SEC adopts new guidance for Sarbanes-Oxley

By Karey Wutkowski and Rachelle Younglai

WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission approved new guidance on Wednesday to help companies comply with what critics say is a burdensome and costly provision of the Sarbanes-Oxley corporate reform law.

The agency, by a 5-0 vote, encouraged companies to take a more risk-based approach to complying with Section 404 of the legislation.

"Congress never intended that the 404 process should become inflexible, burdensome and wasteful," SEC Chairman Christopher Cox said at the agency's open meeting.

Section 404 requires companies to assess their internal controls over financial reporting. It also calls for external auditors to report on management's assessment and on the controls themselves.

Corporations and business lobbyists have complained that Section 404 was too expensive and the SEC has conceded that, in some cases, overly cautious companies caused the law's costs to exceed its benefits.

The new guidance allows managers to identify the highest risks to their books as opposed to forcing them to test a long list of controls, as they do now.

The Public Company Accounting Oversight Board is expected to vote on Thursday in favor of revised guidance for auditors on a risk-based approach when assessing a company's internal controls.

The U.S. Chamber of Commerce applauded the changes.