It looks like the honeymoon is over for small companies.
Incoming Securities and Exchange Commission chairwoman Mary Schapiro says she wants small public businesses to start complying with the Sarbanes-Oxley Act requirement that companies' internal controls be audited to ensure that their financial reports are reliable and up to scratch.
That's bad news for the 5000 companies with less than $75 million in market value that have never had to comply with this requirement of the 2002 law, which sought to deter financial manipulation.
In a letter to Senator Carl Levin, Schapiro writes: "Regarding, SOX 404, accurate, robust, and easy-to-understand financial reporting and the internal controls that guarantee it are critically important to investors and to the efficient functioning of our markets. Right now, we have a system where some issuers are complying with 404 and others are still exempt from it. It's time that we bring uniformity to the system so that investors know what to expect from companies, while being sensitive to the needs of small businesses. I look forward to working with the small business community in making sure they have the tools they need to comply with 404."
This shouldn’t be as big of a hurdle for smaller companies as it was for your larger corporations. The cost of governance, risk, and compliance grows exponentially with the size of the company.