Agreement Elusive on Accounting Rule Change

Regulators continue to revise an accounting rule criticized by business groups as overly expensive, Securities and Exchange Commission Chairman Christopher Cox said yesterday, but an agreement remains days away.

Officials at the SEC and the board that oversees the audit industry have been meeting and exchanging documents about the measure, which requires accountants to review corporate financial controls, for the better part of two weeks. The rule is the single most expensive part of the Sarbanes-Oxley law, corporate accountability legislation passed in 2002 that is designed to prevent fraud after collapses at Enron and WorldCom.

Trade groups and lawmakers have attacked the provision and called for regulators to scrap the burdensome approach. At the same time, consumer advocates warn that establishing different standards for thousands of small and mid-size businesses would effectively gut the measure and make financial reports less reliable for investors.

The trick is to make complying with the rule less expensive, particularly for smaller companies with fewer resources. Coming to agreement on the mechanics, including forcing accountants to rely on the judgment of corporate managers, and to focus on the most important issues in the financial statements, has been a difficult task. The debate broke into public view two weeks ago after a memo from Cox was leaked to the press.

At a public meeting yesterday, Cox said he was "confident" a pact could be reached soon that would both "improve the reliability of public company financial statements and better protect investors." The SEC is to meet Dec. 13 to issue a new proposal. Mark Olson, chairman of the Public Company Accounting Oversight Board, said last week that his panel would meet to issue its own guidance sometime before Christmas.

Separately, the SEC's five commissioners unanimously approved the accounting board's $136.4 million budget, an increase of about 4 percent over 2006. Olson said the budget would allow him to hire more inspectors and enforcement officials to police the work of more than 1,600 firms that are registered with the board.

SEC officials are to testify today at a Senate Judiciary Committee hearing on how the agency enforces insider trading rules against hedge funds. Among the witnesses will be a former SEC lawyer who claims he was fired for seeking to depose a top investment banker. The agency has argued his allegations lack merit.