SEC Advisory Committee On Smaller Public Cos. to Meet

The advisory committee tasked with studying the impact of The Sarbanes-Oxley Act of 2002 on smaller public companies will meet next month in Chicago to hear from some of those entities about the costs and benefits associated with the Act, and to consider whether to further extend the compliance date of Section 404.

Thyen

James Thyen, co-chair of the Securities and Exchange Commission Advisory Committee on Smaller Public Companies and chief executive of Kimball International, said the meeting’s purpose is fact-finding. “Our work is focused on judging proportionality and making recommendations in that regard for improving proportionality to the SEC,” Thyen said.

According to Thyen, the advisory committee will hear directly from smaller public companies about four areas: capital formation, accounting standards, governance and disclosure, and the issue of internal controls. During the two-day session, slated for Aug. 9-10, committee members will hear testimony on the costs and burdens imposed on smaller public companies by SOX, and on whether those costs are commensurate with the benefits to investors and the public.

Committee members will also consider subcommittee reports on defining the term “smaller public company” as part of efforts to define the scope of the committee’s work, and to scale federal securities regulation based on smaller company size. The group is also expected to consider a subcommittee report recommending extension of the compliance date for certain smaller public companies to meet requirements relating to Section 404 of Sarbanes-Oxley, which mandates that companies report on the effectiveness of their internal control over financial reporting.

Parallel Processes

The advisory committee’s efforts are being coordinated with a similarly focused effort by the Committee of Sponsoring Organizations of the Treadway Commission, a group of financial and accounting professional associations focused on improving financial reporting.

At the request of the SEC, COSO has begun a project to develop guidance specific to smaller companies on how to comply with the internal control provisions of Sarbanes-Oxley; the original COSO internal control framework—widely accepted by regulators and professionals as a legitimate framework to utilize when complying with Section 404—has been criticized as inappropriate for smaller entities, and COSO agreed to embark on small company guidance earlier this year. The project, spearheaded by PricewaterhouseCoopers, targets companies with sales of less than $200 million.

COSO has targeted Aug. 15 as the release date for its guidance, Implementing the COSO Control Framework for Smaller Businesses.

Smaller companies, considered by the SEC as with an equity float of $75 million or less, must begin reporting on internal controls with their first fiscal year ending on or after July 1, 2006.

Meanwhile, the Public Company Accounting Oversight Board will hold the eighth its series of nine Forums on Auditing in the Small Business Environment next month in Orlando. The program, slated for Aug. 4-5, is aimed at educating registered accounting firms and public companies in the small business community about the Board’s work, specifically its inspections process and the impact of new auditing standards.

The first day of the forum will focus on educating smaller registered accounting firms about the PCAOB, while the second day will concentrate on Board issues impacting audit committees at smaller public companies. The Board plans to hold one more forum in Massachusetts in October.

Compliance Week has reported extensively on small business issues this year, and some of that coverage is available from the box above, right.