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The move to principles-based accounting raises concerns; paid sick time may become mandatory; the DoJ looks at private-equity ‘’clubs'’; Six Sigma gets bad press; a medical-records database alarms privacy experts; and more.

Even before President Bush told an enthusiastic Wall Street audience in January that “we don’t need to change the [Sarbanes-Oxley] law, we need to change the way the law is implemented,” the Public Company Accounting Oversight Board (PCAOB) was taking steps to do precisely that. But as it advances an openly “principles-based” approach in replacing Auditing Standard No. 2 with Auditing Standard No. 5, some question whether the new standard is doomed to fail unless associated laws and practices also change.

In an effort to make the auditing of internal controls more efficient, the new AS #5 would no longer require auditors to offer an opinion on management’s evaluation of internal controls. It would instruct auditors to cover the areas of greatest risk, rather than obliging them to visit the majority of operations, and also permit them to rely on previous audits rather than start from scratch each year.

cfo.com: Standard vs. Practices

Does the PCAOB’s proposed replacement for Auditing Standard No. 2 offer too much leeway for professional judgment?

With just a few days until the comment period ends, the Public Company Accounting Oversight Board got an earful from its advisory board on Thursday about the new standard for auditors’ attestation of corporate internal controls. In a nutshell, the corporate executives and accounting experts questioned whether the more-flexible standard will lead to less-effective audits.

The PCAOB is attempting to simplify its most-contentious auditor guideline, Auditing Standard No. 2, in response to concerns in the business community that audits under the Sarbanes-Oxley Act have become too onerous and costly. The proposed standard — commonly referred to by the board as AS5 — encourages auditors to take a “top down, risk-based approach” by focusing on only those areas in which a material weakness could lead to a misstatement.

cfo.com: AS5: More Flexible, Less Effective?

Commissioner Paul Atkins delivered a speech at the Corporate Directors Forum and as usual, unleashed himself on one of his favorite topics: Section 404 of the Sarbanes-Oxley Act. Atkins, like the Paulson Committee and Bloomberg/Schumer, worried about the U.S. markets’ place in the world rather than investor information - as if the two were mutually exclusive.

His speech contained the usual complaints about the “costs” of 404. (As if there are no costs to investors or the economy as a whole for audit failures.) He cited in particular the costs incurred for compliance procedures performed by firms that were subsequently ignored by auditors. Seems like the answer is to make the auditors snap to attention, not gut the rules.While the PCAOB and the SEC continue to revise Auditing Standard No. 2, it’s good to note that their efforts aren’t wasted on Commission Atkins:

“I think almost all players in this debate have recognized the flawed approach that was initially rolled out. Last month, the SEC proposed additional guidance for management’s assessment of internal control. Around the same time, the PCAOB proposed replacing AS 2 with a new audit standard, AS 5, for an outside auditor’s attestation of internal controls. Far from being a rollback or lessening of standards, I think the new proposals go a long way toward implementing the original vision of Sarbanes-Oxley. I look forward to seeing the comments on these proposals.”

yahoo!finance: Atkins: Still Wailing On Sarbanes-Oxley’s 404

On the SEC site, see spotlight on Internal Control Reporting Provisions, which includes the SEC’s proposed guidance, “Management Reporting on Internal Control Over Financial Reporting”.

This is the first guidance from the SEC directed specifically toward management, and intended to be applied in context with the newly released draft auditing standard (AS5) published by the PCAOB this week.

Inside Sarbanes-Oxlex:SEC Publishes Guidance to Management

The Public Company Accounting Oversight Board today voted unanimously to propose for public comment a new standard on auditing internal control over financial reporting and other related proposals. The proposed standard would replace the Board’s existing internal control standard, Auditing Standard No. 2.

The proposed new standard on internal control is a principles-based standard designed to focus the auditor on the most important matters, increasing the likelihood that material weaknesses will be found before they cause material misstatement of the financial statements. The proposed standard also eliminates audit requirements that are unnecessary to achieve the intended benefits, provides direction on how to scale the audit for a smaller and less complex company, and simplifies and significantly shortens the text of the standard.

“Today’s proposal is the result of the PCAOB’s experience with the first two years of auditors’ implementation of the internal control provisions of the Sarbanes-Oxley Act,” said PCAOB Chairman Mark Olson. “The Board’s goal has been to apply the feedback we’ve received and our observations of implementation to create an auditing standard that preserves the intended benefits without resulting in unnecessary effort and costs. We believe the new standard will result in audits that are more efficient, risk-based and scaled to the size and complexity of each company. We look forward to comments on the proposal.”

PCAOB: Standard on Internal Control over Financial Reporting

Parts of the landmark 2002 Sarbanes-Oxley corporate governance law should be implemented in different ways to save businesses money and time, U.S. Treasury Secretary Henry Paulson said in a speech Monday.

In prepared remarks to the Economic Club of New York, Paulson said a new law to amend the controversial act is not needed, but he acknowledged the impact its accounting provisions, in particular, are having on businesses large and small.

“We need to implement the law in ways that better balance the benefits of the legislation with the very significant costs that it imposes, especially on small businesses,” Paulson said.

Paulson singled out section 404 of the act, which has long drawn complaints from businesses for being costly and time-consuming. It requires management to sign off on the effectiveness of a company’s internal financial controls and requires an auditor’s attestation.

“Section 404 should be implemented in a more efficient and cost effective manner,” Paulson said.

The Securities and Exchange Commission will seek comments about a new auditing standard soon, Paulson said.

Morningstar: Paulson Calls For Some Sarbanes-Oxley Changes