More than two-thirds of small businesses favor differing standards of Sarbanes-Oxley Act (SOX) regulation for small and large firms according to a recent study commissioned by SAP America, Inc. The study also revealed that SOX regulation has made it more difficult for nearly half of all small businesses to successfully conduct business. Ten percent of companies surveyed intend to ignore SOX regulation in anticipation of an eventual appeal for small and mid-sized enterprises.
“According to the SAP survey, the majority of small businesses now acknowledge the need for improved reporting and greater investments in time and money to effectively meet Sarbanes-Oxley guidelines,” Michael Sotnick, senior vice president, Small and Midsize Enterprises, SAP America, Inc. said in a prepared statement.
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Coming on the heels of the announcement by the Security and Exchange Commission (SEC) of a one year delay in compliance requirements for small businesses the study discovered many valuable points regarding how small companies have approached SOX compliance, including:
- Most businesses are investing and adjusting resources. The study indicates that 54 percent of companies have altered their focus in response to the delay, investing more time and money in planning. In addition, 53 percent of non-compliant companies are now working with outside consultants to guide measures and lay out a methodical approach to Sox compliance.
- Cost of compliance is cited as greatest challenge For the majority (54 percent) of small public businesses, the significant cost of compliance was the greatest challenge to SOX regulation. The second greatest challenge, cited by 16 percent of survey respondents, is balancing compliance costs and budget forecasts.
- Outsourcing used in funding compliance. Further evidence of the cost challenges of SOX is found in how companies are funding compliance plans: 42 percent have outsourced SOX compliance, 18 percent have cut marketing and/or research and development budgets and 16 percent have reduced headcount to scale back costs.
- Strongest support for separate standards among public companies. Among decision-makers at small public companies required to meet SOX requirements, 86 percent support separate sets of rules.
“Compliance remains an important issue to both small and large companies – not only of adhering to the law but also for improving financial transparency and setting internal process controls,” Gary Lowethal, CFO of Viper Motorcycles and a Congressional witness who testified about the disproportionate burden of SOX compliance on smaller companies. “With the right business management solution, small businesses can develop the discipline to formulate sound business processes and controls. We now can attest to the adequacy of our internal controls for financial reporting through the use of technology.”
The small and midsize index survey was commissioned by SAP America, Inc. and conducted in October 2005 by a private research firm that polled public and private companies with less than 250 employees. Respondents represented eight industries including manufacturing, finance and business services. SAP America, Inc. is a subsidiary of SAP AG.