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Congresswoman Turns Up the Heat on SEC

On the same day the entire SEC appears at a House committee hearing, Rep. Nydia Velazquez rebukes the agency for not providing estimates about how much new Sarbox guidance will cost small companies.

Sarah Johnson, CFO.com | US
June 26, 2007

Possibilities

As to the need for more specific questions about cost, I would encourage readers to go to the web-site for the House Committee on Small Business and look up the 4 page 13 question letter the Congresswoman sent to the SEC. Pretty specific questions to which no answers were provided by the SEC. A reader suggests a quick and dirty estimate can be had by just doubling external audit fees. We are a small accelerated filer, and that "quick and dirty" estimate has been fairly accurate for the past three years. But that happens when the external auditor performs the "audit of internal control" described by AS5, which per the SEC schedule does not happen for another year. Small business only needs to do a "managment assessment" in 2007. So what happens in 2007? One possibility: 1. Small business notes that compliance with the SEC's management assessment guideline is voluntary. 2. Small business elects to minimize cost by doing very little in conjunction with their first "management assessment." 3. In 2008 small business' external auditors about double their fees and find at least one "material weakness" in many small businesses. 4. Consumer groups see the sudden rash of "material weaknesses" as proof that management cannot be trusted and call for still more regulation and oversight of all businesses, perhaps through an external audit to determine the effectiveness of your budget process, marketing plans, or human resource management efforts. 5. You kick yourself for not doing more to stop this lunacy before it becomes "institutionalized." You have until July 12 to get comments to the SEC telling them what you see by way of a AS5 cost impact. Go to the SEC web-site, look up 'Proposed Rules', then click "PCAOB." If you are a "non-accelerated filer", ask your external auditor if something like 80-100% of your present external audit fee might be a reasonable estimate for the additional fees associated with work required by AS5. You will be interested in the answer. Then take the time to give the Congresswoman some ammunition and some help. Share your thoughts with the SEC. Please.

Posted by Den Stevens | June 27, 2007 11:26 am

quick and dirty answer for Congresswoman

Rep. Nydia Velazquez deserves a well thought-out answer. Until the Chairman of the SEC responds to the Congresswoman's request, it may be useful to establish a floor for the estimate. All public companies that undergo their first year of the Sarbanes-Oxley Act of 2002 (“SOX”) compliance can expect their external auditor fees on average will be no less than double that from a year earlier. This does not consider additional costs for all first year inefficiencies or the very burdensome costs incurred by management to ready their company including their documentation and internal testing. So if a small company paid its external auditor $200,000 in audit fees in 2006, they can expect to pay no less than $400,000 in 2007 that is unless they are a Canadian issuer. In that case, the audit fees should only increase by the cost of inflation. Why? They don't duplicate the work in Canada, an efficient but still effective approach. If Congress is looking for an absolute way to lessen the cost for compliance but still achieve the objectives of SOX they might consider researching why Canada’s National Instrument 52-109 was written the way it was.

Posted by Thomas Stuart | June 26, 2007 04:48 pm

More specific

I think she needs to be more specific in her request, and that the SEC should respond in such manner.

Posted by Roland Cycan | June 26, 2007 12:58 pm

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