The Securities and Exchange Commission Advisory Committee on Smaller Public Companies is set to meet this month to discuss recommendations the group might make in its final report to the Commission.
The panel will meet Sept. 19-20 in San Francisco in conjunction with the SEC’s annual Small Business Capital Formation Forum. The schedule includes breakout sessions to develop recommendations to improve small business capital formation through legislation, regulation, and private action. Forum recommendations will be presented to the advisory committee and considered in drafting the final report to the SEC.
Thyen
“The primary area of fact-finding during this particular panel will be focused on the capital formation area, in other words, hearing from investors and other individuals who are involved in raising capital or in counseling those businesses, particularly smaller companies, who are contemplating going public," said James Thyen, co-chair of the advisory committee and CEO of Kimball International Inc.
In August, the panel—which was created last year to examine the impact of the federal securities laws, including Sarbanes-Oxley, on smaller public companies—developed a definition for “smaller” that, if adopted, would significantly widen the number of companies that would qualify for small-company treatment. Under the group’s proposed definition, the bottom 6 percent of all companies based on total U.S. public market capitalization would be categorized as “small,” while the bottom 1 percent would be considered “microcap” (see box at right for related coverage and details).
The group also recommended that the SEC ease the regulatory burden on smaller companies by delaying for one year the effective date of internal control reporting requirements for non-accelerated filers. That would give smaller companies until their first fiscal year ending on or after July 15, 2007, to comply with SOX Section 404. The group also recommended that the SEC scrap or delay accelerating periodic filing deadlines for those companies. The Commission hasn’t yet acted on any of those recommendations.
Cox
"As we work to protect investors, I expect that the SEC and the Public Company Accounting Oversight Board will give significant weight to the findings and recommendations of the Advisory Committee, and that the policy-making process will benefit from the discussions in San Francisco,” said SEC Chairman Christopher Cox. “I have urged the advisory committee's leaders to conduct their work with a view to protecting investors, as they consider whether the costs imposed by the current securities regulatory system for smaller companies are proportionate to the benefits."
The SEC is slated to publish the forum's and advisory committee's final agendas this month. The committee's final report is due in April 2006.
Separately, eagerly awaited guidance for smaller companies being developed by the Committee of Sponsoring Organizations of the Treadway Commission is expected to be published for comment this month. That guidance, which will scale COSO’s control framework to make it more applicable to smaller companies, was originally slated for release in August.
At press time, the date of issuance had not yet been finalized, but outgoing SEC Chief Accountant Donald Nicolaisen told Compliance Week that small issuers should not hold their breath. “I do not think it [the COSO report] is completed," he said. "They plan to update us with their progress—I am not optimistic.”
Several phone calls to COSO Chairman Larry Rittenberg were not returned, but most industry observers do not anticipate radical recommendations from the group. “It will be a new refinement, but not a radically different approach” predicts Alex Davern, chief financial officer of National Instruments and chairman of the American Electronics Association’s Sarbanes-Oxley Section 404 Committee. Nevertheless, Davern—who serves as member of the SEC’s Advisory Committee but stresses he’s speaking solely on behalf of the AeA—expects the COSO guidance to be taken seriously. “It will be a very important document for the SEC’s Advisory Committee to consider.”
Littenberg
Indeed, most experts concede that COSO’s recommendations will trigger a fair amount of discussion and debate, but they place more weight ultimately on what the Advisory Committee comes up with in the spring. As Michael Littenberg, partner in the corporate area at Schulte Roth & Zabel, points out, “The SEC would not have convened the Advisory Committee unless it intended to take seriously its recommendations.”
Related documents and coverage is available from the box above, right, and Compliance Week will continue to monitor developments for subscribers.
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