AS5, approved by PCAOB in May, aims to improve internal control auditing standards required by Section 404 of the Sarbanes-Oxley Act. The Securities and Exchange Commission, which itself has questioned the clarity and thoroughness of the proposed standard, is expected to vote on the standard soon.

Nasdaq said "AS5 has not provided the needed clarity or the tools to alleviate the root cause of unnecessarily onerous and costly auditing processes."

Sarbanes-Oxley co-author Michael G. Oxley, who serves as Nasdaq's vice chairman, also commented: "While AS5 represents improvement over the previous standard, it does not go far enough to help decrease regulatory complexity and reduce the risk for overzealous auditing," said Oxley. "We must take bolder steps to make our markets more attractive and competitive."

Nasdaq outlined several recommendations, including changing the auditor's role to focus on evaluating the effectiveness of management's internal controls program, rather than the effectiveness of individual controls, which are the primary driver for auditor fees.

Nasdaq also wants a more workable definition of materiality, an "ombudsman" office in PCAOB to serve as an advocate for issuers who feel their internal controls are being over-audited, and a clear policy against over-auditing including a fine schedule against auditors.

Another recommendation is to allow companies with no material weaknesses to perform the auditor portion of 404 in alternate years, with the management portion of 404 conducted every year. Nasdaq said the focus on controls for interim financial statements should be replaced with a focus on annual reports.

Finally, raise relief for smaller companies by focusing on "smaller" companies, not just "smaller and less complex" companies, said Nasdaq.