Cox's SOX 404 Testimony: A “Real World” Cost-Benefit Analysis

Yesterday, SEC Chairman Christopher Cox testified on the work of the SEC before the U.S. Senate Committee on Banking, Housing and Urban Affairs.

He covered a broad range of topics - protection of seniors’ investments, and those of members of the armed forces, and of course, XBRL - but his comments on the revised guidance on Section 404 evaluations and the new Auditing Standard 5 contained the most interesting nugget:

The SEC and the PCAOB expect a change in the behavior of the individuals who are responsible for following these new procedures. To that end, the PCAOB’s inspection program will monitor whether audit firms are implementing the new auditing standard in a cost-effective way that is designed to achieve the intended results. And the SEC, in our oversight capacity, will monitor the effectiveness of the PCAOB’s inspections. So both the SEC’s and the PCAOB’s inspectors will be focused on whether audit firms are achieving the desired audit and cost efficiencies in the implementation of 404. The SEC staff will also conduct an economic analysis – using real-world information – to evaluate whether the costs and benefits of implementing section 404 are in line with our expectations.

The charges about SOX 404 have been long on rhetoric, and short on verifiable, quantitative facts. It’ll be interesting to see what the SEC comes up with. Cox’s testimony didn’t mention a time frame, however.