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ACCOUNTING

Small Firms Get Break on Accounting Rules

The Securities and Exchange Commission plans to ease parts of Sarbanes-Oxley considered too burdensome.
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Securities regulators voted unanimously on Wednesday to ease strict financial controls imposed on public companies in the wake of Enron, WorldCom and other corporate accounting scandals.

The proposed changes, which are aimed at fixing internal-control requirements set out in section 404 of the 2002 Sarbanes-Oxley Act, would allow company officials to identify potential risks in their bookkeeping and focus efforts only in those areas -- making compliance less onerous for smaller public firms.   

Under the current rules, company managers and outside auditors  must evaluate, document, and publicly disclose all financial controls.
 
Smaller companies have long complained  that complying with Section 404 is time-consuming and costly. More recently, market-watchers have also blamed the rules on a downturn in initial public offerings by foreign firms.  

The changes will allow smaller companies to "scale and tailor their evaluation methods and procedures," Securities and Exchange Commission Chairman Christopher Cox said at a public hearing Wednesday in Washington.

Other commissioners said the changes will reduce excessive testing of financial controls and documentation, while shifting the focus of oversight onto where internal financial controls should be, not how they should get there.

"There was never anything wrong with the principles of 404," SEC Commissioner Roel Campos said. "What we need to work on is implementation."

Jim Greenwood, president of Biotechnology Industry Organization, a Washington-based trade group that has led a nationwide coalition of small public companies calling for Section 404 reform, called the proposed guidelines a welcome development.

"Our companies typically have limited cash flow and revenue," Greenwood said in a statement. He said funds that should be re-invested in smaller companies are instead "spent complying with these overly imposing regulations."

The proposed changes will be open for public comment in coming months. Other proposals for section 404 reform are expected to be presented later in December by the Public Company Accounting Oversight Board.




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