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“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. “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.”
The proposed new standard on internal control is a principles-based standard designed to focus the auditor on the most important matters. It also eliminates unnecessary audit, and simplifies and significantly shortens the text of the standard.
The Board also proposed a new auditing standard on considering and using the work performed by internal auditors, management and others in an integrated audit of financial statements and internal control, or in an audit of financial statements only.
In addition, the Board proposed to revise the independence requirement that currently is embedded in the text of AS No. 2. Finally, the Board also proposed certain changes to its other standards to conform to the changes being brought about by this rulemaking.
The Board will finally decide on whether to adopt a final standard after February 2007 before it will be submitted to the SEC for approval.
In June 2003, the SEC implemented Section 404 of the Sarbanes-Oxley Act. Soon after the Board adopted Auditing Standard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements ('AS No. 2'), to apply to the newly required audits.