AICPA CPA Insider™ caught up with Cynthia Fornelli, former Deputy Director of the Division of Investment Management at the Securities and Exchange Commission and current Executive Director for AICPA’s Center for Audit Quality, during a break at the recent luncheon in Washington, DC, to commemorate the fifth anniversary of Sarbanes-Oxley.

Cynthia, what have been the most significant overall improvements to the corporate regulatory, compliance and governance process in the five years since the passage of the Sarbanes-Oxley Act?

Fornelli: As challenging as certain aspects of the implementation have been, the Sarbanes-Oxley Act has reinforced the point that effective regulation, compliance and corporate governance enhance investors' confidence and, by doing that, increases the integrity of our markets. To that point, the Center's recent survey found that an overwhelming majority of investors — 84 percent — have confidence in our capital markets and in audited financial information.

What have been some of the key changes, brought about by Sarbanes-Oxley?

Fornelli: Two of the most important are the new responsibilities assigned to the audit committee and the establishment of the Public Company Accounting Oversight Board. In addition, the new emphasis on principles-based, rather than bright-line rules-based, accounting and auditing standards also allows public company auditors to work continually towards giving investors even greater confidence by striving to provide the highest quality of information.

What have been the most significant changes to the accounting profession in the half decade since SOX was passed?

Fornelli: Under the Sarbanes-Oxley Act, accountants participating in the audits of public companies' financial statements and internal controls over financial reporting, became part of a regulated profession. As part of the registration process accounting firms were required to provide significant information to the PCAOB and to the public, the previous system of peer review was replaced by the PCAOB inspection program, and the authority to set auditing standards and to conduct enforcement investigations and proceedings that had been in the hands of the AICPA was given to the profession's new, outside regulatory body.

Many small public companies have complained about the time and expense of being SOX-compliant. Are any measures being taken to lessen the expense burden for smaller companies?

Fornelli: Within the last few months, the SEC has provided new guidance for management related to evaluations of their internal control systems and the PCAOB and SEC have worked to revise the auditing standard governing internal control audits. Accounting firms, now with four years of experience auditing larger companies' compliance with the internal control reporting requirements, also have become more efficient in conducting integrated audits. Each of these steps should make compliance for small companies less burdensome than it was for larger companies when the reporting requirements were first implemented.

In closing, Sarbanes-Oxley, Sarbox or SOX. What can we learn from it and how can we apply the lessons learned by public companies to smaller, privately-held companies?

Fornelli: Smaller, nonpublic companies can certainly benefit from the belief that good internal controls can contribute to good management and a better run business. It is my understanding that several nonprofits as well as other private organizations have implemented many of the Act's corporate governance provisions simply because they are sound business practices.

CPA Insider’s sister publication, AICPA Corporate Finance Insider will have full coverage of the event in its September issue. If you wish to be a part of such future events and want membership information, visit AICPA’s Center for Audit Quality Web site.

Sukanya Mitra is Managing Editor of the AICPA's Insider™ electronic newsletter group.