Reply #13: Sarbanes-Oxley: Just some wonky info [View All]

[TayTay]

I feel the need, now that the Birthday Party is out of the way, to go learn something wonky. You have to put up with that impulse. Mea culpa.

Sen. Kerry mentioned some reforms that he wants to put into place for the Sarbanes-Oxley regulations that will give small businesses a break from the expense and time that are needed to comply with this. So, I just wanted to put some stuff here to begin to put some of that into persepctive. (Hey, there is this Chairmanship coming up in Jan. And if I actually learn some of this and can talk about some of it without sounding like an absolute idiot, I might get a cookie!)

What is Sarbanes-Oxley:
http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act

The Sarbanes–Oxley Act of 2002 (Pub. L. No. 107-204, 116 Stat. 745, also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX or Sarbox; July 30, 2002) is a United States federal law passed in response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, and WorldCom (recently MCI and currently now part of Verizon Businesses). These scandals resulted in a decline of public trust in accounting and reporting practices. Named after sponsors Senator Paul Sarbanes (D–Md.) and Representative Michael G. Oxley (R–Oh.), the Act was approved by the House by a vote of 423-3 and by the Senate 99-0. The legislation is wide ranging and establishes new or enhanced standards for all U.S. public company boards, management, and public accounting firms. The Act contains 11 titles, or sections, ranging from additional Corporate Board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law. Some believe the legislation was necessary and useful, others believe it does more economic damage than it prevents, and yet others observe how essentially modest the Act is compared to the heavy rhetoric accompanying it.

Is there pending legislation out there to deal with Small Business and Sarbanes-Oxley?

(Oooh, I'm so glad I asked myself that one. I deserve a cookie!)

Why Sen. Kerry filed a bill on Sept. 21, 2006: http://thomas.loc.gov/cgi-bin/query/z?c109:S.3919.IS:
from the Congressional Record:

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - September 21, 2006)

--- By Mr. KERRY:

S. 3919. A bill to assist small business concerns in complying with the Sarbanes-Oxley Act of 2002; to the Committee on Small Business and Entrepreneurship.

Mr. KERRY. Mr. President, in order for the United States to continue to stand for the fairest, most transparent and efficient financial markets in the world, I believe we must provide assistance to America's small public companies in their efforts to comply with the Sarbanes-Oxley Act.

Just a few years ago, the trust and confidence of the American people in their financial markets was dangerously eroded by the emergence of serious accounting irregularities by some companies and possible fraudulent actions by corporations like WorldCom, Inc., Enron, Arthur Andersen and others. The shocking malfeasance by these businesses and accounting firms put a strain on the growth of our economy. The misconduct by a few senior executives has cost the jobs of thousands of hard-working Americans. The lack of faith in our financial markets contributed to an overall decline in stock values and has caused grave losses to individual investors and pension funds.

By all accounts, Sarbanes-Oxley has been effective in bringing accountability to corporate governance, auditing, and financial reporting for public companies. The dark days of the Enron scandal have given way to a new corporate culture that embraces responsibility and transparency, and for this we have Sarbanes-Oxley to thank. Sarbanes-Oxley has helped restore confidence in our capital markets and helped improve our nation's future economic growth.

However, with compliance also comes cost. And while the cost of complying with the law is small enough to be absorbed by larger corporations, smaller public companies, particularly small minority public companies, have been disproportionately affected by these costs. Small business is the engine of economic growth in our Nation. Almost 60 percent of Americans are employed by small businesses. Small business growth has been critical in developing the high wage jobs for America's future.

Unfortunately, an April 2006 report to the Senate Committee on Small Business and Entrepreneurship by the United States Government Accountability Office (GAO) found that small public firms are incurring much higher audit fees and increased costs in complying with the Sarbanes-Oxley Act.

The report finds that of the 2,263 public firms with market capitalization of less than $75 million, just 66 have fully implemented Section 404 of the law that requires firms to construct formal internal control frameworks and filed internal control reports. These 66 firms reported paying $1.14 in audit fees per $100 of revenue, compared to just $.13 per $100 for firms with greater than $1 billion in market capitalization. I believe we must take action to help small

companies comply with the regulatory burdens of the Sarbanes-Oxley Act.
In addition to the costs associated with internal controls, 81 percent of small firms responding to the GAO survey said they brought in outside consultants to comply with the Act. Nearly half of the small firms reported ``opportunity costs'' related to complying with the regulatory burden placed on them by the Sarbanes-Oxley Act such as deferring or canceling operational improvements, and more than one-third of respondents were forced to defer or cancel information technology investments. Too many small firms simply do not have the resources and expertise necessary to implement the formal internal control frameworks required by Section 404, and as a result, they are disadvantaged compared to larger firms that are absorbing these costs.

The U.S. Securities and Exchange Commission has provided a lengthy compliance period for small businesses to comply with the Sarbanes-Oxley regulations and is attempting to develop additional methods to ease the regulatory burden. However, I believe additional efforts are needed.

In order to assist these firms with the increased costs of implementation and help our small businesses keep our economy moving forward, I am introducing the Small Business Sarbanes-Oxley Compliance Assistance Act of 2006. The bill would authorize the U.S. Small Business Administration to award grants to small public companies and small business concerns to help lessen the burden of these costs. If Congress is asking these small firms to bear the burden of cost for compliance with Sarbanes-Oxley, the least we can do is chip in and help pay for it. My legislation authorizes $5 million to be awarded annually through 2011.

My legislation also creates a task force, assembled by the SBA Chief Counsel for Advocacy, and comprising of representatives from the SEC and other appropriate bank regulatory agencies, to report semi-annually on how to assist small public companies in complying with Sarbanes-Oxley. My hope is that this task force will continually find new ways to lift the regulatory burden on small businesses attempting to comply with the law. Each report of the task force will be required to evaluate upgrades or alternatives to the SEC's Electronic Data Gathering Analysis Retrieval System so that companies might submit filings to the SEC without the need for third party intervention. The task force will also report on the potential to reduce inefficiencies related to SEC filings; the feasibility of synchronizing filing requirements for substantially similar small firms; whether the SEC and bank regulatory agencies should commit additional resources to aiding small public firms with filing requirements; whether the SEC needs to publish guidance on reporting and legal requirements aimed at assisting smaller public firms; and the feasibility of extending incorporation by reference privileges to other Government filings containing equivalent information.

This legislation will help some but not all of the thousands of small firms that are public or hope to become public. As more information becomes available, I am hopeful that the task force will provide ideas on how the SEC can help more of the small, non-accelerated filers implement the Sarbanes-Oxley regulations. We must do all we can to insure that small firms can demonstrate that transparency and accountability in the private sector is thriving without having to incur such a burdensome cost. This legislation is supported by the National Black Chamber of Commerce as well as Small Business Majority. I ask all my colleagues to support this legislation.

What happened to that bill in the 109th (Weasel) Congress?

It died in committee and awaits resurrection in the 110th (Democratic) Congress in Jan. Call me crazy, but maybe if the Chairman of Small Business likes it, it just might get a hearing or two.
http://thomas.loc.gov/cgi-bin/bdquery/z?d109:s.03919:

More to come: There are statements on Sen. Kerry's Senate website about this legislation and the effect he hopes it will have on lifting onerous restrictions on small business. Good stuff! This stuff really matters to a whole lot of people.