Under Secretary Robert Steel lined out Mr Paulsons plan to enhance U.S. capital markets competitiveness. “We need a new, modernized approach to regulation – one that is risk-based, globally oriented and flexible in scope”, Mr Steel sad. “Regulation at the retail level will require some focus on rules, particularly to protect less sophisticated market participants, where investor protection must be a paramount focus.”
Other key elements of this risk-based approach are:
Benefit-Burden Analysis – We should engage in rigorous cost-benefit analysis of proposed and current regulation.
Materiality – Regulators need to focus on issues that are material to investors and consumers. It is not simply a matter of collecting more material to review; rather, we should have measures in place to ensure that we are collecting appropriate, useful material.
Engagement between regulators and the regulated – We need to facilitate a move for constructive dialogue between regulators and the entities they regulate. There should be a clear process for businesses to engage with their regulators when they have questions or need clarification.
On Sarbanes-Oxley Mr Steel noted that public companies have faced significant costs and challenges in the application of Section 404. However, no new legislation is required to amend it, he said.
“A reinterpretation is currently in progress, which will reduce unintended and unnecessary costs of Section 404 to small businesses. Treasury supports the work of the SEC and the PCAOB, who are actively engaged in replacing Auditing Standard 2 (AS2) with Auditing Standard 5 (AS5). These efforts will make the implementation process of Sarbanes-Oxley section 404 more risk-based. As a result, we are optimistic that this change will achieve the appropriate balance.”
“Secretary Paulson has asked us to establish a non-partisan, public federal advisory committee that will develop proposals for creating a stronger, sustainable auditing profession”, Mr Steel said. The group will focus on audit market competition and concentration, human capital, and financial resources. The first meeting of the ew group is planned for the fall 2007.
Full speech
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