Armed With Study, US Chamber Seeks Delay of SOX 404

After releasing a study showing that, despite recent reforms, Sarbanes-Oxley section 404 disproportionately burdens small businesses, the US Chamber of Chamber called for a one-year delay in small company implementation of the internal control mandate and urged Congress to hold hearings on the issue. The study shows why small companies complying for the first time with 404 should not be the guinea pigs for the improved rules adopted by the SEC and the PCAOB, said Michael J. Ryan, Jr., executive director of the Chamber's Center for Capital Markets Competitiveness.

Almost 90 per cent of the survey respondents were public companies, observed the Chamber, with half of them describing their public float as $75 million. The companies are primarily in the financial services industry (24.7%), followed by the manufacturing industry (15.7%). There was a consensus that, while 404 was well-intentioned, its implementation was misplaced and impractical, with costs far outstripping benefits.

Unless the SEC or Congress takes action, the current timeline will require non-accelerated filers with a calendar year-end to begin complying with the 404(a) management report on internal control effectiveness in early 2008 and the 404(b) auditor attestation in early 2009. While the SEC predicted that non-accelerated filers would not engage their auditors for 404 compliance until the first half of 2008, noted the Chamber, more than 83 per cent of respondents have already done so with respect to 404(a) and more than 58 per cent have done so with respect to 404(b).

The study also shows that more than half of the companies responding with less than $75 million in market value will spend more than 3 per cent of net income on 404(a). Moreover, 63 percent anticipate a cost increase in the next year due to compliance with 404(a) and (b). More than 58 per cent of the respondents believe that 404 will not help detect and prevent fraud.