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

For Immediate Release
June 12, 2007  

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

Committee Calls on SEC to Provide Cost of SOX 404 to Small Companies
Impact of New SEC and PCAOB Standards Uncertain

WASHINGTON – Less than a week after a House Committee on Small Business hearing on new SOX 404 standards, Chairwoman Nydia M. Velázquez and Ranking Member Chabot sent a letter to Chairman Christopher Cox of the Securities and Exchange Commission (SEC) to clarify key information regarding the implementation of the regulations.  The formal request was necessary to investigate how and to what extent the SEC was accounting for the impact of SOX 404 on small companies.

“The SEC stated last week that these new regulations will reduce small companies’ compliance costs,” Chairwoman Velázquez stated, “But last week’s hearing provided no hard estimates—only promises.”

The committee’ request, which was also sent to the Public Company Accounting Oversight Board (PCAOB), asks for cost estimates for small firms’ compliance with SOX 404.  This follows last Wednesday’s hearing, which reviewed the impact of the recently released SOX 404 standards on small companies and included testimony from both the SEC and PCAOB.  The new standards seek to implement a key portion of the Sarbanes-Oxley Act that has been repeatedly delayed due to regulatory burden concerns.  Both regulators stated that the new rules would address this issue and reduce the cost of compliance for small firms.  When pressed by Chairwoman Velázquez, however, neither agency head was able to produce a “hard dollar” estimate.  Reducing small businesses’ compliance costs was central to the development of the new regulations. 

“It was extremely disappointing that, after all the time spent crafting these new regulations, they could not answer that basic question,” Chairwoman Velázquez remarked. “After so much work, it makes no sense to leave such an important detail out of the conversation.”

The new SEC guidance for management and the PCAOB audit standard are the product of nearly two years of work by these agencies.  Small companies will have to comply with the SEC management guidance beginning in 2008 and the PCAOB audit standards in 2009.  During the hearing, however, Chairwoman Velázquez noted that many small companies would seek an external audit before fully complying with the SEC management guidance.  As a result, it is likely that many small firms will begin to bear the full cost of compliance as early as this year.  Both industry witnesses and leading experts echoed this concern and joined Chairwoman Velázquez and Ranking Member Chabot in calling for a delay.

“Small companies drive innovation and are the bedrock of our country’s competitiveness,” said Chairwoman Velázquez. “We must be certain that these new standards do not undermine these firms’ ability to remain successful in an increasingly global economy.”

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