The U.S. Securities and Exchange Commission today voted to propose for public comment interpretive guidance for management regarding their evaluations of internal control over financial reporting.

The commission also proposed amendments to its rules that would make it clear that a company choosing to perform an evaluation of internal control in accordance with the interpretive guidance would satisfy the annual evaluation required by those rules. Finally, the commission proposed amendments to clarify the auditor’s reporting requirement under Section 404 of the Sarbanes-Oxley Act.

“We are proposing this interpretative guidance to help management make their evaluation process more efficient and cost-effective,” said SEC chairman Christopher Cox. “In the absence of guidance, management has looked to the PCAOB’s auditing standard to conduct their evaluations, which is not what was intended.

“With this guidance, management will be able to scale and tailor their evaluation procedures to fit their facts and circumstances, and investors will benefit from reduced compliance costs,” Cox said. “While the guidance is intended to help public companies of all sizes, smaller companies should particularly benefit from its scalability and flexibility. We believe that today’s proposed guidance, along with the Public Company Accounting Oversight Board’s new auditing standard to be proposed next week, will result in significant improvements in the implementation of Sox 404.”

“Our proposed guidance is focused on risk and materiality. We have worked hard to ensure that the proposed guidance will not disrupt best practices already in place, or that may be evolving, while at the same time ensuring that it would be scalable to companies of all sizes,” said Conrad Hewitt, chief accountant. “In particular, the top-down, risk-based guidance would allow for effective, and, importantly, efficient, methods and procedures for conducting evaluations at smaller companies. It is also intended to rebalance control over the process by providing management with its own guidance — without the need to look to auditing standards — for evaluating internal control over financial reporting.”