event. However, many executives would rather not discuss crisis readiness, he noted.

One reason for the lack of concern is that most ofthe com- panies surveyed recovered from crises quickly and without serious fmancial damage. Seventy-one percent of respondents say crises had a limited impact on their company's profitabil- ity, while 6 percent report crises had a major impact. Simi- larly, 71 percent praise their company's ability to overcome crises — 26 percent rate recovery efforts as "outstanding." Even so, respondents whose companies have overcome a recent crisis are more likely to expect a future crisis and less confident that their organization is prepared, the survey notes. "When it comes to preparedness, they simply do not see as high a level of readiness for many of their company's key busi- ness processes," Everson said.

Regulatory Notes

PCAOB Proposes Audit Standards

THE U.S. PUBLIC COMPANYAccounting Oversight Board (PCAOB) has released a draft standard for auditing internal controls over finan- cial reporting. If approved by the U.S. Securities and Exchange Commission (SEC), An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial State- ments would replace Audit- ing Standard No. 2 (AS2), which was approved by the SEC in June 2004. The board is accepting public com- ments through Feb. 26.

The PCAOB proposal fol- lows recent SEC interpre- tive guidance to help management evaluate internal controls over finan- cial reporting more effi- ciently. Both measures are intended to help publicly

listed companies reduce the costs of compliance with the U.S. Sarbanes- OxleyAct of 2002.

The PCAOB's principles- based internal control stan- dard focuses the external auditor on the most impor- tant matters that can increase the likelihood that companies will discover material weaknesses before they impact financial state- ments. It also eliminates audit requirements that are unnecessary to achieve the intended benefits, provides direction on how to scale the audit for a smaller and less complex company, and simplifies the text of AS2.

In conjunction with the AS2 revision, the PCAOB proposed a rule to revise the standard's indepen- dence requirement, which requires external auditors to seek specific pre-approval of any internal control- related service from the audit committee. Proposed Rule js^S' Audit Committee Pre-approval of Services Related to Internal Control, is intended to ensure that audit committees receive relevant information to make an informed decision on how the performance of

UPDATE

Overall, o n e - t h i r d of survey respondents aren't concerned about their company's preparedness for a major crisis. M o r e t h a n 6 0 percent are confident t h a t key husiness processes such as legal a n d insurance services, financial m a n a g e m e n t , a n d accounting a n d reporting are well-prepared in t h e event of a major crisis. - T. MCCOLLUM

IFAC Issues Code of Conduct Draft E7PHE INTERNATIONAL FEDERATION OF ACCOUNTANTS y (IFAC) has re-released draft guidance to help companies

develop and implement a code of conduct. Defining and Developing an Effective Code of Conduct reflects updates made after IFAC's Professional Accountants in Business Committee reviewed comments and suggestions received on

such services may affect their independence.

In addition to the new internal control audit stan- dard, the PCAOB issued a draft standard to clarify how and to what extent an inde- pendent auditor may use the work of others — such as internal auditors and management — in an inte- grated audit of financial statements and internal control or in an audit of financial statements only. Information about the pro- posed audit standards is available from the PCAOB's Web site, www.pcaob.org.

- J . WHITLEY

SEC Extends Deadlines

THE SEC HAS GIVEN SMALLpublic companies and new issuers more time to comply with the internal control reporting require- ments of Sarbanes-Oxley Section 404. The extension, which was exposed for comment in August 2006, is consistent with the commis- sion's May 2006 proposal, "Next Steps for Sarbanes- Oxley Implementation."

Small nonaccelerated fil- ers now must provide a

management assessment of the effectiveness ofthe company's internal control over financial reporting starting with fiscal periods ending on or after Dec. 15, 2007. These firms have until their first annual report for the fiscal year ending on or after Dec. 15, 2008, to com- ply with the Section 4O4(b) requirement to provide an independent auditor's attes- tation report on internal control over financial report- ing in the company's annual reports. The new rules also give newly public compa- nies until their first annual report after becoming an Exchange Act reporting company to comply with Section 404 requirements.

These extensions will pro- vide nonaccelerated filers additional time to incorpo- rate the SEC's recently pro- posed guidance to improve the efficiency ofthe Section 4O4(b) auditor attestation reporting process. The extensions will also help auditors adapt to the PCAOB's proposed replace- ment standard for AS2.

Information about the SEC's extended compliance deadlines can be found at WWW.SeC.gov. - J . WHITLEY

F E B R U A R Y 2 0 0 7 I N T E R N A L A U D I T O R