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Internal Audit Director Critiques AS No. 5

M. Stevens Dennis | June 26, 2007

A triumph of hope over experience. That’s how one writer characterized the proposed Auditing Standard No. 5 in a recent comment letter to the Securities and Exchange Commission and the Public Company Accounting Oversight Board.

What’s the hope? The most significant change in AS5 is often described as elimination of the external auditor’s report on management’s assessment as prescribed by SOX Section 404(b). The PCAOB hopes that elimination, together with a “top-down, risk-based” approach that focuses on “the most important matters,” will somehow translate into significant cost savings for accelerated filers and a scalable, cost-effective, full-blown external “audit of internal control” for all registrants.

What’s the experience? At my company at least, for the past three years only a small portion of our SOX-related expenses relate specifically to our external auditor’s report on our management assessment. Others share that experience, so there appears to be...

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