SOX Center

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

The US Treasury has welcomed a statement released by the Securities and Exchange Commission and the Public Company Accounting Oversight Board regarding their votes to address the implementation of Section 404 of the Sarbanes-Oxley Act:

“The SEC and the PCAOB, after carefully considering the effects of Section 404, moved this week to strike the right balance in enhancing financial reporting quality and eliminating unintended costs,” announced Under Secretary for Domestic Finance Robert K. Steel. “These key reforms should ensure that Section 404 is implemented in a risk-based and appropriately-scalable fashion, without sacrificing investor protection or diminishing the value of sound internal controls over financial reporting. Now that the regulators have acted, it is critical that public companies and the auditing profession respond to this call.”

Steel added: “Treasury congratulates the SEC, the PCAOB and their chairmen, Chris Cox and Mark Olson, for their cooperation in working to uphold investors’ confidence in and the competitiveness of America’s capital markets.”

Investorsoffshore: Treasury Welcomes Sarbanes Oxley Reforms

U.S. accounting overseers voted Thursday to streamline rules for auditors’ assessments of corporate financial statements, in a move that supporters say will save time and simplify burdens imposed by the 2002 Sarbanes-Oxley Act.

By unanimous vote, the five members of the Public Company Accounting Oversight Board approved a new standard directing accounting companies to focus their audits of internal financial controls on the most important risks.

Under Section 404 of the Sarbanes-Oxley Act, public companies are required to test and report their procedures for catching financial misstatements and fraud. The law was approved in the wake of accounting scandals that brought down companies like Enron and WorldCom.

But Section 404 of the act came in for heavy criticism from companies who said it cost large amounts of time and money by requiring extensive and sometimes unnecessary checks on financial reporting. It’s also been the cause of hang- wringing among some lawmakers and experts who claim it’s partly responsible for making U.S. capital markets less attractive to foreign companies, who fear the heavy compliance burden of the law.

Nasdaq: UPDATE: Accounting Board Streamlines Sarbanes-Oxley Rules

The U.S. Securities and Exchange Commission approved new guidance on Wednesday to help companies comply with what critics say is a burdensome and costly provision of the Sarbanes-Oxley corporate reform law.

The agency, by a 5-0 vote, encouraged companies to take a more risk-based approach to complying with Section 404 of the legislation.

“Congress never intended that the 404 process should become inflexible, burdensome and wasteful,” SEC Chairman Christopher Cox said at the agency’s open meeting.

Section 404 requires companies to assess their internal controls over financial reporting. It also calls for external auditors to report on management’s assessment and on the controls themselves.

Corporations and business lobbyists have complained that Section 404 was too expensive and the SEC has conceded that, in some cases, overly cautious companies caused the law’s costs to exceed its benefits.

Yahoo!Finance: SEC adopts new guidance for Sarbanes-Oxley

U.S. securities regulators will vote on tweaks to the controversial Sarbanes-Oxley law on Wednesday, finalizing changes initially approved in April amid continuing complaints from businesses about the law’s unpopular accounting provision.

At issue is Section 404 of the law, which was passed in 2002 following scandals at Enron and other companies. The section requires companies to monitor their internal controls over financial reporting, as well as to test their controls. The aim is to ensure accurate financial statements and to catch fraud.

The Securities and Exchange Commission and the Public Company Accounting Oversight Board have been under pressure from Congress and businesses to adjust Section 404, which is often criticized as expensive and time-consuming.

MarketWatch: SEC to finalize Sarbanes-Oxley tweaks

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?

The US Senate’s thumping defeat of an amendment to exempt certain small and medium-sized businesses (SMBs) from compliance with Section 404 of the Sarbanes-Oxley Act is bad for business US poiticians have declared.

SMBs fell foul of political battles by those decrying the amendment as an attack on shareholder protections and others countering that SOX is crippling American businesses and preventing them from competing in a global economy.

The amendment, would have made compliance with Section 404 optional for companies with total market value of less than $700 million.

The political posturing doesn’t mean much for small and medium-sized businesses (SMBs), analyst Michael Rasmussen said. For less heat and more light on the requirements of the law, publicly traded SMBs will have to wait another month or so for the U.S. Securities and Exchange Commission and its partner in compliance, the Public Company Accounting Oversight Board (PCAOB), to approve their long-promised revised guidelines and new accounting rules.

“I think it’s par for the course now that SOX is here to stay,” said Rasmussen, who covers compliance at Forrester Research Inc. in Cambridge, Mass. “The SEC and PCAOB are working to more tightly define the scope of SOX. That is where companies will find the relief.”

ComputerWeekly: Sarbanes-Oxley defeat blow for SMBs

Former Senator Paul Sarbanes, D-Md., who, as the head of the Senate Banking Committee, co-authored the sweeping Sarbanes-Oxley reform act said he supports developing additional guidance for smaller filers but, not surprisingly, dismisses exempting those companies from compliance with the legislation’s rigid Section 404.

“Stop and think about that for a moment,” said Sarbanes in a speech before attendees at a conference on financial reporting and governance presented by Pace University’s Lubin School of Business, here. “That would mean that you would be exempting 80 percent of public companies from compliance.”

Sarbanes referred to recent pronouncements from the Securities and Exchange Commission and the Public Company Accounting Oversight Board regarding potential streamlining of the 404 internal controls provision, which small filers have complained is disproportionate to them in terms of cost and manpower.

WebCPA: SOX Co-Author Supports Tweaking Act, Not Exemption

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

Republicans attempted to make compliance optional for companies with a market value of less than $700 million.

The U.S. Senate on Tuesday defeated a Republican attempt to weaken 2002’s post-Enron Sarbanes-Oxley laws by making it optional for many corporations to comply with a controversial section on internal controls. By a vote of 62-35, the Senate set aside an amendment to make compliance with Sarbanes-Oxley’s Section 404 optional for companies with total market value of less than $700 million.

The amendment was offered by South Carolina Republican Jim DeMint, who tried to attach it to a bill on the Senate floor that was focused chiefly on boosting investment in research, and improving science, engineering and math education.

In response to the amendment, defenders of Sarbanes-Oxley proposed and won passage, by a vote of 97-0, of a symbolic Senate statement expressing support for efforts already under way by federal regulators to fine-tune Section 404.

CNN Money: Senate rejects Sarbanes-Oxley change