News From the
Committee on Small Business
Nydia M. Velázquez, Chairwoman

For Immediate Release
June 6, 2007 

CONTACT: Kate Gilman/ Austin Bonner,  (202) 225-4038

Committee Considers Impact of New SOX Regulations on Small Business
Chairwoman Calls for More Time to Ensure Small Firms are not Harmed

WASHINGTON – Today, as Congress reconvened, the chairmen of the Securities Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) came before the House Small Business Committee to explain the impact of recently approved standards for complying with Section 404 of the Sarbanes-Oxley Act on small public companies. Chairwoman Velázquez, reiterated her call for at least a year long delay in allowing time for small firms to comply.

“Before we set timeframes, we need to know that these guidelines will work,” Chairwoman Velázquez said. “I strongly urge the SEC to delay the implementation of these regulations and to thoroughly test these guidelines to enable us to fully grasp the true impact on small businesses.”

With concerns raised over the effect that SOX 404 will have on this nation’s small businesses, Chairwoman Velázquez called for the SEC, prior to approving the new standards, to develop a “hard dollar” estimate demonstrating the costs of these regulations on small companies.  Committee members argued that more time is needed to determine whether or not these rules will actually reduce compliance costs.  It would also enable small companies to train managers and auditors in best practices to ensure the regulations are implemented properly. It was these same concerns that prompted Chairwoman Velázquez and Ranking Member Chabot to ask for additional time for small businesses to comply with SEC and PCAOB guidance in March. However, the current proposal fails to account for this original request.

“Though it has taken five years to come to these conclusions about implementing SOX 404 for small firms, we should not be too hasty in imposing these rules,” said Chairwoman Velázquez.  “This is not something that has been decided overnight, nor should it be thrown upon small companies overnight.  The SEC needs to recognize the negative impacts that immediate implementation will have on small firms.”           

Though small businesses and lawmakers have rallied around the Sarbanes-Oxley Act of 2002 in an effort to prevent accounting fraud and rebuild shareholder trust in the wake of corporate scandals, some of its provisions have been applied in a way that disproportionately impacts smaller public companies.  Small firms would face increasing regulatory and paperwork burdens under the reporting requirements in Section 404 (SOX 404). Many are paying a higher percentage of their revenues for legal and audit fees than their larger counterparts.  To compound the difficulties for entrepreneurs – many of which already operate on small margins— a number have diverted resources from research and development to compliance or returned to private ownership simply to avoid the regulation altogether.  All of these consequences have a negative impact on competitiveness for small businesses and limits their ability to expand, and create jobs. 

“The reality here is that small businesses could be negatively impacted by these regulations – the writing is on the wall and the SEC and PCAOB need to acknowledge that,” said Chairwoman Velázquez.  “Given the complexity of these regulations and the uncertainty that surrounds them, it is critical that small companies are not being rushed into implementing them.”     

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