The letter, addressed to the current SEC chairman, Christopher Cox, and William Gradison, acting chairman of the Public Company Accounting Oversight Board, said that the proposal for exemption is “misguided” and “goes too far” in addressing concerns of small businesses, according to the Wall Street Journal.
After receiving many complaints from smaller companies about the impact of the Sarbanes-Oxley (SOX) internal controls rule on their budgets, the SEC again extended the deadline for SOX compliance for those companies with market capitalization of up to $75 million. A survey last year found that the average compliance bill for SOX came to $16 million, and a later survey said that those costs were not likely to decline for companies with market capitalization less than $120 million (See Small Cos Won’t See SOX Implementation Costs Decline).
In response to the cost complaints, an SEC advisory panel made a recommendation in December that would lead to exempting an estimated 80% of public companies from at least part of the rules, the WSJ reports. Companies with market values below about $125 million would be exempt from the rules entirely; others would face relaxed variations on the rules.
Exempting smaller companies from the internal-controls rules would be a mistake, according to the letter, which said, “When new accounting and corporate-fraud scandals develop, as they surely will, people will ask who was responsible for a policy decision resulting in such sweeping exemptions.”
The letter was also signed by John Bogle, the former chairman of Vanguard Group Inc.; John Biggs, the former chairman and chief executive of pension company TIAA-CREF; and Charles Bowsher, former US comptroller general and former head of the Public Oversight Board, the PCAOB’s predecessor in regulating the accounting industry.
Bowsher said in an interview that the exemption proposal “basically is undermining the whole thrust of the Sarbanes-Oxley legislation – to get better reporting, better audits.”
Meanwhile, the SEC and PCAOB announced February 16 that they will sponsor a roundtable May 10, 2006, at the Commission’s headquarters in Washington, D.C., to discuss second-year experiences with the reporting and auditing requirements of the SOX internal controls rule.
In addition, the agencies announced they are seeking written feedback from registrants, auditors, investors and others on their experiences with complying with the Section 404 requirements.
The announcement, with directions for making submissions, is here . The deadline for submissions is May 1, 2006.