Just after the U.S. Securities and Exchange Commission (SEC) issued its strongest language yet about the Sarbanes-Oxley Act (SOX) and its pending application to small businesses, Congressman Scott Garrett (R-NJ) introduced a bill that would exempt the nation's smaller firms from SOX's most onerous provisions.
Aptly dubbed the "Small Business SOX Compliance Relief Act," Garrett's bill would exempt public companies with less than a $75 million public float, also called non-accelerated filers, from what he described as the burdensome reporting requirements contained within Section 404(b) of SOX.
"Although the stated intent of Sarbanes-Oxley was to provide investor confidence in our markets through greater accountability and disclosure, the Act has had the unintended effect of creating undue-and often unbearable-burdens on small businesses," said Garrett. "It is diverting valuable resources away from other legitimate business needs, creating massive and tedious documentation requirements and discouraging the public listing of both international and domestic companies on U.S. markets. Honest companies are being punished and the U.S. economy will suffer as a result."
Currently, the bill has been referred to the House Financial Services Committee and garnered no cosponsors.
In an effort to reassure investors, who were uncertain of when, if ever, small businesses would be required to comply with SOX's reporting provisions, the SEC issued a statement stating that no further delays would be granted to small businesses and that all the nation's firms would be required to comply by June 15, 2010. Section 404 currently already applies to larger businesses and requires public companies to report on their internal accounting controls and have an independent auditor attest to their efficacy.
Observers have raised questions about the timing of the act's imposition on the still struggling small business sector. "Especially now, as our country struggles to emerge from a recession, the last thing American small businesses need is another barrier to economic stabilization," said Garrett, who, in a release, used the SEC's own words against them. In a survey of businesses published by the agency in September, the SEC wrote that "[A] majority felt that the costs of compliance outweighed the benefits. This was especially true among smaller companies."
Garrett's release also referred to research by NASDAQ that showed the burden of compliance, on a percentage of revenue basis, falls on small businesses 11 times harder than it does on larger companies, giving these already better-positioned companies an even greater market advantage.
NACM has watched and reported on SOX since its passage in 2002. If you have any thoughts on the Act, the SEC, or Garrett's proposed legislation, please email them to firstname.lastname@example.org.
Jacob Barron, NACM staff writer. Follow us on Twitter at http://twitter.com/NACM_National.