FEI's Small Public Company Task Force sent a comment letter to the Securities and Exchange Commission (SEC) on March 30, in response to the recommendations included in the February 28 Exposure Draft (ED) issued by the SEC Advisory Committee on Smaller Public Companies (ACSPC).

Summary of Comment Letter In its comment letter, FEI's Small Public Company Task Force "agree[d] with the recommendation in the ED that further guidance is needed to address the core issue identified by the SEC ACSPC: to improve the cost-benefit equation of complying with Section 404."
Specifically, the comment letter stated, such guidance should come in the form of "right-sizing" PCAOB's Auditing Standard No. 2, "An Audit of Internal Control Performed in Conjunction with an Audit of the Financial Statements" (AS2), either in a separate standard, or in AS2 itself, to address the needs of small and large companies. Further, the comment letter stated, "The "right-sized" standard can reflect learnings of the SEC ACSPC as well as information provided at the upcoming May 10, 2006 SEC-PCAOB roundtable [on internal control]."

Additionally, the comment letter suggested that rather than providing an exemption, that companies be offered the option of providing a "disclaimer" (similar to that for the listing requirements for boards of public companies) if they are unable to file the required management or auditor's reports on internal control under Section 404.

The comment letter also supported the ED's recommendations regarding continued support for principles-based accounting standards, including the ED's recommendation that "simplicity and the ease of application should be important considerations when new accounting standards are established." The comment letter also supported the ED's recommendation that more guidance be provided by the SEC on quarterly vs. annual materiality.

Regarding the ED's recommendations relating to the Committee of Sponsoring Organizations of the Treadway Commission (COSO), the comment letter said, "We do not agree that the status of COSO has been "elevated" …[and]… [w]e do not believe it is appropriate at this time for COSO to become a standard setter." However, the comment letter stated, "COSO is undergoing its own strategic planning process, and we support that effort."

Further details are in the comment letter, available here. The SEC is posting all comment letters on the ED here, and the deadline to submit comments on the ED was April 3.

Prepared by: Serena Dávila, sdávila@FinancialExecutives.org, Director, Technical Activities, Financial Executives International (FEI). This summary does not represent FEI opinion unless specifically noted above.