Sarbanes-Oxley Exemption Passes Congressional Committee

Earlier today, the House Financial Services Committee approved an amendment that would exempt small public companies from the provisions of Sarbanes-Oxley Section 404b. The Garrett/Adler amendment, offered by Rep. Scott Garrett (R-NJ) and Rep. John Adler (D-NJ), was approved in the HFS Committee today by a vote of 37-32, as part of the Investor Protection Act (IPA). The Committee voted in turn, by a vote of 41-28, to approve the IPA. (See: Financial Services Committee Approves Investor Protection Act. )

On Oct. 2, the SEC announced, concurrent with release of its cost-benefit study, that the Commission was granting a final deferral of the effective date of Sarbox 404b for small companies, extending the deadline to annual reports for fiscal years ending on or after June 15, 2010.

A press release issued by Rep. Garrett's on Oct. 28 noted: "Although reforms were made in 2007 to relax the guidelines for smaller companies, businesses of all sizes still report excessive compliance costs, as noted in an SEC report from September 2009. In summarizing survey responses from businesses regarding the benefits of Section 404 compliance, the SEC wrote, '[A] majority felt that the costs of compliance outweighed the benefits. This was especially true among smaller companies.'"

Rep. Adler noted in a Nov. 3 press release, that the Garrett/Adler amendment would not only exempt small businesses (with less than $75 million market cap) from Sarbox 404b, but would require the SEC, together with the GAO, to conduct a study directed at reducing the burden of Sarbox 404b on companies with market cap between $75 million and $250 million. Additionally, the amendment calls for the study to "consider whether reducing the compliance burden or a complete exemption for these companies will encourage them to list on exchanges in the United States in their initial public offerings."

The ultimate impact of the Garrett/Adler amendment will depend on whether it remains in the IPA when voted on by the full House of Representatives, and whether it will be included in the Senate’s version of the bill and ultimately signed into law.

Read more here