Senate, House Conf. Cmte. May Provide Sarbox Exemption For Small Co's

PwC reported in its Breaking News publication yesterday that the House and Senate conference committee working on the Financial Regulatory Reform legislation may provide an exemption from Sarbanes-Oxley Section 404b (external audit of internal control) for small companies (non-accelerated filers, generally defined as co's with less than $75 million market cap).

The PwC article states, in part:

Smaller companies have benefited from a series of temporary deferrals from the internal control audit requirements since they became effective for larger companies in 2004. The most recent deferral expired June 15, 2010. That means absent any further relief, smaller companies would be required to comply with the Sarbanes-Oxley internal control audit requirements for fiscal years ending on or after June 15, 2010 (e.g., June 30, 2010 year-end).

A select group of Senators and Congressmen (commonly referred to as a conference committee) is currently working to reconcile the separate versions of the legislation into a single bill. Although changes are still possible, the conference committee recently took steps to provide smaller companies with a permanent exemption from the Sarbanes-Oxley internal control audit1 requirements. The conference committee has also agreed to direct the SEC to conduct a study on how to reduce the cost of complying with the internal control audit requirements for companies with market capitalizations between $75 million and $250 million.

There are a number of steps that must be completed before any permanent exemption would become effective. The provision must be included in the final, agreed-to legislation — called a conference report; the conference report must be approved by both houses of Congress; and the President must sign the bill into law. It is anticipated that the conference committee will complete its work during the week of June 21, 2010 with a final bill passed and forwarded to the President for his
signature sometime in July. While it is presently unclear, the SEC may need to
amend its rules and forms to facilitate a permanent exemption.

My two cents: (I remind you of the disclaimer on the right side of this blog) I have avoided providing minute-by-minute updates on the Sarbox exemption issue since I think it was very much in play and didn't want to lead anyone down a path of relying on an exemption (or not) until it was fairly certain, particularly given past statements of the SEC last fall when they issued what Chairman Mary Schapiro said at the time would be the final deferral, and given statements issued by organizations such as the Center for Audit Quality, CFA Institute, and Council of Institutional Investors last week arguing against such an exemption. However, as reported by PwC above and others, and in the more detailed Conference Committee Update linked below, it does appear the chance of a potential exemption, even at this very late date, is, if nothing else, a possibility. But it ain't over till its over.

General Conference Committee Update
The House Financial Services Committee, Chaired by Rep. Barney Frank, and the Senate Commitee on Banking, Housing and Urban Affairs, Chaired by Sen. Chris Dodd, issued what appear to be identical press releases yesterday providing a detailed update on the conference committee's progress on the entire bill (not only the Sarbox issue). See House press release, Senate press release.

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