(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

SEC Approves PCAOB Internal Control Standard

The SEC approved the Public Company Accounting Oversight Board's audit standard concerning audits of internal control over financial reporting performed in conjunction with an audit of financial statements. The standard was proposed and adopted by the board pursuant to Section 404 of the Sarbanes-Oxley Act. The amendments require a company to include in annual reports a report by management on the company's internal control over financial reporting and an accompanying auditor's report. The auditing standard approved by the SEC applies to the auditor's involvement and report.

" We appreciate the PCAOB's diligence in undertaking such an important step in completing the agenda set forth by the Sarbanes-Oxley Act," said Alan Beller, director of the Division of Corporation Finance. SEC Chief Accountant Donald T. Nicolaisen said that " the standard strikes an appropriate balance by providing sufficiently detailed guidance while, at the same time, allowing the auditor to exercise reasonable judgment." He added that " this standard is an important part of a much broader effort by all parties--issuers, auditors and regulators--to strengthen our system of financial reporting. " Mr. Nicolaisen also said that " the management and auditor reports on internal control will impact companies of all sizes and we anticipate working with others in our continuing effort to address the concerns of smaller companies."

The SEC stated that several implementation questions about the standard had been identified during the comment period. Implementation guidance will be provided in the near future, advised the Commission. Guidance for the benefit of issuers and their auditors will be forthcoming from both the SEC and PCAOB staffs, and will address matters such as 1) recent acquisitions, 2) consolidated but non-controlled subsidiaries and 3) equity investees. Concerns raised by issuers, including qualification of the report on internal controls, transition periods, disclosure requirements relating to significant deficiencies and material changes made in internal controls and the timing of assessment of internal control over financial reporting in relation to certain foreign subsidiaries will also be addressed.

The standard is effective for audits of companies with fiscal years ending on or after November 15, 2004, for issuers that are accelerated filers, or on or after July 15, 2005, for other companies.

Release No. 34-49884 will be published in a forthcoming REPORT