006-122.htm). Hewitt replaces Don Nicolaisen, who left the Commission in November 2005.
(http://www.sec.gov/news/press/2005-127.htm)
In August 2006 OCA welcomed Dr. Zoe-Vonna Palmrose as the SEC Deputy Chief Accountant for Professional Practice.
(http://www.sec.gov/news/press/2006/2006-131.htm)
Palmrose replaces Andrew Bailey who left the Commission in December 2005.
(http://www.sec.gov/news/press/2005-159.htm)
In July, the Commission announced that David Plumlee, Marlene Plumlee, and Tom Noland were named as the new Academic Fellows in the SEC’s Office of the Chief Accountant. These new Academic Fellows replace Mark Taylor, who returned to Creighton University in Omaha, Neb., Teri Yohn, who recently accepted a faculty position at the University of Massachusetts, Amherst, and Cheryl Linthicum, who returned to the University of Texas, San Antonio (http://www.sec.gov/news/press/2006/2006-115.htm). David will primarily be working with the Professional Practice group, Marleen with the Accounting group, and Tom with the International Affairs group.
Internal Control Reporting
Internal control reporting in accordance with SOX Section 404 has been the focus of much recent activity. In May 2006 a roundtable on the topic was held in order for the SEC and the PCAOB to obtain insights on second-year experiences with the implementation of internal control reporting and auditing provisions.
Feedback from participants in the May 10, 2006 SEC and PCAOB sponsored roundtable and comment letters suggest that improvements were realized in year two (e.g. benefits to integrating procedures/controls into everyday processes and reduced costs); however, concerns were expressed in a number of areas including ongoing costs, scalability of the assessment process to smaller companies, excessive/duplicative testing, and excessive amounts of documentation.
Detailed information on the roundtable, including an archived webcast, can be found at http://www.sec.gov/spotlight/soxcomp.htm.
In response to the feedback received in connection with the Roundtable, the SEC announced actions the Commission is planning to take in moving forward in the area of internal control reporting (http://www.sec.gov/news/press/2006/2006-75.htm). The actions include issuing internal control reporting guidance for issuers, working with the PCAOB to revise AS No. 2, inspecting the PCAOB’s operations, including its inspection program, as part of the Commission’s oversight of the PCAOB, and further extending compliance dates for smaller public companies.
In conjunction with issuing internal control reporting guidance, the Commission issued a Concept Release soliciting public comment related to the type of guidance management would like from the SEC (http://www.sec.gov/news/press/2006/2006-112.htm). The comment period closed September 18; submitted comment letters can be viewed at
http://www.sec.gov/comments/s7-11-06/s71106.shtml.
On August 9 the Commission issued two releases related to SOX Section 404 compliance dates. (http://www.sec.gov/news/press/2006/2006-136.htm). There were three subjects addressed in these two releases:
- First, the Commission proposed to grant relief to smaller public companies by extending the date by which non-accelerated filers must start providing a report by management assessing the effectiveness of the company’s internal control over financial reporting. This release also proposes to extend the date by which non-accelerated filers must begin to comply with the requirement to provide an auditor attestation report on internal control over financial reporting. If adopted, the result would be that non-accelerated filers would only be required to complete management’s portion of the internal control requirements in their first year of compliance.
- Second, the Commission granted certain foreign private issuers (accelerated filers, but not large accelerated filers) relief from the requirement to provide an auditor attestation report on internal control over financial reporting. As a result, these issuers are only required to complete management’s portion of the internal control requirements in their first year of compliance.
- Third, the Commission proposed a transition period for newly public companies. If approved, newly public companies would not be required to provide either a management assessment or auditor attestation report until it has previously filed one annual report with the Commission.
SEC and PCAOB Matters
The Commission staff continues to work with the PCAOB staff on revisions to Auditing Standard No. 2, which implements Section 404 for auditors, so that it will more efficiently protect investors in companies of all sizes.
In July, the Commission approved a rule that facilitates the Commission’s review and approval of the budget and accounting support fee for the PCAOB which is required by the Sarbanes-Oxley Act of 2002 (http://www.sec.gov/rules/final/2006/33-8724fr.pdf). The order approving the PCAOB’s budget and annual accounting support fee for calendar year 2006 can be found at http://www.sec.gov/rules/other/2006/33-8676.pdf.
Brian T. Croteau is Associate Chief Accountant in the Office of the Chief Accountant at the SEC.
Audrey A. Gramling is an Associate Professor at Kennesaw State University and served as an Academic Fellow in the Office of the Chief Accountant at the SEC during 2004/2005.
The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. Therefore, the views expressed in this article represent only the authors' views and do not necessarily reflect the views of the Commission or the other members of the staff of the Commission.
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