WASHINGTON, D.C. (Wednesday, December 12, 2007) - At today’s House Small Business Committee hearing on Sarbanes-Oxley Section 404, the Biotechnology Industry Organization (BIO) reiterated its support for additional revisions to Sarbanes-Oxley rules that would provide appropriate relief to smaller public companies from unnecessarily burdensome compliance costs.
“Biotechnology researchers are creating innovative technologies that provide hope to patients worldwide. Most biotechnology companies, however, are small start-ups years away from having products on the market,” said Jim Greenwood, president and CEO of BIO. “So with no income, and no definition of a small business, these companies will bear outsized compliance costs – revenue that could otherwise go to developing life-saving therapies.”
Specifically, BIO once again asked the Securities and Exchange Commission (SEC) to include an objective definition of small company in its guidance regarding implementation of Section 404. Such a definition was recommended by the SEC’s Advisory Committee on Smaller Public Companies but was omitted from the final Auditing Standard Number 5 (AS-5) guidance issued this year. The Advisory Committee defined small companies as “companies with a market capitalization of approximately $700 million or less, with reported annual revenue of approximately $250 million or less.” In order to comply with the congressional intent of the Sarbanes-Oxley Act of 2003, the Advisory Committee’s proposed definition provided scaled audits for small businesses who are burdened with costly compliance under Section 404.
Despite the recommendation of the SEC’s Advisory Committee on Smaller Public Companies, the SEC omitted an objective standard for scaled audit treatment in its most recent guidance, in effect imposing the same requirements, steps and reviews on all companies, regardless of size.
BIO also continues to advocate for the SEC to utilize its Office of Chief Economist to provide sound economic analysis. While pure economics should not be the sole driver of auditing standards and practices, the economic consequences of adopting these rules should not be ignored. A faithful effort in this area would help to ensure that certain auditing rules and regulations are meeting their primary objectives for the shareholders.
“We’re glad to hear that the SEC is intending to give non-accelerated filers an additional year for compliance,” said Greenwood. “We remain hopeful that it will next address the onerous burden of compliance for all smaller public companies, so that biotechnology firms can focus their limited resources on their core competency: bringing new life-saving therapies to market.”