After a change of heart, the New York Stock Exchange is pushing the Securities and Exchange Commission to include companies with small market capitalizations (under $200 million) in its plans for new independent audit committee rules. Those smaller companies may have to scramble to meet more- stringent rules, which may include requiring audit committees to consist solely of independent directors.

Originally, the NYSE had supported the proposed SEC rules, which would exempt small- cap companies on the grounds that smaller companies would struggle to find board members. But a recent report by the Committee of Sponsoring Organizations on SEC accounting fraud cases between 1987 and 1997 reported that most of the fraud occurred at those smaller companies. Now, the NYSE is circulating a letter to member companies detailing its new view. The SEC rules, which will be released sometime this fall, will “take into account” the NYSE’s new suggestions, but specific details could not be released, says an SEC spokesperson.

If the SEC heeds the NYSE’s suggestions, small-cap companies will face major changes. “In Utopia, there would be no impact,” says Rick Martin, director of finance at Pameco Corp., a distributor of heating, ventilating, and air- conditioning equipment, based in Norcross, Ga., with annual sales of $625 million. “The proper controls would already be in place; there wouldn’t be an issue.”

But that is not the reality, Martin acknowledges. Smaller companies that don’t have the proper level of expertise are “homespun in nature, and are used to maintaining books a little loosely, tightening them up at year-end,” he says.