Senators Kerry and Snowe Call on SEC to Give Small Firms More Time, Assistance to Comply with Sarbanes-Oxley

Just one day after House Small Business Committee Chairwoman Nydia Velázquez [D-N.Y.] urged Securities and Exchange Commission [SEC] officials to extend enforcement of Section 404 of the Sarbanes-Oxley Act of 2002 [see "House Committee Considers Impact of SOX Regulations on Small Business"], two prominent U.S. Senators weighed in, too.

Earlier today, Sens. John Kerry [D-Mass.] and Olympia J. Snowe [R-Maine] outlined specific steps the SEC should take to provide more time and assistance to small public companies to comply with Sarbanes-Oxley [SOX] internal control regulations.

Kerry and Snowe, as chairman and ranking member of the Committee on Small Business and Entrepreneurship, have been closely following the impact of SOX compliance on small public companies worth less than $75 million.

“Small public companies still face higher costs than large firms and deserve more time to comply with the recent changes to Sarbanes-Oxley," Kerry declared. "The regulations issued by the SEC last month are an important step, but I, again, strongly urge the SEC to give small public companies additional time to comply with Sarbanes-Oxley and to find additional ways to reduce their regulatory burden."

Sen. Snowe agreed. “We need to give America’s small businesses the necessary time and resources needed to successfully comply with these new regulations,” she noted. “By providing the proper tools -- such as an adequate extension, a full cost assessment, and a compliance guide to institute these regulations -- our nation’s small businesses will have what they need to effectively reduce their regulatory burden.”

At a committee hearing on April 18, and in several oversight letters, Kerry and Snowe called on the SEC and Public Company Accounting Oversight Board to give smaller firms up to a year extension to comply with the law and take additional steps to reduce the burdens small businesses face. Last month, the SEC issued final rules for firms to follow in complying with Section 404 of Sarbanes-Oxley, which sets management and accounting reporting standards.

In a letter to SEC Chairman Christopher Cox [pictured above], Kerry and Snowe requested:
* A reasonable extension for small public companies to comply with the newly issued regulations;
* A full assessment of the cost of the new rules under the Regulatory Flexibility Act before they become effective later this year;
* A small-business compliance guide, to be published by the SEC, that would assist small companies in implementing the new internal controls requirements; and
* A regular report by the SEC’s Advisory Committee on Smaller Public Companies on the impact of Section 404, as well as how the financial burden of compliance with the Sarbanes-Oxley Act may be reduced.

GoodBiz113's take: We appreciate the bipartisan efforts of U.S. Senate and U.S. House small business committee leaders to promote complete understanding of SOX regulations before the SEC institutes full compliance.

For information about what your company or not-for-profit organization needs to do in order to comply with SOX, check out the resources we've provided under "Relevant Goods."
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House Committee Considers Impact of New SOX Regulations on Small Business

Today, as Congress reconvened, chairmen of the Securities and Exchange Commission [SEC] and the Public Company Accounting Oversight Board [PCAOB] came before the House Small Business Committee to explain the impact of recently approved standards for complying with Section 404 of the Sarbanes-Oxley Act of 2002 [AKA SOX 404] on small public companies. Chairwoman Nydia Velázquez [D-N.Y.] reiterated her call for at least a yearlong delay in allowing time for small firms to comply.

"Before we set time frames, we need to know that these guidelines will work," Velázquez asserted. "I strongly urge the SEC to delay the implementation of these regulations, and to thoroughly test these guidelines to enable us to fully grasp the true impact on small businesses."

With concerns raised over the effect that SOX 404 will have on this nation's small businesses, Chairwoman Velázquez called for the SEC, prior to approving the new standards, to develop a "hard dollar" estimate demonstrating the costs of these regulations on small companies.

Committee members argued that more time is needed to determine whether or not these rules will actually reduce compliance costs. The requested delay would also enable small companies to train managers and auditors in best practices to ensure the regulations are implemented properly.

It was these same concerns that prompted Chairwoman Velázquez and Ranking Member Steve Chabot [R-Ohio, pictured above] to ask for additional time for small businesses to comply with SEC and PCAOB guidance in March. However, the current proposal fails to account for this original request.

"Though it has taken five years to come to these conclusions about implementing SOX 404 for small firms, we should not be too hasty in imposing these rules," said Chairwoman Velázquez. "This is not something that has been decided overnight, nor should it be thrown upon small companies overnight. The SEC needs to recognize the negative impacts that immediate implementation will have on small firms."

Though small businesses and lawmakers have rallied around the Sarbanes-Oxley Act of 2002 in an effort to prevent accounting fraud and rebuild shareholder trust in the wake of corporate scandals, some of its provisions have been applied in a way that disproportionately impacts smaller public companies.

For example, small firms would face increasing regulatory and paperwork burdens under the reporting requirements in Section 404 [SOX 404]. Many are paying a higher percentage of their revenues for legal and audit fees than their larger counterparts.

To compound the difficulties for entrepreneurs -- many of whom already operate on small margins -- a number have diverted resources from research and development to compliance, or returned to private ownership simply to avoid the regulation altogether. All of these consequences have a negative impact on competitiveness for small businesses and limits their ability to expand, and to create jobs.

"The reality here is that small businesses could be negatively impacted by these regulations," said Chairwoman Velázquez. "The writing is on the wall, and the SEC and PCAOB need to acknowledge that. Given the complexity of these regulations and the uncertainty that surrounds them, it is critical that small companies are not being rushed into implementing them."
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