SOX Center

The Securities and Exchange Commission on Wednesday threw its weight behind finalising fresh guidelines aimed at clarifying how companies and auditors should comply with the Sarbanes-Oxley law.

The move signals that work by the US authorities to ease the burden of compliance with the 2002 law is moving into its final stage three months after proposed revisions were first floated.

At issue is how the SEC’s new guidelines for company management on implementing the law’s Section 404 internal controls provisions can be more closely aligned with separate guidance for auditors issued by the Public Company Accounting Oversight Board (PCAOB).

There is also disagreement over the extent to which external auditors should rely on a company’s own reviews of its controls.

This is testing US regulators’ willingness to adopt a more flexible, “principles-based” approach to corporate controls than those prescribed under Sarbox.

FT.com: SEC pushes clearer Sarbox guidelines

New legislation recently introduced in the US Senate aims to ensure that Sarbanes-Oxley Act regulations due to take effect in June do not disproportionately impact the nation’s small businesses.

The Small Business Regulatory Review Act of 2007 would require the Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) to take into account the burdens of small businesses before issuing final Sarbanes-Oxley rules.

Provisions in the Small Business Regulatory Review Act of 2007 would require: the SEC to conduct a small business analysis before the SEC and PCAOB publish final rules on small business internal control compliance; the SEC to publish a small business compliance guide explaining the SEC’s final rules in non-technical language; and the Government Accountability Office to assess the impact of the SEC’s final rules on small public companies two years after they are published.

“The Small Business Regulatory Review Act of 2007 will help to ensure that small stock companies do not suffer from additional unintended consequences that harm their ability to compete, innovate, grow, and, most importantly, create jobs,” stated Olympia J. Snowe (R-ME), Senate Small Business and Entrepreneurship Committee Ranking Member, who introduced the bill. “Our nation’s small stock companies are the cornerstone of our entrepreneurial economy, and it is essential that we carefully address the regulatory barriers that impede their growth.”

Investorsoffshore: Snowe Bill To Mitigate Sarbanes-Oxley Impact On US Small Firms

As the SEC and PCAOB continue to revise their internal-control standards, what should small businesses do in the meantime? A few are asking senators for an extension.

More than 6,000 public companies face a serious dilemma about their Sarbanes-Oxley compliance: Should they use the current version of Section 404 now in reviewing internal controls over their financial reporting? Or should they wait until the Securities and Exchange Commission and Public Company Accounting Oversight Board issue final revisions later this year?

Decision time is approaching fast. Small businesses — or so-called non-accelerated filers — have until they file their 10-Ks for fiscal years that end on or after Dec. 15, 2007, to meet 404’s management assessment requirement. It’s a deadline that the SEC has extended several times, including that of the auditors’ attestation reports (non-accelerated filers don’t have to complete those documents until their 10-Ks are filed for fiscal years ending after December 15, 2008). And small-business advocates are hoping the SEC will extend those dates once again.

CFO.com: Could Small Biz Get Another Sarbox Reprieve?

Richard Wasielewski, Nortech Systems, Inc. (NASDAQ:NSYS) vice president and chief financial officer, testified Wednesday before a U.S. Senate Committee on Small Business and Entrepreneurship that Sarbanes-Oxley (SOX) regulatory requirements have both helped Nortech improve its internal controls and financial reporting practices but also that the new requirements have added considerably to the company’s costs.

Wasielewski appeared before the committee at the invitation of U.S. Senator Norm Coleman (R-Minn.), to address the significant time and money small public companies, such as Nortech Systems, invest in Sarbanes-Oxley compliance.

The hearing preceded the introduction of new legislation, The Small Business Regulatory Review Act of 2007 (S.1153), the following day by Senate Small Business and Entrepreneurship Committee Ranking Member Olympia J. Snowe (R-ME) and Senator Coleman. The new legislation would require the Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) to take into account the burdens faced by small businesses before issuing final Sarbanes-Oxley rules and ensure that SOX regulations due in June 2007 do not disproportionately impact the nation’s small publicly traded companies

Broadcast Newsroom: Nortech Systems’ CFO Testifies on Sarbanes-Oxley Reform

Chief Counsel for Advocacy Thomas M. Sullivan today commended the U.S. Senate Committee on Small Business & Entrepreneurship for holding a hearing on the impact of Section 404 of the Sarbanes-Oxley Act on smaller public companies.

In written testimony, Sullivan said, “The topic of how the Sarbanes-Oxley Act impacts small business is an important one, and the small business community will benefit by this Committee’s focus on the proposals under consideration by the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB).”

Sullivan noted that Advocacy’s involvement with the issue began in 2002 when the office asked then Chairman Oxley and Chairman Sarbanes to include flexibility in their bill sufficient to avoid unnecessary impacts on small public firms. Since then, Advocacy has issued several comment letters to the SEC and the PCAOB, held public roundtables, and given testimony before the U.S. Congress.

Yahoo!Finance: Advocacy Commends Senate Hearing on the Sarbanes-Oxley Act

Complete copy of the testimony

BIO Reiterates Support as Senate Small Business Committee Considers Changes

WASHINGTON–(BUSINESS WIRE)–As Securities and Exchange Commission (SEC) Chairman Christopher Cox and Public Companies Accounting Oversight Board (PCAOB) Chairman Mark Olsen prepare to testify before the Senate Committee on Small Business & Entrepreneurship today, BIO reiterated its support for changes to the Sarbanes-Oxley Act of 2002 (SOX) that will specifically benefit small biotech companies.

“The biotechnology industry was particularly hard-hit by the complex and burdensome regulations imposed by SOX’s Section 404. We have supported changes to its implementation, so our companies can refocus on our most important mission of researching and developing new therapies to improve human health, expand our food supply, and provide new sources of energy,” said BIO President and CEO Jim Greenwood. “We are pleased to see that agency and congressional leaders are listening.”

Yahoo!Finance: Biotech Research and Development Will Benefit from Sarbanes-Oxley Changes

Commissioners gave the SEC staff the go-ahead to work with the PCAOB on making the proposed internal-control auditing standard less prescriptive and more aligned with Section 404.

The Securities and Exchange Commission is sending its accounting staff to work with the Public Company Accounting Oversight Board on additional revisions to the auditing standard that has been criticized by public companies and legislators for creating costly audits of internal controls.

At a Wednesday SEC hearing, staff members of the Office of the Chief Accountant asked the commissioners for permission to work with the PCAOB to address several concerns that were raised during the current public comment period on the revised Auditing Standard No. 2 — which both regulators loosely refer to as AS5. Saying the staff will be “fine-tuning” AS5, the commissioners voted unanimously on all the staffers’ requests.

The staff will now work on matching the tone and wording of AS5 with the SEC’s revised guidance for company management on complying with Section 404, the Sarbanes-Oxley Act’s provision for management’s assessment of internal controls over financial reporting. They will also work with the PCAOB to incorporate more principles-based language into AS5, clarify how the new standard is scalable for companies of all sizes, and adopt a less prescriptive approach for how auditors will decide to use the work of others, such as a company’s internal auditors.

CFO.com: SEC Tells Staff to Revise AS5

Plans by the Public Company Accounting Oversight Board to overhaul the organization’s standards for internal control audits don’t go far enough to correct the problems of the PCAOB’s original ground rules - or they go too far in watering down the original Sarbanes-Oxley Act protections for investors by yielding to powerful business groups.

Or they muddy the waters for accountants who are already swimming upstream to interpret and implement Auditing Standard No. 2, which governs audits of internal controls.

Those are some of the comments and opinions that PCAOB officials are currently sifting through after being swamped with comments from CPA firms, business executives, investor advocates and others expressing a wide range of criticisms about their previously announced plan to pare down the amount of testing necessary for SOX 404.

WebCPA: Opinions pour in on SOX 404 proposal

Retired Congressman Michael Oxley blames the PCAOB for starting “all the problems” with the Sarbanes-Oxley Act.

Michael Oxley has been guaranteed immortality — and perhaps a degree of infamy — since his name was affixed to the Sarbanes-Oxley Act of 2002, the most comprehensive set of corporate rule changes since the 1930s.

Earlier this year, Oxley retired from Congress after serving 25 years. However, the 63-year-old Republican from Ohio is not ready to fade from the scene. In the last month, he has picked up two new jobs, as counsel for the Cleveland-based law firm Baker Hostetler and non-executive vice chairman of Nasdaq.

The act that bears his name missed unanimous passage through Congress by a mere three votes in the House, and initially received grudging lip service from a shaken corporate America. But a little noticed section, just 168 words long, soon changed the debate from whether Sarbox was essential to restoring confidence in the U.S. capital market to whether it was destroying it. Section 404, which required companies and their auditors to examine and report on the processes behind their financial reporting, quickly became the most expensive and hated provision of the act.

CFO.com:Oxley: I’m Not Happy with Sarbox

The SEC’s Commissioners today endorsed the recommendations of the agency’s professional staff to eliminate waste and duplication in the Sarbanes-Oxley compliance exercise, in a move that will particularly benefit smaller companies. The Commissioners urged the SEC staff to continue to work closely with the Public Company Accounting Oversight Board (PCAOB) to make the internal controls provisions of Section 404 of the Sarbanes-Oxley Act of 2002 more efficient and cost effective.

Under the Sarbanes-Oxley Act, PCAOB audit standards must first be approved by the SEC and cannot take effect without a vote of the Commission. The Commission expects the new PCAOB standard will be submitted for SEC review by the end of May or early June, in time for the 2007 financial statement audits.

SEC: SEC Commissioners Endorse Improved Sarbanes-Oxley Implementation To Ease Smaller Company Burdens, Focusing Effort On ‘What Truly Matters’