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

“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

“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.