Accounting-industry regulators yesterday acknowledged that auditors and public companies had faced "enormous challenges" in complying with strict new governance measures but expressed confidence the process would become easier with time.
The rules, which require companies to assess the effectiveness of their financial controls, by some estimates cost large public companies an average of $4.4 million last year. Proponents say they help reduce bookkeeping fraud and related abuses after massive financial scandals rocked investor confidence three years ago.
The Public Company Accounting Oversight Board, which inspects the work of audit firms, identified numerous problems with the first round of control reviews. The 19-page document said too many auditors performed unnecessary work without considering which clients were risky and which carried fewer hazards.
The report could give support to complaints from the U.S. Chamber of Commerce and other trade groups that have called on regulators to ease the burden, particularly for small businesses, which generally lack in-house expertise to carry out control reviews. Chamber officials have criticized auditors for doing too much work and charging too much for the reviews.
But William J. McDonough, speaking on his last day as chairman of the accounting oversight board, said the panel is "confident that auditors will be able to perform more effective and efficient audits in future years" without full-scale rule changes.
It could be months before the Securities and Exchange Commission selects and vets a candidate for McDonough's job. SEC Chairman Christopher Cox and other commissioners are said to be looking for someone with national stature who is also familiar with the accounting industry.
Separately, SEC General Counsel Giovanni Prezioso, who has served under three chairmen in as many years, announced that he plans to leave in January. As the agency's top lawyer, Prezioso has defended it against challenges to controversial mutual fund governance and hedge fund registration rules. During his tenure, he has offered legal advice on more than 2,000 enforcement cases and 100 new rules.
Prezioso, 47, has not begun interviewing for new jobs, citing ethics considerations.
The father of three came to the SEC from the District office of Cleary Gottlieb Steen & Hamilton LLP. That law firm is now home to another former SEC general counsel, David M. Becker.