SMBs May Ease Into Looser SOX

2 minute read
Angela Natividad avatar
Come June, the SEC expects to pass some new guidance on how public companies -- particularly small ones -- can better prepare themselves for a SOX sting. In the meantime, the Public Company Accounting Oversight Board plans to issue simpler standards for third-party audits of company coffers.Sarbanes-Oxley, which passed in 2002 post-Enron, was designed to protect investors from having to deal with the repercussions of doctored financial reports released by public enterprises. Section 404 presents a particular problem for small public companies. This clause requires public enterprises to file annual reports on internal controls over financial reporting. A third-party auditing firm must evaluate this process to ensure compliance. Presently, companies with less than US$ 75 million in public equity are exempt from immediate compliance. These enterprises must provide management assessment of their internal controls by the end of their 2007 fiscal year. Third-party audits must be turned in by the end of their 2008 fiscal cycles.SEC chairman Christopher Cox explains the Commission is “reorienting 404 to focus on what truly matters to investors.” Cox promises that if the SEC and accounting board meet their June target, additional extensions for compliance will not need to be passed.The proposed amendment states small public companies must file their management reports by March 2008 if their fiscal year ends in December. Third-party audits will be due in March 2009. Contending that these dates are still too soon, opponents urge the SEC to extend the deadlines another year.“The excessive cost of Section 404 internal controls reporting may restrict a new generation of small innovative companies from seeking capital in the U.S. capital markets," insists Tom Sullivan, head of the Small Business Administration’s Office of Advocacy. Despite endless complaints, the SEC does not expect to budge another year.The strict audits required by SOX Section 404 cost businesses across the board more than regulators initially calculated. As a result, experts have been debating the merits of potentially elegant solutions.In related news, last week the Senate rejected a proposed amendment to exempt companies with a market cap of less than US$ 700 million from Section 404. Oh, the whining never ceases. Read more about the latest Sarbanes-Oxley drama here.