Chamber Urges SEC to Fix Implementation of Sec. 404

WASHINGTON, D.C. – The United States Chamber of Commerce today warned the Securities and Exchange Commission that the implementation of regulations governing companies' internal financial controls was flawed and recommended more than a dozen steps the commission should swiftly implement.

"The implementation of Section 404 has been costly, onerous and threatens U.S. capital markets and businesses competitiveness," according to a letter to the SEC, signed by David Chavern, director of the Chamber's corporate government initiative. "There is broad support for effective standards for internal control over financial reporting. But Section 404 is not working as intended. The SEC and the PCAOB must act now to address these problems – so that they can be corrected well in advance of the next annual reporting cycle."

In the letter, the Chamber recommended that the SEC and the Public Company Accounting Oversight Board take steps to improve the rule's implementation, including: properly balance costs and benefits; develop a better system for seeking sufficient input from stakeholders; establish clearer definitions to reduce the litigation risk faced by auditing firms; reduce duplicative and excessive documentation and testing; and set a timetable for corrective action.

The Chamber expressed support for increasing management accountability, strengthening internal control of financial reporting and facilitating accurate and fair disclosure for investors, the ideas broadly behind Section 404.

"The problem with Section 404 is not its spirit, it is the unintended consequences of its implementation," Chavern added. "Now that these issues have come to light, the Chamber strongly urges the SEC to reexamine the requirements and tailor them to achieve a cost-effective way for companies to meet the act's goals and objectives."

The U.S. Chamber of Commerce is the world's largest business federation representing more than three million businesses and organizations of every size, sector and region.

A copy of the Chamber's letter is available online. /issues/comments/050413section404comments.htm

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