February 26, 2007
Section III. PROPOSED INTERPRETIVE GUIDANCE
Frequently Asked Questions -
Guidance regarding exclusion of acquired businesses from management's evaluation of ICFR (contained in the FAQ revised October, 2004) needs to be retained or built into the interpretive guidance.
Section IV. PROPOSED RULE AMENDMENTS
Independent auditor's attestation requirements -
In my experience, the current dual opinion is redundant and creates a great deal of unnecessary duplication of effort.
The proposal to eliminate the audit requirement pertaining to management's evaluation, in favour of a single opinion on ICFR, does not eliminate the duplicative effort of management and the external auditors. In my opinion a better alternative would be to eliminate the opinion pertaining to ICFR in favour of the opinion on management's assessment.
Another reasonable option would be to provide an "either/or" approach for auditor attestation, whereby the issuer could select one of two attestation options:
1. audit of management's evaluation of ICFR, OR
2. audit of ICFR
Either one of these attestations alone would provide the investing public with the information necessary to assess management's evaluation of ICFR.
Smaller companies may benefit from the second option, particularly if those companies' evaluation processes are subject to less structure and formality. In those situations, it may be more cost effective to have the auditor opine on the controls themselves rather than the evaluation process.
Alternatively, for companies with well structured and designed evaluation programs it may be more effective to have the auditors opine on the evaluation process. This would minimize duplication in the testing and evaluation of the controls themselves, where such an approach is warranted.