GAO Report Finds that Sarbanes-Oxley Section 404 Compliance Costs are Disproportionately Higher for Smaller Companies

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WASHINGTON, D.C. (May 9, 2006) – The Government Accountability Office (GAO) released a report yesterday on the effect of the Sarbanes-Oxley Act’s Section 404 on small companies.  The report found that for companies with $700 million or less in market capitalization, the cost of Sarbanes-Oxley compliance has been “disproportionately higher...  than for large public companies, particularly with respect to the internal control reporting provisions in section 404 and related audit fees.”  The report also said compliance costs “may be encouraging some companies to become private.”

The SEC’s Advisory Committee on Smaller Public Companies recently voted 18-3 in favor of scaled reform recommendations for Section 404. These recommendations reflect a majority of BIO’s reform suggestions.

BIO seeks internal control requirements that are “scaled” and “proportional” to the size of product revenues and the complexity of corporate structures. BIO fully embraces the importance of good corporate governance and transparency, and seeks expeditious regulatory reform for Section 404.

“As the GAO report found, Section 404 can be exceedingly time-consuming and costly for small businesses because of its ‘one-size-fits-all’ approach,” stated BIO President and CEO Jim Greenwood. “Many small biotechnology companies would be forced to choose between funding research and complying with the regulation’s demands. These companies work with cutting-edge science that results in products designed to improve and save the lives of our loved ones.”

The report, entitled “Sarbanes-Oxley Act: Consideration of Key Principles Needed in Addressing Implementation for Smaller Public Companies,” can be viewed at http://www.gao.gov/new.items/d06361.pdf .

BIO represents more than 1,100 biotechnology companies, academic institutions, state biotechnology centers and related organizations across the United States and 31 other nations. BIO members are involved in the research and development of healthcare, agricultural, industrial and environmental biotechnology products.

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About BIO
BIO is the world's largest trade association representing biotechnology companies, academic institutions, state biotechnology centers and related organizations across the United States and in more than 30 other nations. BIO members are involved in the research and development of innovative healthcare, agricultural, industrial and environmental biotechnology products. BIO also produces the BIO International Convention, the world’s largest gathering of the biotechnology industry, along with industry-leading investor and partnering meetings held around the world. BIOtechNOW is BIO's blog chronicling “innovations transforming our world” and the BIO Newsletter is the organization’s bi-weekly email newsletter. Subscribe to the BIO Newsletter.