SEC Supports SOX Extension for Small Business

United States Securities and Exchange Commission (SEC) Chairman Christopher Cox gave small businesses some relief on December 12, 2007, telling members of the House Small Business Committee that he supports an additional one-year extension—until 2009—of small business compliance with Sarbanes-Oxley Act (SOX) Section 404 reporting requirement. This is significant because unless the SEC or Congress takes action, small public companies will have to begin complying with parts of SOX as early as 2008.

While making the announcement at a House Small Business Committee hearing, Cox stated, “I intend to propose to the commission that we authorize a further one-year delay in implementation for small businesses.” The “decision to proceed cautiously” stems from the fact that “the cost of regulation falls heaviest on smaller companies,” he added. Small firms worth less than $75 million face a higher burden than larger firms in complying with the Sarbanes-Oxley regulations. In 2006, restatements of financial results for large companies decreased by 20 percent, while restatements for the smaller firms increased by 42 percent due to the disproportionately higher cost and time needed to comply.

Earlier this year, Senate Committee on Small Business and Entrepreneurship Chair John Kerry (D-Mass.) and Ranking Member Olympia Snowe (R-Maine) held a hearing focused on the impact of Sarbanes-Oxley regulations on small businesses, and wrote three letters to the SEC seeking additional time for small firms to comply while preserving the intent of the 2002 law. Repeated calls for a postponement have also come from House Small Business Committee Chairwoman Nydia M. Velázquez and it was during her most recent hearing to examine the regulation’s impacts on small firms, that this victory was finally achieved.

Since smaller firms face higher costs to comply with Sarbanes-Oxley, this delay will help reduce the regulatory burden on small firms. It also enables the SEC to fully consider the economic impacts on small, publicly traded companies and make any necessary changes.