(The news featured below is a selection from the news covered in PCAOB Reporter.)

Early Commenters Bemoan Costs of Internal Control Standard

Raymond James Financial, Inc., a Florida-based financial services holding company, urged the SEC to carefully consider the new comprehensive audit requirement contemplated by the PCAOB's standard governing the audit of internal control over financial reporting. The standard will deliver an economic windfall to four auditing firms, Raymond James wrote, at a cost to be borne by the U.S. business community. The firm urged the SEC to require the PCAOB to reconsider its proposal and to adopt an audit standard more in line with Congressional intent, as outlined in the Sarbanes-Oxley Act of 2002.

Raymond James maintains that Congress did not intend to mandate an annual comprehensive audit of internal controls by outside auditors. Congress mandated that outside auditors issue an "attest report" on management's report on internal controls, Raymond James explained, which in no way suggested that the PCAOB create an entirely new audit engagement. Raymond James believes that the PCAOB abandoned the notion of an attest report and instead adopted a proposal to require auditors to conduct a comprehensive audit of internal controls along with the audit of the financial statements.

The PCAOB was not required to expand so dramatically the scope of the auditors' involvement with internal controls, according to Raymond James. In fact, the firm believes that by using the term "attest report," Congress was attempting to prevent such an expansion. The Committee report suggests that, by stating that the attestations would not be the subject of a separate engagement, Congress was trying to prevent auditors from charging an additional fee. However, Raymond James said it believes the costs of the comprehensive audit mandated by the PCAOB will increase by as much as 50%.

Raymond James reported that it has held informal conversations with its outside auditors and was told to expect the costs of the attest reports to add from 20% to 30% to its audit fees. The firm believes that the costs incurred by the internal staff will equal or exceed the payment to the outside auditors. These additional costs will adversely affect profitability, Raymond James warned, which will also impact U.S. companies' competitiveness at a time when they are already under significant pressure. Every additional cost that is imposed on companies that seek funding through the U.S. public capital markets will inhibit capital formation, competitiveness and efficiency, the firm continued.

Raymond James also highlighted the fact that 90% of reporting companies are audited by just four accounting firms. Through this oligopoly, the firms may set costs without regard to competitors, Raymond James charged.

If the SEC determines that a comprehensive audit of internal controls is necessary, as mandated by the PCAOB's standard, it should not require that it be done on an annual basis, Raymond James said. The firm suggested that the PCAOB could remain consistent with the requirements of the statute by requiring an annual attest report, but requiring comprehensive audits of internal controls by outside auditors every three years-to- five years, or some other periodic time frame.

This issue is of the greatest significance to the U.S. business community, Raymond James advised. It urged the SEC to consider the enormity of the proposal and to address it in a manner consistent with Congressional intent.

The comment period on the proposed standard ends May 17. The SEC has received only one other comment letter as of April 30, which is from a small community bank. The bank representative said that she can see the bank's SEC attorney and independent auditors "rubbing their fee-hands together" in anticipation of the fees they can charge. She questioned why such a regulated industry should be subject to such additional expenditures and urged the SEC to give the industry credit for the regulatory base that is already in place.