Coping with Sarbanes-Oxley: bane of small business isn't going away.

• Author: Marks, Susan J.

Imagine corporate America going through the energy-and-money-draining stress of preparing for Y2K--year, after year. Remember the imagined crash of all business computers leading up to 2000? That's what compliance with the Sarbanes-Oxley Act of 2002 has turned into for many small and midsize public companies. It's an endless strain on manpower and resources at a time when U.S. companies already are struggling to compete globally, experts say.

Apparently the U.S. Securities and Exchange Commission recognizes some of the problems. In March, it extended the deadline for some aspects of compliance with the new securities law. It was the second time the agency extended deadlines related to Sarbanes-Oxley, or SOX as the law is being called. Named for its two congressional sponsors, Sen. Paul Sarbanes, D-Md., and Rep. Michael Oxley, R-Ohio, SOX is the federal government's answer to the need for corporate financial accountability in the wake of the Enron and the WorldCom accounting scandals. The act lays out extensive financial reporting, oversight and audit controls for public companies.

"SOX compliance is like Y2K every year," says Dave Guevara, president of IdealCMS, a Centennial-based consulting firm specializing in leveraging SOX data to accelerate earnings. "It will not go away."

Few people question the intent of the law, but many executives are objecting to the scope of its implementation. A company with $16 million in revenues, for example, must meet the same requirements as one with $16 billion in sales. The result can be devastating for small- and midsize businesses, according to AeA, formerly the American Electronics Association, a Santa Clara, and Washington, D.C.-based industry group. AeA estimates that businesses will pay a total of $35 billion just to comply with one part of Sarbanes-Oxley: Section 404--Management Assessment of Internal Controls. Section 404 calls for companies to provide annual reports by management on the company's internal control over financial reporting and an accompanying auditor's report.

In a February report on the unintended impact of Section 404 on small business, AeA estimated that larger businesses will spend close to $5 million on compliance, and many smaller companies "well over $1 million" each.

Eric Balzer is one of those Colorado executives who agree with the intent of Sarbanes-Oxley, but not its overwhelming cost, particularly for small businesses. He's CFO of Colorado Springs-based Ramtron International Corp., which develops and markets semiconductor memory and includes Denver-based subsidiary Mushkin Enhanced Memory Systems. The company...