New Sabbarnes-Oxley Act Rules for Small Business

The Securities and Exchange Commission has delivered on its past promise by proposing a one-year extension of the Sarbanes-Oxley Act (SOX) Section 404(b) auditor attestation requirement for smaller companies. The SEC also announced that its staff has begun a cost-benefit analysis of the requirement.

Under the proposed extension, Section 404(b) requirements would apply to smaller public companies beginning with fiscal years ending on or after Dec. 15, 2009. The extension was not unexpected. In December, SEC Chairman Christopher Cox told the House Small Business Committee of his intent to propose the extension. [See the December 17, 2007 news item on AccountsPayable360.com]

Section 404 of SOX requires management to assess the company's internal controls reporting [Section 404(a)]---and it also requires an auditor's attestation [Section 404(b)]. Smaller companies already must comply with the Section 404(a) requirement for 2007 annual reports. AP departments have spent much time getting their AP policies and procedures in shape to pass muster with SOX.

Cox said the delay would allow the agency time to gather more data on the costs of SOX Section 404 internal control compliance for so-called "nonaccelerated filers," which are smaller public companies with a public float of less than $75 million.

According to the commission, the study will consist of two main parts: (1) a Web-based survey of companies subject to Section 404; and (2) "in-depth interviews including companies that are just now becoming compliant." The study, which is expected to be completed by late summer or early fall, will be spearheaded by the Office of Economic Analysis, aided by the Office of the Chief Accountant and the Division of Corporation Finance.

"The Commission believes that strong investor protection and healthy capital formation go hand-in-hand," Cox stated. "The study will give us the opportunity to ensure that the investor protections of Section 404 are implemented in the way that Congress intended, and do not impose unnecessary or disproportionate burdens on smaller companies."
According to SEC, this "dual approach" will allow it to gather information from a large cross-section of companies, and to "analyze more detailed information about what drives costs and where companies and investors derive the benefits."