The Public Company Accounting Oversight Board (PCAOB or the Board) announced that they will be holding an open meeting on Tuesday, December 19, 2006 at 9:30 a.m. EST in the Board’s open meeting room at 1666 K St. NW, Washington, DC. The purpose of this meeting is to discuss proposing for public comment a new auditing standard to supersede the Board’s existing Auditing Standard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements (AS No. 2), along with other related proposals.

Below are the five goals, noted by the PCAOB in their press release, that will govern and guide the proposal for the new auditing standard to supersede AS No. 2:

1. Focus the Internal Control Audit on the Most Important Matters – The Board intends to consider changes that would focus auditors on matters that present the greatest risk that a company’s internal controls will fail to detect or prevent a material misstatement in its financial statements. In particular, the Board plans to consider changes that would:
   
   
   • More clearly focus auditors on identifying control weaknesses before they result in material misstatements in the financial statements.
     
     
   • Require auditors to use a top-down approach that begins with the financial statements and company-level controls, and to identify for further testing only those controls that are, in fact, important to the effective functioning of a company's internal control over financial reporting.
     
     
   • Emphasize the importance of a company’s control environment, and how it can affect the risk of financial reporting fraud or other material failure.
     
     
   • Emphasize higher risk stages of financial statement preparation, such as the period-end close process.
     
     
2. Eliminate Procedures that Are Unnecessary to Achieve the Intended Benefits – The Board is evaluating every area of the internal control audit to determine whether the existing standard encourages auditors to perform procedures that are not necessary to achieve the intended benefits of the audit. In particular the Board plans to consider changes that would:
   
   
   • Clarify that an internal control audit is limited to an evaluation of whether, in the auditor’s opinion, the company’s internal control is effective, and does not include an opinion on the adequacy of management’s process to reach its conclusion.
     
     
   • Permit auditors to use experience gained in previous years’ audits to make audits in subsequent years more efficient.
     
     
   • Clarify how auditors should use risk assessment to eliminate from further consideration those accounts that are unlikely to contain a material misstatement.
     
     
   • Require auditors to consider whether and how to use the work of others, instead of doing certain procedures themselves.
     
     
3. Incorporate Guidance on Efficiency – Since Auditing Standard No. 2 was first released, the PCAOB has issued guidance to make internal control audits more efficient. The Board intends to consider whether incorporating that guidance into the standard would help to promote improvements in efficiency.
   
   
4. Provide Explicit and Practical Guidance on Scaling the Audit to Fit the Size and Complexity of the Company – The Board intends to provide direction in the Standard to help the auditor anticipate the various differences in smaller company internal control and to direct the auditor to tailor the audit for smaller companies.
   
   
5. A Simplified Standard – The Board intends to propose a revised auditing standard that is shorter, easier to understand, and more clearly scalable to audits of companies of all sizes and complexity. Among the changes the Board plans to consider are:
   
   
   • Reducing granularity.
     
     
   • Redefining key terms.
     
     
   • Clarifying that the auditor’s evaluation of materiality for purposes of an internal control audit is based on the same long-standing principles applicable to financial statement audits.
     
     
   • Consolidating the Board’s standards on using the work of others in internal control audits and in financial statement audits into one new standard, so as to better facilitate integration of the two audits.

The meeting will be open to the public and available live via Web cast on the Board’s Web site at www.pcaobus.org.

PCAOB Chairman, Mark Olson, stated that although the current internal control requirements of the Sarbanes-Oxley Act of 2002 provide great benefits to companies and their investors, the costs and the benefits are not aligned. The PCAOB is attempting to provide a much more "efficient, risk-based, scalable implementation" of the internal control requirements.