By:  Cydney Posner

BNA is reporting that, if the SEC and PCAOB do not act to relieve smaller public companies of some of the burdens of compliance with SOX 404, Congress will take action to do so. House members indicated that, in 2004, as a percentage of revenue, smaller issuers spent 11 times more on SOX implementation than did larger companies. Moreover, there has been a 90% drop in foreign listings on U.S. markets, as companies eye the London Stock Exchange's AIM market, advertised as a "SOX-free market." According to one congressman, there is broad congressional support for some type of relief: the "critical issue for Congress is whether the commission puts the full Section 404 compliance burden on smaller companies" or acts upon some of the recommendations of the SEC Advisory Committee on Smaller Public Companies (which suggested providing exemptive relief from SOX 404 to microcaps and relief from the external audit requirements of SOX 404 for companies with market caps and revenues below designated thresholds). Indications are that the SEC will be reluctant to adopt the committee's recommendations; Chairman Cox reportedly told journalists that his "emphasis is on making 404 work and implementing it in a cost-effective way rather than waiving it." (See my postings of 4/4/06, 3/20/06, 3/2/06 and 2/22/06.) Some of the new ideas floated to make SOX 404 less onerous for smaller companies include requiring compliance only every two years, requiring SOX 404 testing by SROs only at random intervals and adjusting the severity of the applicable auditing standard, including the review standard for risk.

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