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Sarbanes-Oxley relief for small businesses?

Alisa Roth Apr 19, 2006

TEXT: Sarbanes-Oxley relief for small businesses?
The SEC is considering a rule that would exempt small companies from complying with the most onerous parts of the Sarbanes-Oxley Act. Proponents of the exemption say it simply costs too much for small companies to comply. Critics say it would render Sarbanes-Oxley non-existent for all but the biggest public companies.

The new rule would exempt companies with a market capitalization under $128 million from having to comply with one section of the Sarbanes-Oxley Act. Specifically, the part of the law that forces companies to audit their financial reporting and fix any problems that could lead to mistakes on their financial statements.

Those who favor the exemption say small companies can’t afford to hire special auditors.William Carney, a professor at Emory’s law school, said: “We’ve had kind of a two-tiered market of companies. Some of them have sales as small as, say, $25 million a year, all the way up to companies with sales in the hundreds of billions of dollars a year. And we’ve got a one-size-fits-all regulation which is very, very expensive for these small companies.”Carney says many companies are going private, rather than paying to comply with the rule.

But small companies haven’t had to pay up yet. Large companies had to start complying last year. But small companies were given a break. And the deadline’s been extended again, until July 2007.

Meanwhile, those who oppose the exemption say it would take all the teeth out of the law, especially since as many as 80% of public companies could be excluded.Matt Kelly, managing editor at Compliance Week magazine, says checking up on financial reporting is especially important for little businesses.

“A lot of small companies, they don’t really do it that well,” Kelly said. “They don’t really have staff devoted to these sorts of things. The guts of what we’re talking about here is really difficult things that have tied up a lot of large companies in knots.”People on both sides of the debate suggest that creating a separate regulation for smaller companies might be the fairest solution.

— Alisa Roth

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