SOXing It to Small Business

"It's now beyond dispute that Sarbanes-Oxley has imposed a much higher regulatory burden on US public corporations than the law's sponsors ever imagined. It's also beyond dispute that those costs are disproportionately borne by small business.

Although many SOX provisions impact small business, the worst offender appears to be Section 404, which requires inclusion of internal control disclosures in each public corporation's annual report. This disclosure statement must include:

(1) a written confirmation by which firm management acknowledges its responsibility for establishing and maintaining a system of internal controls and procedures for financial reporting;
(2) an assessment, as of the end of the most recent fiscal year, of the effectiveness of the firm's internal controls; and
(3) a written attestation by the firm's outside auditor confirming the adequacy and accuracy of those controls and procedures.

Study after study confirms that Section 404 has imposed huge costs on American business.."

Read more atTCS post by Professor Bainbridge who calls on the SEC to consider regulatory relief for smaller firms.