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The Securities and Exchange Commission looks like holding firm to its December 15 deadline for small public companies to comply with Section 404 of Sarbanes-Oxley, reports the Los Angeles Times.

More reprieves are unlikely with the SEC now expecting that new guidelines and rules has given companies enough room to save money by tailoring the evaluations to suit their individual circumstances.

In his testimony before the House Committee on Small Business, SEC chairman Christopher Cox said compliance for small businesses, defined as those with a market capitalization of less than $75 million, would coincide with approval of the new audit standard AS5. That still has to be exposed for public comment and Cox coyly flagged there could be another delay.

"I expect that AS 5 will be approved in final form this summer, but if it is not, we'll once again postpone the requirement that smaller public companies have a section 404 audit until the new auditing standard is available, with plenty of time for them to prepare."

But don't hold your breath. Cox has made it clear that it will come in. One way or the other!

"The very positive result of our determination to phase in 404 for smaller companies is that we and they have had the opportunity to field test the requirements first. Now, we're using what we've learned to lessen the burden for smaller companies that will eventually have to comply with 404."

The problem, however, is that the jury is still out on whether the changes will be effective.

"You can't know until the new guidance is implemented. The proof is in the pudding," John T. Bostelman, a partner at Sullivan & Cromwell told the New York Law Journal.

The critical issue here is that smaller companies have always been forced to spend more of their revenue on compliance than the big corporations. That means the Act, rushed through nearly five years ago without any cost-benefit analysis, has a disproportionately more severe impact on small companies.

So the question remains whether the costs will go down by as much as expected.

"I expect that the new standards will bring down the costs of Section 404, but not as much as it could or should. If the costs are still too high, the SEC should then turn the problem over to the Congress," said the director of Harvard Law School's Program on International Financial Systems, Professor Hal Scott, as reported by CFO.com.

So watch this space.


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