SEC Delays Small-Company 404 Compliance

As expected, the Securities and Exchange Commission has granted small companies another year — until July 2007 — before they must report on their internal controls under Section 404 of the Sarbanes-Oxley Act, according to the Associated Press.

That is the second time the SEC has given small companies an extra year before complying with the provision, which states that companies and their auditors sign off on corporate compliance with the internal controls provision of the act. The commission voted 5-0 for the extension at a public meeting, signaling its sensitivity to small-company complaints about the financial and logistical burdens of complying with the new rules.

The delay "in no way reflects any desire to back away" from the requirements of the Sarbanes-Oxley Act, said SEC chairman Christopher Cox before the vote, according to the report.

Small companies are defined as having a market capitalization of up to $75 million. Advocates for smallish companies have been calling on the SEC to redefine the group, with some proposals calling for the cutoff to be $1 billion.

An SEC advisory committee has suggested that the cutoff could be closer to $700 million.