ACB: Press Releases

Contact:	Robert Schmermund (202) 857-3104 Jim Eberle (202) 857-3145	Jim Eberle (202) 857-3145 (work) (703) 893-2593 (home) [email protected]	For Immediate Release April 1, 2005 #05-11
E-mail: [email protected]

ACB OFFERS SEC WAYS TO CUT SARBANES-OXLEY COSTS

Press Release Tools
	E-mail This Press Release
	Printer-Friendly Format

Washington, D.C. — Implementing the requirements of section 404 of the Sarbanes-Oxley Act of 2002 has led to “a good deal of unnecessary burden and costs, even for the banking institutions that already were subject to similar requirements under banking law,” ACB has told the Securities and Exchange Commission.

Much of the problem results from the requirements of Auditing Standard No. 2 issued by the Public Company Accounting Oversight Board, ACB said.

The industry knows how important internal controls are to safety and soundness. But “external auditors, fearing consequences of improperly implementing this new standard, are approaching it in a very stringent and conservative manner further adding to the burden,” ACB explained.

ACB made its comments in connection with a public roundtable the SEC is holding on April 13. Curtis L. Hage, chairman and CEO of Home Federal Bank in Sioux Falls, S.D., and a former ACB chairman, will participate.

Community bankers have told ACB that the cost of section 404 compliance “will significantly outweigh the benefits” of improved internal controls. Many institutions “simply do not have the internal resources to meet the high threshold required by the PCAOB standard as it is being implemented by the auditors,” ACB declared. As a result, “most small companies will have to review whether the benefits of being a public company justify” the compliance cost investors pay, ACB said.

ACB recommended that the SEC and PCAOB members make field visits to gain a first-hand understanding of how the requirements affect smaller companies, and what is required of the auditors. The requirements have led to “contentious relationships” between external auditors and senior managers of community banks as “external auditors are reluctant to exercise their discretion and limit their review for fear of criticism or even sanction from PCAOB.”

ACB also put on record the “firing” of some banks by their auditors, noting, “some smaller companies have been asked by the larger audit firms to take their business to another firm, while others are finding that the audit firm cannot get the work done on time.”

ACB offered a number of specific suggestions to the SEC. For example, PCAOB was urged to rethink whether a separate audit of internal controls “is really necessary and [to] scale back these standards to a reasonable level . . . that allows an auditor to opine on the conclusions reached by management.”

Moreover, “the presumption that if a control is not documented, it does not exist, must be changed,” ACB said. “More reliance on testing by internal audit and other competent personnel or third party consultants should be permitted and encouraged in clear and unambiguous language,” ACB urged, adding that a three-year interval for testing each control could be performed.

ACB also urged the SEC and PCAOB to review and evaluate the way auditing firms are implementing section 404 requirements “and provide corrective guidance where problems are found.”

In emphasizing the heavy regulation to which banks are subject, ACB questioned the need for “the significant costs of section 404 compliance and Auditing Standard No. 2 imposed on an industry that is already heavily regulated and subject to routine examination by government regulators – often multiple agencies – on a regular basis.”

“We urge the SEC and PCAOB to consider allowing regulated depository institutions to meet the Sarbanes-Oxley requirements by complying with the current approach to the internal control reporting and attestation requirements contained in federal banking law,” ACB recommended. And if a full exemption is not appropriate, then, at a minimum, “relief consistent with the FDICIA exemption for smaller community banks should be seriously considered.”

The letter to Secretary Katz is attached.

America’s Community Bankers is the national trade association committed to shaping the future of banking by being the innovative industry leader strengthening the competitive position of community banks. To learn more about ACB, visit www.AmericasCommunityBankers.com.

-30-