SOX 404(b) Permanent Exemption Looking Even Better
By David Feldman at 18 June, 2010, 11:05 am
As I hear it you hear it. It appears the full House-Senate conference committee working on financial industry reform has approved including in the final bill the permanent exemption for smaller public companies to comply with Sarbanes-Oxley Section 404(b) (auditor attestation of internal financial controls). It now looks like it will indeed be part of the final bill, and presumably the only hurdle left is getting the thing passed, which most believe will happen. The vote on the committee was close though, 7-5, so don’t go celebrating just yet, as things theoretically could still change when both houses debate the final bill.
There seemed to be pretty strong views on both sides. Some felt there is so much fraud and incompetence that the extra protection is necessary, while others state this is just simply too big a burden for small companies to bear when we are trying to help small businesses get out of the recession and so on. Stay tuned!
Based on my experience with small cap companies, the ones that need controls over financial reporting the most, will not put any controls in place until they are under a threat of a 3rd party controls audit.
So unless there is proper disclosure that essentially if no 3rd party opinion is provided there can be no assurance that internal controls are adequate, this well meaning provision will have a negative affect on investors confidence and create a 2nd class of public companies.
Great piece, David. Just sent it out via Twitter http://twitter.com/AGORACOM/status/16872941976
The last decade has proven to us that large and mega-cap companies are the ones that we have to be most careful of. They can and have done significant amounts of damage to the entire global financial system. As such, the tighter the controls, the better as far as I am concerned.
Small-caps, on the other hand can’t do any damage beyond their shareholders, which is par for the course in the markets. They are nothing more than a buyer beware item.
Unfortunately, by my experience, they are unfairly tainted by the brush of e-mail spam / promotional companies, which account for a very small % of an otherwise large and hard working group of companies that are legitimately trying to achieve the American dream against all odds.
As such, relief from 404(b) is warranted and gets my full support.
Regards,
George