The Securities and Exchange Commission and the Public Company Accounting Oversight Board have made it clear that their upcoming May 10 roundtable on financial internal controls reporting and auditing will have little to do with the experiences of small companies.
That’s because the panelists at the event will focus on second-year experiences involving compliance with Section 404 of the Sarbanes-Oxley Act. In a briefing paper on the roundtable posted on the SEC and PCAOB websites yesterday, the commission and the board stated that they’re aware that smaller companies and foreign issuers in U.S. exchanges haven’t yet had to comply with the rule and have voiced anxieties about their forthcoming compliance.
“However, because the purpose of this roundtable is to review second-year experiences, the discussion will not specifically focus on possible special accommodations or exemptions for companies that have not yet had to comply with the internal control reporting provisions,” the two regulators stated.
Companies with a public float of $75 million or less, called “non-accelerated filers,” have until fiscal years ending after July 15, 2007 to begin complying with 404. Foreign private issuers must comply beginning with fiscal years ending after July 15, 2006.
Still, many other public companies that do have a year of compliance under their belts would still be considered small and have the compliance problems that critics of 404 cite as being different from those of big public issuers. Unique problems that the advocates of small companies have cited are an inability to avoid conflicting tasks because of a lack of employees and a fast-changing structure that makes it hard for smaller issuers to comply with rigid internal controls rules.
Such issues probably won’t be discussed much by roundtable participants, however. The panelists “will not specifically focus on possible special accommodations or exemptions for companies that have not yet had to comply with the internal control reporting provisions. Issues related to these companies are being explored in other forums,” according to the SEC and the PCAOB. One particular forum the regulators probably have in mind: the SEC’s own Advisory Committee on Smaller Public Companies, which recommended 404 exemptions for diminutive issuers.