Many smaller public companies will soon be subject to their first auditor attestation. For those holding out hope that the U.S. Securities and Exchange Commission (SEC) might eliminate, or limit in some way, the attestation requirement for smaller public companies, insights as to the SEC’s likely future actions were suggested in written responses by SEC chairwoman, Mary Schapiro, to questions she received from Senator Carl Levin during her confirmation process. In her letter to Senator Levin, Ms. Schapiro provided insight into how she will differ from her predecessor, Christopher Cox. With respect to Sarbanes-Oxley compliance, she noted that “it’s time we bring uniformity to the system.” This point virtually assures the markets that the auditor attestation of management’s assertion on the effectiveness of internal control over financial reporting (ICFR) eventually will become a reality for smaller public companies.
In the first four years of Sarbanes-Oxley filings to date, the rate of adverse opinions for accelerated filers has declined year-to-year. If nonaccelerated filers were to experience the same trend, a smaller percentage of adverse opinions would occur in future filings. However, an important factor to consider is the potential effect of auditor attestations. The emergence of the additional Sarbanes-Oxley attestation requirement, which is in the context for the Public Company Accounting Oversight Board’s (PCAOB) Guidance for Auditors of Smaller Public Companies issued in January 2009, all but changes the dynamics of the assessment of ICFR for smaller public companies. The additional scrutiny of the external auditor directed to a company’s ICFR may impact the rate of adverse opinions for smaller public companies, which have now begun filing their second wave of internal control reports. This paper explores considerations for smaller public companies as they prepare for their first external auditor attestation over ICFR.
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