Actions by federal regulators will cut the cost of compliance with the controversial Section 404 of the Sarbanes-Oxley Act, trade groups say.[@@]

The moves by 2 federal agencies will give companies and their auditors greater flexibility, the trade groups assert.

The new guidance from the Securities and Exchange Commission and the Public Company Accounting Oversight Board shows the agencies are willing to respond to industry concerns, the groups say.

At the same time, the regulators refused to support calls by powerful industry groups that the law should be repealed.

Section 404 of the Sarbanes-Oxley Act and the SEC’s related rules require certain companies to include in their annual reports filed with the SEC a report on management’s assessment of the effectiveness of those companies’ internal control over financial reporting.

Section 404 also requires these companies’ auditors to attest to assessments made by management.

Effectively, staff guidance issued by the SEC and the policy statement by the PCAOB allows companies to comply with Section 404 of Sarbanes-Oxley by creating a system that works best for their own specific organization.

Phillip Carson, senior counsel, financial reporting at the American Insurance Association, says he things the new regulatory guidance “is positive for all companies subject to Sarbanes-Oxley.”

The new guidelines will allow external auditors to communicate directly with management and tailor audits to individual clients, adds Richard Whiting, executive director and general counsel for The Financial Services Roundtable. He says external auditors will also be able to use the work of internal audit staff.

“The guidance is a constructive step in providing greater clarity and focus on Sarbanes-Oxley requirements,” Whiting says.