March 27, 2006
Sarbanes Speaks out on Legality of Recommendations from the SEC Advisory Committee on Smaller Public Companies
In his March 27th speech to the Consumer Federation of America, Senator Sarbanes again implied that the SEC does not have the legal right to exempt companies for sections of Sarbanes-Oxley, namely Section 404.
This would of course be referencing their February recommendations that would fully exempt micro cap companies (newly defined as less than $128 million in market cap and less than $10 million in revenue) from Section 404 except that they still have to comply with Section 302 which addresses internal controls and material weaknesses. Further, the newly defined smallcap companies, greater than $128 million but less than $787 million in market cap and with less than $250 million in revenue. Small cap companies as it is proposed would still sign the Section 404 certification but be exempted from auditor attestation.
This move would exempt about 80% of public companies from Section 404 but 6% of the market cap. The problem is of course that in 2005, restatements are double (1295) what they were in 2004 (650). And smaller companies represent a larger percentage of these restatements.
The law is working. The costs may be high. But now we have something to hang our hats on when the bad guys commit a crime. We have standards on which to judge. If you are going to take the public's money, you have to have higher standards.
Sounds like the only other move the SEC could do is to create a lesser audit standard for smaller companies, a side recommendation by the committee, in the event, the first recommendation could not be adopted.
If your company needs assistance in effectively and economically complying with this legislation, see www.issuescentral.com to learn more about Compliance Playbook(tm) or www.compliancepartner.ca if your company is based in Canada. We reduce cost and time in developing your documentation over internal controls.
This would of course be referencing their February recommendations that would fully exempt micro cap companies (newly defined as less than $128 million in market cap and less than $10 million in revenue) from Section 404 except that they still have to comply with Section 302 which addresses internal controls and material weaknesses. Further, the newly defined smallcap companies, greater than $128 million but less than $787 million in market cap and with less than $250 million in revenue. Small cap companies as it is proposed would still sign the Section 404 certification but be exempted from auditor attestation.
This move would exempt about 80% of public companies from Section 404 but 6% of the market cap. The problem is of course that in 2005, restatements are double (1295) what they were in 2004 (650). And smaller companies represent a larger percentage of these restatements.
The law is working. The costs may be high. But now we have something to hang our hats on when the bad guys commit a crime. We have standards on which to judge. If you are going to take the public's money, you have to have higher standards.
Sounds like the only other move the SEC could do is to create a lesser audit standard for smaller companies, a side recommendation by the committee, in the event, the first recommendation could not be adopted.
If your company needs assistance in effectively and economically complying with this legislation, see www.issuescentral.com to learn more about Compliance Playbook(tm) or www.compliancepartner.ca if your company is based in Canada. We reduce cost and time in developing your documentation over internal controls.
