The U.S. Securities and Exchange Commission has agreed to provide small businesses with an additional one year extension to comply with Sarbanes-Oxley Section 404(b) internal control requirements. SEC Chairman Christopher Cox said he wants to give small companies more time to meet certain auditing requirements of the Sarbanes-Oxley corporate reform law.
"This will help ease the burden on small firms and help encourage more small businesses to become public companies - while still ensuring transparency and honest accounting," said Senator John Kerry (D-MA), chairman of the Senate Committee on Small Business and Entrepreneurship.
"I commend Chairman Cox and the Securities and Exchange Commission for implementing this delay which will give these small firms time to successfully meet Sarbanes-Oxley's requirements and enable the SEC to fully consider the economic impacts on small publicly traded companies," said Senator Olympia Snowe (R-ME), ranking member on the Committee on Small Business and Entrepreneurship.
Small firms worth less than $75 million face a higher burden than larger firms in complying with the Sarbanes-Oxley regulations. In 2006, restatements of financial results for large companies decreased by 20 percent, while restatements for the smaller firms increased by 42 percent due to the disproportionately higher cost and time needed to comply.
Since the law was passed in 2002, the SEC has delayed compliance four times for small businesses. Currently, small companies -- those with a market capitalization below $75 million -- are expected to comply with the management guidance part of the law this year and the auditing section by 2009.
Section 404(b) requires that companies review internal controls and have them audited by external auditors. Smaller companies were supposed to put this rule into effect beginning with audits for fiscal years ending after December 15, 2008.
The SEC plans to undertake a cost-benefit study of the costs of complying with section 404 under the new management and auditing standard that will be completed no earlier than June 2008.
The SEC will not grant an extension for complying with the management guidance portion of the law, also known as 404(a).
Cox's plan, which still needs agency approval, won praise from lawmakers and industry. "We are happy to see that our voice has been heard and that the SEC will consider a delay," said Michael Ryan, a senior vice president with the U.S. Chamber of Commerce.
Rep. Nydia Velazquez (D-NY), who chairs the House Committee on Small Business, thanked Cox for his willingness to listen to small companies. "We welcome your reevaluation of this issue," Velazquez said. "This is going to be meaningful for small companies."
Cox indicated that the earliest the SEC could hold a meeting to vote on the issue would be January 2008.