Sarah Johnson, CFO.com | US
November 4, 2009

404(b) is Necessary

I agree with both John S. and Teresa B. in their analysis of the requirement(s). Also these same companies have had several years (from extensions) to create contingencies to fund the process. Complaints to eliminate there requirement to comply can be an indication that there may be serious compliant problems with some of these small cap companies.

Posted by Don Smith | Nov 8, 2009 2:54 PM ET

404(b) is necessary?

Are we sure 404 for small public firms is really necessary? Two things to think about. First, small public firms have not had to comply with 404 for seven years, and there has been no serious implosion of the markets because of it. While I agree that it is important for investors to feel good about a company's internal controls, the cost/benefit to 404 does not seem to be in line. Second, 404 would not have stopped or even raised a flag about Enron or Worldcom. Those frauds were carried out by people at the top and were well hidden from almost everyone. Had they not gone on so long, they may never have been discovered.

Most small public companies are trying to grow and need all their capital to do so. I think investors are better served by not forcing extra costs onto these companies at this critical phase. As they grow and aspire to larger status, they will need to comply. This and market pressure will convince the healthy ones to begin complying earlier than later.

Posted by Kevin OToole | Nov 5, 2009 9:55 AM ET

404

I agree. 404 is necessary to ensure that the internal controls of a company are in place and fuctioning properly. This, in my opinion, is a cost I would want to incur in order to provide more reassurance to investors that the financial information they rely on to make investment decisions is accurate/reliable. Why would they want to "undo" this? This just gives one the opportunity to engage in fraudulant activity. But obviously Enron, Worldcom, Tyco, etc. didn't get the point across.

Posted by John Schmidlin | Nov 4, 2009 4:08 PM ET

404(b) is Necessary

These types of provisions have come up from time-to-time over the past years and I always find it interesting and disturbing at the same time. The provisions are typically created by people such as Reps. Scott Garrett (R., N.J.) and John Adler (D., N.J.), who have not had the opportunity to see the detailed work produced by the accounting departments of the world; the work that shareholders ultimately place their reliance upon when making investing decisions. I see this type of work every day and I can tell you, most pre-SOX companies are at best moderately sure that their financial statements are correct which is downright scary. Remember, the companies in question choose to go public and allow outsiders to invest in their company to make money. Asking them to prove that investing in their company is the right decision may be onerous since it requires that they have procedures in place that help prevent fraud and theft of shareholder assets, but, isn?t that just being prudent? Look at what happens when you do not have these types of restrictions?Enron?WorldCom?the list is endless and the devastation is real.

A study performed by Compliance Week called "SOX 404 Deficiencies Preceded By "Effective" 302 Reports" by Melissa Klein Aguilar from July 26, 2005 found that of the 366 companies who received a qualified opinion through May 2, 2005, 94% of them had claimed a clean internal controls environment via their previous quarters 302 certification. My daily experiences in the detailed accounting work produced by public companies worldwide has led me to believe that these statistics are still real and will show up again once or if 404(b) kicks in for non-accelerated filers. The only conclusion I can draw is that SOX is not even close to overkill - in my opinion - it is reasonable and most 302 and 404(a) certifications are lip service until companies are subjected to 404(b).

All my best,

Teresa Bockwoldt MBA, MST
CEO & Co-Founder

Vibato, LLC
655 Montgomery Street, 5th Floor, Suite 540 San Francisco, CA 94111
Office: 415.240.4867 | Mobile: 707.477.0008 | Fax: 888.407.7725

tbockwoldt@vibato.com | SOX Compliance Made Simple? | http://www.vibato.com

Posted by Teresa Bockwoldt | Nov 4, 2009 3:47 PM ET