February 23, 2007
Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20449-1090
Re: File Number S7-24-06
Following a thorough analysis of the proposed rule changes, I have determined that the recommended changes are reasonable, fair, and a necessary step towards ensuring reliable internal controls and financial statements. Following the corporate scandals which prompted the creation of Sarbanes-Oxley, it was evident that the guidelines set forth would require modification through time to ensure continued practicality and effectiveness. The proposed changes are an appropriate step in this direction. They propose a stronger framework that is befitting to companies of all types and sizes, while at the same time suggesting that the steep costs of implementation and maintenance will subside through time. In light of the fact that the proposed changes will not cure all the ills surrounding Sarbanes-Oxley, they represent a progressive step towards restoring faith in public companies internal controls and financial statements. In light of these facts, it is my recommendation that the proposed changes be adopted.
It was clear to me after reading other comments posted by interested parties that the main concern with the proposed rule changes is that they are too vague and abstract to be effective. I do agree that the rule changes are moderately vague; however, I believe that the level of vagueness present is necessary so that all companies can be monitored under the same set of guidelines. One of the motives of Sarbanes-Oxley is to provide management with a legitimate solution for identifying controls that adequately associate the risk of misstatements in financial reporting. This cannot be accomplished in an environment which does not allow a companys management to use its knowledge and understanding of its own business operations to reach these assessments. If the proposed changes were to get more particular, companies would become further burdened by their inability to satisfy the impractical standards. This would be a sure sign of a defective solution and more time would be wasted deciding on a remedy. Companies need to be afforded a certain degree of leeway in assessing internal controls to assure that the assessment was conducted as complete and thorough as possible. The restricted freedom which is being offered is an equitable means of getting companies to comply with the requirements set forth by Sarbanes-Oxley. They dont represent the ultimate solution, but they do represent a step in the right direction.
The reasons why the proposed rule changes would be effective in satisfying the goals of Sarbanes-Oxley are numerous. First and foremost, the framework provided for the proposed changes is supported by United States generally accepted accounting principals (GAAP). The formalities contained within GAAP can provide clarification and reduce the vagueness being associated with the proposed rule changes. At the same time, however, the proposed changes leave enough latitude for management to decide on their own course of action that would be most constructive in achieving the goals of Sarbanes-Oxley. In addition, the proposed rule changes give companies a broad array of documentation options to support their assessment. While many different forms could be used, giving companies an option should ensure that the method chosen would best reflect the specific characteristics of that particular company.
In addition to these arguments, the proposed rule also suggests that implementation costs will be greatly reduced once a system of evaluating controls has been implemented and put in to use. This conjecture could result as managements effort will shift from identifying risks and controls to identifying changes in those risks and controls. Furthermore, the documentation required to support the assessment will only need to be updated rather than re-created. These two facts along with the reasonableness of the proposed rule could make this a cost effective solution and a practical step towards making public companies accountable for their actions.
Tim Van Grinsven
2008 Candidate for CPA Exam