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

For Immediate Release
December 12, 2007     

CONTACT: Erin Donar,  (202) 225-4038

SEC Chairman Announces Delay Of SOX 404 Implementation
Decision Comes at the Urging of the House Small Business Committee

WASHINGTON – Today, before the House Committee on Small Business, Securities and Exchange Commission (SEC) Chairman Christopher Cox announced that the Commission will soon approve a one year delay of Sarbanes-Oxley Section 404 (b) for the country’s smallest public companies. The announcement came after repeated calls for a postponement from House Small Business Committee Chairwoman Nydia M. Velázquez., and was made at a Committee hearing to examine the regulation’s impacts on small firms.

“Today’s decision is a major victory for those small companies struggling to deal with the costs of SOX 404,” said Chairwoman Velázquez. “This delay will help reduce the regulatory burden on small firms, and will give the SEC adequate time to more thoroughly understand its impact and to make any necessary changes.”

In the wake of major corporate scandals, the Sarbanes-Oxley Act of 2002 was passed in an effort to prevent accounting fraud and rebuilt shareholder trust. However, some of its provisions, most notably Section 404, disproportionately impact smaller public companies. These firms are currently facing increased regulatory and paperwork burdens as well as higher costs from legal and auditing fees. As small companies operate on slimmer profit margins than do their larger counterparts, this represents a major expense. However, until today the SEC had not acknowledged these added challenges.

“I have repeatedly called on the SEC to provide a hard dollar estimate on compliance costs for small firms, but these requests – until today’s hearing – fell on deaf ears,” said Chairwoman Velázquez. “Without solid data we cannot truly understand the possible effects these regulations will have on small public companies and on the economy.”

At the Chairwoman’s recommendation, a coalition of small business groups stepped in and performed their own analysis. The survey found that although SOX 404 (b) is more than a year away, 66 percent of firms have already engaged an outside auditor. This figure is a major break with the SEC’s original estimate that companies would not incur significant costs until well into 2008. Additionally, companies reported that SOX 404 (a) compliance costs will represent more than 3 percent of their net income.  In light of this new information, the SEC will conduct their own research as to the effects of SOX 404 compliance on small firms.

“While this delay will help ease undue burdens on small firms it is by no means the final stage of this fight,” Chairwoman Velázquez. “I will continue to press the SEC to collect this data in a timely manner, and make certain that everything is done to ensure that SOX 404 does not undermine the competitiveness of the U.S. economy.”

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