Small Companies Get Break on SOX Reports

Orange County Business Journal, Jul 21-Jul 27, 2008 by Clough, Richard

Small companies can breathe a sigh of relief after receiving a reprieve from a Sarbanes-Oxley auditing provision widely considered complicated and costly.

The Securities and Exchange Commission announced late last month that it has approved a one-year extension of the date by which small public companies must comply with Section 404(b).

Section 404, which requires public companies to evaluate management's internal control over financial reporting and obtain external auditor approval, is considered the most burdensome aspect of the oft-criticized Sarbanes-Oxley.

Sarbanes-Oxley is a 2002 act reforming accounting standards for public companies in the wake of Enron Corp. and other corporate scandals.

Companies already have to assess their internal controls, but the SEC decision allows small companies to avoid the expense of external audits until they file annual reports for fiscal years ending on or after Dec. 15, 2009. SEC Chairman Christopher Cox, citing the disproportionate cost of compliance for small companies, proposed the extension in December.

Small companies, which bear a proportionally greater cost of compliance than large companies, have begun streamlining their procedures, however, in an effort to bring down the compliance expenses.

"Proportionally this is much more burdensome on small companies than on large," said Chris Krogh, an accountant at Mayer Huffman McCann P.C.

The SEC also expects to complete within the next year a cost-benefit study on the impact that Sarbanes-Oxley compliance has on small companies.

Clough is a staff writer for the Los Angeles Business Journal.