Thursday, July 22, 2010

SOX Undarned--$75 Million Exemption for Smaller Public Companies Likely

The North (San Francisco) Bay Business Journal is predicting that Congress will exempt public companies with capitalization of less than $75 million from certain audit requirements--including an audit of internal control. The provision, intended to be "permanent", is likely to be included in Congress's financial reform legislation.

I have mixed feelings about this decision. The first facet involves government regulation. As stated in earlier posts, I believe that the federal government generally overregulates business and that overregulation has slowed economic growth and perhaps even led some companies to list in non-US exchanges. On this facet, Congress deserves commendation. On a second facet, Clark Keeler (interviewed in the article) raises a good point--Sarbanes-Oxley has effectively become "best practices" in internal control development and disclosure and companies failing to reach the SOX standards stand at risk of higher interest rates, lower bond ratings and/or lower stock market prices. Therefore, I hope that "small" public companies which opt out of explicit SOX compliance will still attempt to achieve SOX compliance on auditing issues, especially internal control.


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