News From the
Committee on Small Business
Nydia M. Velázquez, Chairwoman

For Immediate Release
May 24, 2007

CONTACT: Kate Gilman/ Austin Bonner,  (202) 225-4038

Committee to Examine New SEC and PCAOB Guidance for Small Companies
Questions raised about scope of new standards and implementation schedule

WASHINGTON – This week the Securities Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) approved new standards aimed at reducing the compliance burden small companies face in complying with Section 404 of the Sarbanes-Oxley Act (SOX 404).  These regulations represent the culmination of a multi-year process to “right-size” SOX 404 for small companies.  In order to examine this important development, the House Small Business Committee will convene a hearing when Congress returns to session in June.

“Small companies have been voicing their concerns about SOX 404 for the last five years, and these recent actions are a critical step,” said Chairwoman Velázquez. “When Congress returns from the Memorial Day District Work period, the Committee will take immediate action to understand what these new regulations mean for small companies.”

The auditing standards, disclosure rules, and corporate governance rules mandated under the Sarbanes-Oxley Act of 2002 have added to the operating costs of small public companies.  Small companies are facing increased costs, stemming from higher legal and audit fees, but also the new costs associated with complying with internal controls standards as mandated under SOX 404.  For many, this has meant forgoing research and development activities as resources are devoted to SOX 404 compliance.  Studies have shown that overall compliance costs associated with SOX 404 have far exceeded the $91,000 per company cost originally estimated by the SEC.  Further studies have shown that costs will not decline as much as anticipated over the long-term.

“Steps need to be taken in the near-term to provide small companies with real, meaningful relief,” said Chairwoman Nydia M. Velázquez. “However, this new guidance has not been tested and it is difficult, if not impossible, to truly tell how effective it will be.”

Questions have been raised regarding whether the proposed deadlines by which smaller public companies must comply with the new management guidance and revised auditing standard are sufficient.  These deadlines could prevent an adequate review of the new standards, which would make it difficult to fully understand whether the new standards reduce SOX 404 compliance costs.  To address this issue, this year, the Chairwoman and Ranking Member urged the SEC to issue a delay that would clarify that smaller public companies would have additional time to comply with these new standards.

“Reducing small companies’ compliance costs with SOX 404 is necessary to sustain innovation and competition in our economy,” said Chairwoman Velázquez. “Because of these reasons, the Committee will hold a hearing to make certain the new regulations provide the relief that small firms need.”

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