The U.S. Securities and Exchange Commission published a concept release detailing how it plans to help ease the burden of internal control reporting under Sarbanes-Oxley 404.

The SEC said the release serves as a prelude to its forthcoming guidance for management in assessing a company’s internal controls for financial reporting. “The guidance we issue should help companies further improve and streamline their processes for assessing the effectiveness of internal controls. We intend for the guidance to be flexible and scalable, such that it will assist companies of all sizes,” said SEC acting chief accountant Scott Taub.

The commission indicates that the guidance will cover at several areas: identifying risks to financial statement account and disclosure accuracy and the internal controls that address these risks; objectives of the evaluation procedures and methods available to management to gather evidence to support its assessment; factors management should consider to determine the nature, timing, and extent of its evaluation procedures; and, documentation requirements, including overall objectives of the documentation and factors that might influence documentation requirements

The SEC concept release seeks feedback on each of these topics and on whether guidance should be provided in other areas as well.

“Quality financial reporting is a critical cornerstone to our capital markets, and investors are entitled to rely upon it. Section 404 has a key role to play in enhancing the reliability of public companies’ financial statements,” said John White, director of the Division of Corporation Finance. “I hope the commission’s issuance of the concept release will garner useful and broad-based public comment as we move forward in our efforts to improve the implementation of Section 404 for issuers and investors alike.”

Following its May 10 roundtable devoted to Sarbanes-Oxley Section 404 implementation issues, the commission issued a roadmap for improvements on May 17. It says that today’s concept release is one of the milestones on that roadmap, and it brings the SEC one step closer to issuing guidance for management that has been lacking since the law was enacted in 2002.

At the roundtable, the commission learned from participants that while Section 404 has produced benefits, its implementation has been unduly costly, it reports.

“Our goal is to develop practical guidance for companies to help improve the reliability of financial reporting and to make Section 404 implementation more efficient and cost effective for investors,” said SEC chairman Christopher Cox. “The public comment we receive in response to today’s concept release will help the SEC write meaningful guidance for all public companies — large, small, foreign, and domestic — for the benefit of all of their shareholders.”

The commission adds that it continues to move forward on the other steps it announced in May, and will be sensitive and responsive to the particular needs of smaller issuers, both domestic and foreign, while seeking to reduce costs and facilitate a more efficient and effective process to minimize the burdens that Section 404 may impose. The SEC will also continue to work with the Public Company Accounting Oversight Board on revisions to auditing standards that implement Section 404 for auditors, so that it will more efficiently and workably protect investors in companies of all sizes.