U.S. Republican lawmakers have said they intend to introduce a bill to Congress that would exempt small businesses from some aspects of Sarbanes-Oxley. Companies with market capitalization of less than $700 million and revenues of less than $125 million would be able to opt out of complying with section 404. According to experts at InfoWatch, the proposed changes are unlikely to be adopted unconditionally because they contradict the basic principle of SOX – to protect the interests of investors at any cost.
A group of U.S. Republicans have become the first legislators to respond to the growing criticism of the Sarbanes-Oxley Act (SOX) by proposing reforms that would exempt small businesses from some of the law’s toughest requirements.
The proposed changes are aimed at section 404, which requires companies to disclose the details of their internal controls and outside auditors' opinions on the adequacy of those controls. The reforms would allow companies with a market capitalization of less than $700 million and revenues of less than $125 million to opt out of complying with section 404. Critics of the law claim that the costs of complying outweigh all the benefits for small companies. Some companies are even listing their stock overseas to avoid the costs of compliance.
Last month an advisory committee of the Securities and Exchange Commission recommended excluding small companies from the requirements of section 404, and earlier this month the head of the SEC, Christopher Cox, conceded that SOX needed to be reformed.
The Republican bill would also call for less frequent external audits for companies that do not seek the section 404 exemption after the first year in which attestation is required. Under the planned bill, at least 10% of those publicly traded companies that do opt-out of complying with section 404 would be subject to random external audits by the stock exchanges.
The bill would also set the threshold at which investors need to know if a transaction or process is considered "material" weakness at 5% of the company's net profits.
“I don’t think Congress will simply accept the proposed reforms. SOX has a few problems with scalability: the costs to small businesses are disproportionately higher when compared to those of large companies. However, this can hardly be considered a reason to radically reform the law. Most probably, the changes will be limited to new standards for the auditing of internal controls at small businesses, while the main requirements for comprehensive controls will remain,” believes Denis Zenkin, marketing director at InfoWatch.
Source: Reuters
