“Accounting-standards setters, refusing to back down amid opposition from many corporate executives, stuck to their guns over new rules requiring auditors to take a stronger role in assessing financial-reporting processes,” writes Cassell Bryan-Low in today’s Wall Street Journal.

“The Public Company Accounting Oversight Board approved the rules detailing how auditors should evaluate internal controls at publicly traded companies. The rules, which require Securities and Exchange Commission approval, come as a result of the Sarbanes-Oxley Act, enacted by Congress in 2002 to improve corporate governance in the wake of accounting fraud at Enron Corp., WorldCom Inc. and elsewhere.”

“The legislation mandated that corporate managers must have tight internal controls and must evaluate their effectiveness, as well as pay their outside auditors for an independent assessment. Tuesday’s rules give auditors guidance on how to make that assessment.”

“Regulators have faced resistance from public companies, both about the amount of work required and the cost. A recent study of 321 companies by the Financial Executives International, a professional group in Morristown, N.J., found that the nation’s largest businesses expect to spend an average of $4.7 million each this year to implement requirements associated with the rules.”

“The oversight panel has received 193 comment letters since unveiling the proposed rules in October. Amid the opposition, the SEC, which oversees the accounting panel, delayed implementation by five months, with big companies now expected to comply by Nov. 15.”

” ‘As we heard from many public companies, these requirements are tough, and they will entail extra work and cost,’ said William McDonough, chairman of the oversight panel, in a speech Tuesday to government officials and employees in Washington. But the goal of obtaining ‘the best possible assurance that a company’s financial statements are reliable’ is ‘simply too important to demand any less.’ “

“Kayla Gillan, one of the oversight panel’s other four members, said the additional work ‘will result in increased audit fees.’ But she warned accountants that the new procedures shouldn’t be used as ‘an excuse to price-gouge,’ and she urged any company that believes it is being overcharged for such work to contact the oversight board.”

“Auditors will be required to look at the internal controls themselves, in some cases doing walk-throughs of key stages of certain processes. Internal controls include systems to ensure processes as varied as the correct recording of revenue to the proper authorization of transactions between parties that have a relationship with the client, such as management and members of their immediate families.”