SOX Center

Senators John Kerry (D- Mass.) and Olympia J. Snowe (R-Maine) outlined specific steps the Securities and Exchange Commission (SEC) should take to provide more time and assistance to small public companies to comply with Sarbanes Oxley internal control regulations. Kerry and Snowe, as Chairman and Ranking Member of the Committee on Small Business and Entrepreneurship, have been closely following the impact of Sarbanes Oxley compliance on small public companies worth less than $75 million.

“Small public companies still face higher costs than large firms and deserve more time to comply with the recent changes to Sarbanes-Oxley. The regulations issued by the SEC last month are an important step, but I again strongly urge the SEC to give small public companies additional time to comply with Sarbanes-Oxley and to find additional ways to reduce their regulatory burden” said Kerry.

Yahoo: Kerry, Snowe Call on SEC to Give Small Firms More Time, Assistance to Comply With Sarbanes Oxley

Since the Sarbanes-Oxley Act was adopted in 2002, non-U.S. issuers have become increasingly disenchanted with the regulatory burden of being listed on a U.S. stock exchange or otherwise having SEC reporting obligations. The most significant reason for non-U.S. issuers wanting to terminate their U.S. obligations is to avoid the internal control requirements under section 404 of S-Ox. In response to criticism that the criteria for exiting the U.S. markets were too stringent, the SEC has adopted new rules to make it easier for these issuers to terminate their reporting obligations when there is relatively little interest in their securities among U.S. investors.

Under the new rules, foreign private issuers will generally be entitled to deregister with the SEC and cease reporting if, during a recent 12-month period, the average daily trading volume of their equity securities on U.S. stock exchanges is 5% or less of the worldwide average daily trading volume. Under the existing rule—to be eliminated for equity securities—a foreign private issuer may terminate its registration and cease filing reports with the SEC only if there are fewer than 300 U.S. resident holders. (Issuers who fail to satisfy the 5% trading test may still deregister if they have fewer than 300 holders.)

Mondaq: New Rules Make It Easier For Non-U.S. Issuers To Terminate Their SEC Reporting Obligations

Since the passage of the Public Company Account­ing Reform and Investor Protection Act of 2002 (the Sarbanes–Oxley Act), small and mid-sized public companies have struggled to comply with its onerous provisions, which created an enormous and dispro­portionate regulatory burden. Most of these costs can be attributed to Section 404, a small section of only 168 words that requires both an internal audit and an external audit of a company’s financial accounting controls.

A growing body of evidence suggests that the unin­tended consequences of Sarbanes–Oxley, especially Section 404, are harming the U.S. economy and its financial industry. However, the problems with Sec­tion 404 are caused as much by how regulators have implemented it and how outside auditors have inter­preted it. While both the Securities and Exchange Commission (SEC) and the Public Company Account­ing Oversight Board (PCAOB) have recently released proposed changes in how Section 404 is imple­mented, it is not clear that these changes will be suffi­cient to affect auditors’ overzealous behavior in an era in which their every action may be subjected retroac­tively to a lawsuit. For that reason, auditors may need some level of protection against legal liability before they feel comfortable with reducing the scope—and cost—of Section 404 audits.

The Heritage Foundation: The Sarbanes–Oxley Act: Do We Need a Regulatory or Legislative Fix?

US stock market regulation has little impact on where small companies decide to list their shares, according to a report from three North American academics. The widespread perception that the US’s Sarbanes-Oxley legislation is one reason why so many international companies have chosen to list in the UK is out of touch, the report argues.

Andrew Karolyi and Rene Stulz of Ohio State University and Craig Doidge of the University of Toronto say that although the regulatory burden on smaller companies has increased thanks to Sarbanes-Oxley, there has been no marked increase in US companies seeking a foreign listing.

However, the fact that all 67 US companies listed on the Alternative Investment Market in London have floated since the introduction of Sarbanes-Oxley indicates the opposite, and the proliferation of foreign companies seeking a UK listing highlights the attractions of London.

The Independent: Small Talk: AIM is working, despite the disasters