A proposed one-year delay for small businesses to comply with Section 404(b) of the Sarbanes-Oxley Act (SOX) has been cautiously accepted by an accounting institute but challenged by Grant Thornton US.
Securities and Exchange Commission (SEC) chairman Christopher Cox proposed the delay for filers with less than $75 million in market capitalisation due to the impact and cost of regulation on smaller companies. Around 5,000 small public companies are still not required to provide an auditor’s report on internal controls.
Cox proposed the extension to allow the SEC to conduct a cost/benefit study of Section 404 (b) compliance under the new auditing standard and management guidance created by the Public Company Accounting Oversight Board and the SEC. He doesn’t expect the study to finish before June 2008.
Institute of Management Accountants president and chief executive Paul Sharman welcomed the extension but believes planned implementation would distract small business executives from running their companies. Sharman queried the SEC’s proposed cost/benefit study, which he views as irrelevant to many small businesses that have no experience in quantifying compliance costs and benefits in the first year of implementation. He called for a survey of ten to 20 companies using proper process analysis techniques. “We need to be prescriptive but be prescriptive in a way that’s premised on a decent piece of work by the SEC staff that actually gets inside with those corporations that they are meant to oversee and provide them with some useful, practical guidance,” he said.
Grant Thornton US said the SEC delay would move the effective date nearly five years beyond the original implementation date. The firm said it is against such a move because few small public companies had taken advantage of previous deferrals to properly prepare for implementation, which has “impaired” the SEC’s ability to gather accurate data for the study.