The US Securities and Exchange Commission (SEC) has launched a
cost-benefit study of an upcoming auditor attestation requirement
for smaller companies under Section 404(b) of the Sarbanes-Oxley

The study will collect and analyse cost and benefit data from a
broad range of companies currently complying with Section 404 under
newly issued guidance for companies and auditors. The final report
will also inform of any decision to improve the efficiency and
effectiveness of Section 404 implementation. The SEC’s study will
consist of two main parts: a web-based survey of companies that are
subject to Section 404; and in-depth interviews including companies
that are now becoming compliant.

The commission said the dual approach will gather data from a large
cross-section of companies and analyse more detailed information
about what drives costs and where companies and investors derive
the benefits.

In connection with the study, the commission has unanimously
proposed a one-year extension of the Section 404(b) auditor
attestation requirement for smaller companies. Under the proposed
extension, the Section 404(b) requirements would apply to smaller
public companies beginning with fiscal years ending on or after 15
December 2009. The SEC said the postponement would allow time for
completion of the study.

SEC chairman Christopher Cox said: “The study will give us the
opportunity to ensure that the investor protections of Section 404
are implemented in the way Congress intended and do not impose
unnecessary or disproportionate burdens on smaller

The commission’s proposal to extend the Section 404(b) compliance
date is part of an effort to help reduce unnecessary costs of

The controversial Section 404 of the Sarbanes-Oxley Act has two
provisions: 404(a) requires company management to assess the
effectiveness of the company’s internal controls over financial
reporting; and 404(b) requires an auditor attestation on
management’s assessment. Larger companies, representing more than
95 percent of the market capitalisation of US equity securities
markets, have been subject to both provisions since 2004, but with
much higher costs than were originally projected by the