Piling On at the SEC Advisory Committee on Smaller Public Companies

By:  Cydney Posner

There was more than a little steam rising at yesterday's meeting of the SEC Advisory Committee on Smaller Public Companies. As previously discussed (see my posting of 12/15/05), the Committee had previously proposed to exempt smaller public companies from the SOX 404 auditor attestation requirement and microcap companies from SOX 404 altogether. There was also a recommendation to adopt a form of 404-lite. Among the Committee members are two representatives of Deloitte & Touche and KPMG, who both had signed up to these recommendations. Now, as the Committee was in the final stages of finalizing and approving its recommendations, these two members reversed their positions and now oppose these SOX 404 proposals. Although the report was adopted by the Committee, their dissents will be attached to the recommendations (and will no doubt be influential). These firms do, however, support continued deferral of implementation of SOX 404 for smaller companies until there is further clarity on the issue for smaller companies. In response, one Committee member was concerned that deferral would just mean "back burner" with no resolution. Another Committee member had more pointed comments, accusing the Big Four of essentially abandoning companies with market caps under $700 million and suggesting that the Big Four would be in violation of the antitrust laws if there were any effective antitrust enforcement. Moreover, he argued, smaller public companies, which have been disproportionately affected by the costs of SOX, were in effect paying the price of the problems caused by WorldCom and Enron, while the costs to larger companies, such as Citicorp (which was involved in the scandals), were minimal proportionately. In addition, the Big Four have also benefited financially and should perhaps reduce their fees for smaller companies.