SEC Rethinks Sarbox and Small Companies

The Securities and Exchange Commission is clearly sensitive to the plight of smaller companies that are struggling to comply with new corporate governance rules that apply to large and small companies alike.

Earlier this month the SEC gave many of these smaller companies an extra 45 days to meet a number of the requirements of Section 404 of the Sarbanes-Oxley Act, which guides how auditors report on companies’ assessments of their internal controls.

Now the SEC has created an advisory committee to help examine the impact of that landmark legislation and other federal securities laws on smaller public companies. “The Sarbanes-Oxley Act has already been of enormous benefit to America’s investors and markets and will spur further improvements,” said SEC chairman William Donaldson. “Now the time is ripe to review how the act, including areas like internal control reporting, and other aspects of the SEC’s regulations affect smaller companies.”

According to Donaldson, the Securities and Exchange Commission Advisory Committee on Smaller Public Companies will assess the impact of Sarbanes-Oxley on these businesses in four general areas:

• Frameworks for internal control over financial reporting, methods for management’s assessment of those controls, and standards for auditing those controls;
• Disclosure, reporting, and governance requirements, including differing regulatory requirements based on market capitalization, on other measurements of size, or on other market characteristics;
• Accounting standards and financial reporting requirements;
• The process, requirements, and exemptions relating to offerings of securities, particularly public offerings.

The committee will consider whether the costs imposed by the current securities regulatory system for smaller public companies are proportionate to the benefits, the SEC elaborated.

In a statement, Donaldson added that he expects the committee to provide recommendations as to where and how the commission should “draw lines to scale regulatory treatment for companies based on size.”