View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
October 27, 2009

Opinion divided over SOX delay for small companies

A further delay in the implementation of Section 404(b) of the Sarbanes-Oxley Act (SOX) for small public companies has been viewed as a negative move with few benefits, US firms warned.

This month, the Securities and Exchange Commission (SEC) delayed the SOX implementation date to 15 June 2010 for the smallest US public listed companies – those with public floats of less than $75 million – to allow extra time to design, implement and document internal control systems before auditors are required to attest to their effectiveness.

An assurance partner of a large East Coast firm believes the delay is unnecessary and embarrassing to firms who had encouraged clients to become SOX-ready by the end of this year.

“It did not make much sense to me because most companies have been complying on an internal basis as they have been doing management assessments for the past two years,” Marcum assurance partner-in-charge Gregory Giugliano said. “We also lose a little faith with our clients as we have been encouraging them to start this and then it gets delayed again.”

The exemption period for small companies was previously due to end for fiscal years ending on or after 15 December 2009 – less than two months away – which means that most small listed companies had either prepared for implementation or chosen to de-register their listing. The SEC extended the date so it could complete a study on whether additional guidance provided to company managers and auditors in 2007 was effective in reducing the costs of compliance.

Giugliano estimates client audit fees increase by between 20 percent to 40 percent due to SOX implementation, and the additional cost can vary from $10,000 to $200,000.

“Clients also have to absorb internal expenses, which can include internal staff time or the use of external consultants,” he said. “Cost depends on the type of entity and how centralised or decentralised their accounting systems are as well as other complexities, such as whether it would [apply to] multiple subsidiaries. All those things factor into the costs of implementing SOX 404.”

Grant Thornton US national managing partner of public policy and corporate governance Trent Gazzaway warned companies against delaying implementation any longer.

“An organisation’s efforts to prepare for compliance often uncover costly inefficiencies and potentially damaging risks. Companies that wait for another delay could also be delaying opportunities to make enhancements that could improve their bottom lines,” he explained.

Gazzaway’s comments follow a recent survey of senior financial executives by Grant Thornton that found 74 percent of respondents thought small listed companies should not be forced to comply with Section 404(b).

Marlene Hutcheson, a partner at Las Vegas-based firm De Joya Griffith & Company, believes the extension is positive.

“Some filers were (also) thinking of ceasing being a reporting company because they were not ready but with the extension some of these companies will rethink and may revisit their business plan to incorporate becoming SOX compliant and continue to file,” Hutcheson explained.

Hutcheson believes implementation will provide accounting firms with few opportunities to provide new services.

“There will be limited consulting opportunities, such as being able to provide practice assessments to management that they can then utilise to do their SOX compliance and some information technology consulting engagements, but aside from that there is not much else,” she said.

NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. A roundup of the latest news and analysis, sent every Wednesday.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy


Thank you for subscribing to International Accounting Bulletin