Is relief coming for smaller public companies?

• Author: de Mesa Graziano, Cheryl
• Position: Regulation

Much has been said and written lately about the regulatory burdens that are falling on smaller public companies in the wake of reform measures such as the Sarbanes-Oxley Act. Various articles have cited that the Securities and Exchange Commission (SEC), under its new Chairman Christopher Cox, supports steps that the SEC is taking to make accounting rules less burdensome for smaller companies.

One step is the formation of the SEC Advisory Committee on Smaller Public Companies. Created last year by former Chairman William Donaldson to consider the impact of Sarbanes-Oxley and other federal securities laws, the 21-person committee was established to provide the SEC with recommendations designed to assure that the burdens and expenses associated with small-firm compliance with federal securities laws square with the benefits being realized by investors and the public. The committee is comprised of four subcommittees: internal control over financial reporting, corporate disclosure, accounting standards and capital formation.

The SEC's Office of Small Business Policy, which is part of the Division of Corporation Finance, serves as secretariat for the committee and provides staff support, but is prohibited by law from telling the committee what to recommend to the SEC, according to office chief Gerald J. Laporte. Likewise, the SEC will consider recommendations, but can choose whether or not to adopt them.

The committee recently sought public comment on ways to improve the current regulatory system for smaller companies through its "Request for Input on Ways to Improve the Current Regulatory System for Smaller Companies (the questionnaire)." Comprised of 29 open-ended questions, the request's comment period ended August 31.

First Response to Section 404

Although the committee isn't scheduled to present a final report to the SEC until April 2006, on August 10, the committee approved two resolutions containing recommendations aimed at relief for smaller firms, which are summarized in a letter sent to Chairman Cox on August 18.

The first resolution relates to Sarbanes-Oxley Section 404 compliance dates for non-accelerated filing companies. The committee recommended that the SEC further extend compliance dates so that a non-accelerated filer should begin to comply with the management report on internal control for its first fiscal year ending on or after July 15, 2007, instead of July 15, 2006. The committee provided several reasons, including costs, complexity and process improvements.

In its...