[JURIST] SEC Chairman Christopher Cox told [testimony, PDF; press release] said Wednesday that he intends to propose that the US Securities and Exchange Commission (SEC) [official website] grant a further one-year grace period to small businesses before requiring that they comply with Section 404 of the Sarbanes-Oxley Act [PDF text; SEC materials]. Cox's comments came during testimony [PDF text; press release] before the House Committee on Small Business. Committee Chairwoman Rep. Nydia Velazquez (D-NY) [official website] had previously called for at least a 12-month delay in implementation [press release], citing concerns over the "hard dollar" amount that new guidelines would cost small companies.
Section 404 requires public companies to continually evaluate the internal controls they have in place to ensure that external auditors provide accurate financial reports to investors. In May, the SEC approved [JURIST report] new interpretive guidelines for Section 404, relaxing previous guidelines for smaller, public companies which critics have called inflexible, burdensome, and wasteful. A report [PDF text; JURIST report] released in May 2006 by the Government Accountability Office (GAO) [official website] found that many small business have gone private [JURIST report] to avoid the costs of compliance. The relaxed guidelines will apply to businesses with a market value of under $75 million and will focus on areas more prone to potential fraud.