Good news for start-ups with Securities and Exchange Commission chairman Christopher Cox flagging that some of the Sarbanes-Oxley corporate compliance rules will be eased back. In particular Section 404, which requires every public company to report on the adequacy of its internal fraud controls and to have an outside auditor do the same, is in for some serious tweaking.


In his speech given last Thursday at an International Organization of Securities Commissioners conference in London, Cox said changes designed to reduce costs will be coming down in the next few weeks.

Cox said: "In the weeks ahead, the US will unveil significant changes to the implementation of section 404 of Sarbanes-Oxley that are designed to make it more useful for investors. Those changes will be aimed at ensuring that the internal control audit is top down, risk based, and focused on what truly matters to the integrity of a company's financial statements. They will provide guidance for both companies and their auditors to permit common sense reliance on past work, and on the work of others.

"The overarching objective of these significant changes will be to reduce the cost to investors while increasing the benefits in terms of investor protection."

The SEC chairman's comments are particularly significant given that he uttered them in London, which has become the magnet for foreign companies shunning New York because of the expense of applying US regulations. Still, Cox does warn against putting too much emphasis on this trend which, he says, creates the "temptation for regulators to relax their standards to attract investors and issuers, at the expense of the other jurisdictions - with the result that the overall standard of regulatory quality suffers"

The SEC is expected to offer new guidance at a December 13 meeting on Section 404 compliance for companies. Auditors will be urged to cut back selectively on reviews of U.S. corporations' internal controls under those cost-saving changes.

The SEC's imminent revisions have the endorsement from Barney Frank, the senior Democrat who will head up the powerful House Financial Services Committee.

Reading between the lines, one suspects that the changes will not please everyone when they're announced in the next few weeks. Chances are there will be groups saying Cox and his regulators did not go far enough. On the other side of the fence, there's just as likely to be critics saying the regulator is reducing protection for investors.