Small firms seek different SOX rules.

• Author: Swartz, Nikki
• Position: UP FRONT: News, Trends & Analysis

According to a recent U.S. survey, almost half of all small companies say that the Sarbanes-Oxley Act (SOX) has made it more difficult for them to conduct business.

The study, commissioned by financial and business management solution provider SAP America Inc., reveals that more than two-thirds of all small businesses favor different sets of compliance standards for small and large companies, while others are outsourcing or cutting back in areas such as marketing, research, and personnel to meet compliance demands.

In addition, many businesses are now dedicating extensive resources to meeting SOX deadlines. For example, spending on Section 404 of Sarbanes-Oxley alone increased in the first half of 2004 by 62 percent to $3.14 million per company, according to Financial Executives International.

In September 2005, the Securities and Exchange Commission (SEC) issued a one-year compliance extension to small companies with less than $75 million in public shares, giving them until July 2007 to become fully compliant with SOX corporate governance regulations.

The SAP survey reveals how small companies have approached SOX compliance so far. According to the survey:

* Fifty-four percent of small companies have altered their compliance plans due to the SEC's extension, investing more time and money into planning. In addition, 53 percent of all non-compliant companies are now working with outside consultants to create a methodical approach to SOX compliance. Only 10 percent of companies intend to ignore SOX regulation, hoping that small and medium businesses will be exempted altogether.

* For the majority of public small businesses, the significant compliance cost was the greatest challenge in dealing with SOX regulations. Among responders, 54 percent of public small businesses cited the cost factor as the greatest challenge facing decision-makers. Sixteen percent cited balancing compliance costs with budget forecasts as the next-greatest challenge.

* Forty-two percent of companies say they have outsourced SOX compliance, 18 percent are cutting marketing and/or research and development, and 16 percent have reduced head counts to cut costs.

* When measuring only publicly owned small companies that are required to meet regulatory measures, 86 percent of decision-makers support separate sets of rules.

[ILLUSTRATION OMITTED]

...