Risk & Compliance

Senators Press SEC, PCAOB for 404 Delay

Kerry and Snowe want to put off small-company compliance by one year. At the same time, total spending on Sarbox compliance seems to have topped ou...
David KatzFebruary 26, 2007

With overall corporate spending on Sarbanes-Oxley compliance apparently leveling off, two prominent U.S. Senators are zeroing in on easing Sarbox internal-controls on the smallest public companies.

In a letter to Securities and Exchange Commission Chairman Christopher Cox and Public Company Accounting Oversight Board Chairman Mark Olson dated Friday, Senators John Kerry and Olympia Snowe called for an extension in the deadline for companies of less than $75 million in market capitalization to comply with Sarbox 404 rules.

The Senators want the SEC and the PCAOB to delay the small issuers’ 404 compliance for up to one year from the date that the commission and the oversight board issue their final Sarbox 404 guidances. That would mean that the smaller companies that are calendar-year filers would have until their 2008 10-Ks to file their management internal controls reports and until their 2009 10-Ks to file their auditors’ attestation reports.

On December 15, the SEC extended the compliance deadlines for small companies’ 404 management reports to their 10-Ks for fiscal years ending on or after December 15, 2007 and for their auditors’ attestation reports to 10-Ks for fiscal years ending after December 15, 2008.

The comment period for the proposed SEC 404 guidance ends Monday, signaling the start of deliberations by the commission and the PCAOB on the final rules.

In their letter, Kerry and Snowe, the chairman and ranking minority member of the Senate Small Business Committee, respectively, cite an April 2006 Government Accountability Office report finding that small companies spend a great deal more on Sarbox 404 compliance than bigger ones do. The move seems part of a bipartisan effort to push the regulatory pendulum back. Recently New York Democratic Senator Charles Schumer and New York City Mayor Michael Bloomberg issued a report also making the case for a Sarbox rollback.

Kerry, a Massachusetts Democrat, and Snowe, a Maine Republican, however, are focusing on small companies. The GAO report they cited found that companies with less than $75 million in market cap spent 877 percent more than larger outfits did, according to the report. The smaller issuers spent $1.14 in audit fees per $100 of revenue, compared to just 13 cents per $100 for firms with greater than $1 billion in market capitalization.

Overall, the difference seems to be enough to contribute to an overall moderating trend in Sarbox compliance costs. In a report issued last week, AMR Research predicted that companies will spend $6 billion in 2007 on Sarbanes-Oxley compliance. After a rapid ramp-up in the first years following passage of the 2002 act, spending among the 200 companies surveyed has stabilized at the $6 billion level since 2005, the firm says.

Further, Sarbox-related costs represent only 20 percent of overall compliance spending, according to AMR, which received 65 responses from companies with under $1 billion in revenue and 135 from companies above that amount.

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