The Securities and Exchange Commission today approved a new requirement that makes outside auditing costs for companies in the public capital arena more expensive. The government hopes the change will reduce errors in the financial statements that investors use to decide which stocks to buy and sell.
Prior to today’s action, public companies must have their annual financial statements audited by a PCAOB-registered auditing firm, and each of their three quarterly interim financial statements “reviewed” by a PCAOB-registered auditing firm.
Reviews do not require as much time and attention from the auditing firm as the annual audit does, and typically cost less than half the cost of an audit. Companies are required to file those quarterly interim statements within 45 days of quarter-end, while annual financial statements are allowed 90 days for compltion.
Each time an auditing firm finishes an audit, companies must pay for a senior CPA who has not been involved with the audit to review the work of the firm (a process called the “concurring review”) in hopes of finding errors that the audit may have missed.
The SEC’s action today will expand the use of concurring reviews to each of the three interim quarterly “reviews” as well as the annual audit. Similar to a tax hike, the cost will be passed along to American consumers.
Companies will start paying for the additional services starting with their first quarter’s financial statement due on or after May 17, 2010 (for quarters ending on or after March 31, 2010).
