On May 1, 2006 the U.S. Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) issued press releases announcing the participants in the upcoming SEC/PCAOB joint roundtable to be held May 10 on: "Second-Year Experiences with Internal Control Reporting and Auditing Provisions." The SEC announcement is available here, and the PCAOB announcement is available here.

FEI President, CCR Members to Participate in Roundtable
FEI President and CEO Colleen Cunningham is among those who will be speaking at the roundtable. Cunningham will provide FEI's views on "year two" of implementing the SEC and PCAOB reporting requirements under Section 404 of the Sarbanes-Oxley Act, as well as FEI's suggestions to make the process more efficient and effective.

A number of other panelists chosen to speak at the roundtable in their personal capacity on behalf of their companies or other organizations include members of FEI's Committee on Corporate Reporting. These include: Phil Ameen of General Electric Co., Frank Brod of Microsoft Corp., Nick Cyprus, FEI's representative on the board of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and Bob Davis, CA Inc..

Additional information released by the SEC on May 1 regarding the May 10 roundtable includes a briefing paper, and an agenda breaking out the various panels that will appear that day.


PCAOB Issues Statement on 2006 Inspections of Internal Control Audits
In related news, the PCAOB also issued on May 1 a "Statement Regarding the PCAOB's Approach to Inspections of Internal Control Audits in the 2006 Inspection Cycle." (the "Statement"). In an accompanying press release, PCAOB Chairman Bill Gradison stated, "A key emphasis of the 2006 inspections will be the efficiency of the firms' performance of audits of internal control over financial reporting," adding that the PCAOB inspectors, will be making a focused effort to ascertain that auditors have achieved the objectives described in the board's [PCAOB] internal control auditing standard with the least expenditure of effort and resources."

Specifically, the PCAOB's 2006 inspections will examine how well the audit firms implemented the PCAOB's May 16, 2005 guidance, and guidance included in the PCAOB's November 30, 2005, report on the initial implementation of PCAOB Auditing Standard No. 2 (AS2).

PCAOB inspectors will focus on the following in their 2006 inspections of internal control audits:

• the degree to which the audit of internal control over financial reporting and the audit of financial statements were performed as a single, integrated and mutually reinforcing process;
• whether auditors use a top-down approach in which company-level controls were identified as the first step in planning the audit;
• whether auditors properly assessed risk and used a risk-based approach to determine the nature, timing, and extent of internal control testing; and
• whether auditors took full advantage of the opportunities available to use the work of others, such as the company's internal audit staff.

PCAOB Publishes Overview of AS4, Reporting on Remediation of Material Weaknesses, in Response to SEC Request
Another recent internal control reporting-related development includes the PCAOB's publication on April 27 of an "Overview of Auditing Standard No. 4 [AS4] - 'Reporting on Whether a Previously Reported Material Weakness Continues to Exist.'" This overview was issued by the PCAOB in response to the SEC's request included in the SEC's approval of AS4, that the PCAOB "issue a clear and concise outline of the affirmative audit steps set forth in [AS4]…within 90 days of the issuance of [the SEC's approval of AS4]. The SEC's approval of AS4 was issued on Feb. 6, 2006.

Prepared May 1, 2006 by Edith Orenstein (eorenstein@FinancialExecutives.org), Director, Technical Policy Analysis, Financial Executives International (FEI). This summary does not represent FEI opinion, unless specifically noted above.