NYSE Euronext CEO Calls For 'Rationalizing' Sarbox For Small Cos; SEC Action Pending; Update on PCAOB Constitutional Challenge

In remarks at the National Press Club (NPC) yesterday (June 17), NYSE Euronext CEO Duncan Niederauer is reported to have said that “Congress should relax the Sarbanes-Oxley Act for small and medium-size companies because it discourages them from listing on U.S. stock exchanges,” as reported by Neil Roland of Financial Week (FW) in his article, “NYSE CEO calls for relaxation of Sarbanes-Oxley for small and mid-size companies.”
Niederauer is also quoted in a Reuters article by Rachelle Younglai and Phil Wahba, “NYSE Euronext CEO urges Sarbanes-Oxley rethinking,” as having said: “We should think about ways to rationalize Sarbanes-Oxley, particularly for the small and medium-size enterprises."
Neither article indicated that Niederauer called for any 'exemptions.’ However, FW writer Roland adds, “An investor group opposes the NYSE’s efforts,” citing Council of Institutional Investors (CII) Deputy Director Amy Borrus as having said, "We believe that all companies that tap the capital markets should have to play by the same rules, and we’re disappointed with the SEC exemptions."
Reuters’ Younglai and Wahba added: "Regulators have already taken steps to help cut costs to comply with the Sarbanes-Oxley corporate reform law, which has been blamed for driving business away from the United States. Niederauer said it wasn't only Sarbanes-Oxley, but also the litigious nature of the United States and the fact that most countries use international accounting standards while the United States uses its own set of globally accepted accounting standards." [In related news, see our post on FASB’s Forum on High Quality Global Accounting Standards, held earlier this week.]
If Niederauer’s remarks at the NPC yesterday are posted, we will provide a link.
SEC Action PendingThe SEC has not yet acted to finalize its proposed rule released Feb. 1, that would delay the Sarbanes-Oxley Section 404b auditor attestation on internal control for small co's, i.e. "nonaccelerated filers" - co's with less than $75 million market cap – to fiscal years ending on or after Dec. 15, 2009. Without the proposed extension, small co’s would need to provide an auditor’s attestation on internal control (technically, for their auditors to provide an ‘integrated audit’ of the financial statements and an audit of internal control, instead of just an audit of the financial statements beginning this year (fiscal years ending on or after Dec. 15, 2008), under existing extensions passed previously by the SEC in Dec., 2006. Under the Dec. 2006 extensions, small co’s came under the Sarbox Section 404a management report umbrella already (fiscal years ending on or after Dec. 15, 2007, 10-Ks filed this year). When the SEC announced the proposed delay of the 404b internal control audit requirement for small co’s on Feb. 1, they noted they wanted more time to study ‘real world data’ on the cost-benefit of Sarbanes-Oxley 404 reporting, under a study launched that day, led by SEC’s Office of Economic Analysis (OEA).
Separately, we previously reported on the April 30 release of the results of FEI’s 7th Sarbanes-Oxley Section 404 cost-benefit survey, which found: a decrease in total cost of compliance with Section 404, an increased sense of benefits from Section 404 (enhanced investor confidence in financial reporting, enhanced reliability of financial reporting, and enhanced ability to prevent and detect fraud), a 5.4% decrease in audit fees attributable to the Section 404 portion of the integrated audit, and a 1.8% increase in total audit fees (i.e., for the integrated financial statement audit and internal control audit).

Update on PCAOB Constitutional Challenge
If you are following Sarbanes-Oxley related doings, for an update on a lawsuit filed by audit firm Beckstead and Watts, LLP in conjunction with the Free Enterprise Fund, backed by a legal team including former Special Prosecutor Kenneth Starr, challenging the constitutionality of the PCAOB, see the recent post by Dave Lynn in TheCorporateCounsel.net blog. Lynn comments on developments at a recent hearing in the DC Circuit Court of Appeals on this case, and observes: “While it is certainly difficult to tell solely from the oral argument, this case may not be a slam dunk for the PCAOB and the government. Certainly the consequences of a ruling against the PCAOB are difficult to imagine - reopening the PCAOB and all of Sarbanes-Oxley at this point would undoubtedly be a bad idea.”
Similar sentiments were expressed in an article by Bloomberg’s Jon Weil cited by Lynn, in which Weil noted, “if Congress attempted to change this one part of Sarbanes-Oxley, it could wind up re-opening the entire act for debate, giving corporate lobbyists a new shot at gutting other provisions aimed at strengthening companies' audits and governance.

In a statement issued on June 2, Brad Beckstead, Managing Partner, Beckstead and Watts, LLP said: “My legal team and I are encouraged by the recent presentation of our case to the Appeals Court. The presentation went very well. We are confident in a successful case!”

Beckstead added, “I encourage Congress and the SEC to take action now to remove the 'barriers to entry' to US capital markets for small and developing companies by exempting micro and small-cap public companies and smaller audit firms from the regulatory oversight of the Sarbanes-Oxley Act of 2002."

If you are new to our blog, we cover a wide range of issues relating to financial and regulatory reporting. If you would like to receive our blog posts by email, enter your email address here.

Print this post