WASHINGTON, D.C. (December 14, 2005) – The Securities and Exchange Commission’s (SEC) Advisory Committee on Smaller Public Companies today voted overwhelmingly in favor of reforming Section 404 (internal controls) of the Sarbanes-Oxley Act of 2002.
“Today’s vote is an indication that the committee understands the financial burden that Section 404 of Sarbanes-Oxley places on small public companies. We are not recommending a legislative change to Sarbanes-Oxley, instead we are asking the SEC to ease sections that are creating harmful, unintended consequences for small public companies,” said Jim Greenwood, president and CEO of the Biotechnology Industry Organization (BIO).
The SEC formed the 21-member advisory committee to consider ways of improving the impact of Sarbanes-Oxley on small public companies. Sarbanes-Oxley, the corporate governance law, requires publicly traded companies to adhere to standards that broaden board members’ roles in overseeing financial transactions and auditing procedures.
The committee’s recommendation will be released for public comment prior to its meeting Jan. 23. The final recommendations are due in April.
BIO has formed a coalition of biotechnology, healthcare technology, high-technology and venture capital industries to seek reform to Section 404. Coalition members argue that complying with the Sarbanes-Oxley external auditor requirement can cost upwards of $1 million, often doubling a small firm’s operating costs.
Coalition members include BIO, the National Venture Capital Association, TechNet, Advanced Medical Technology Association, California Healthcare Institute and SEMI. The coalition represents more than 5,300 companies from 50 states and around the world.
The coalition recently sent a letter to the SEC advisory committee recommending that smaller public companies be:
· Defined as the bottom 6 percent (based on a quarterly average) of the total U.S. public market capitalization or by a revenue threshold set by the average revenues of companies at the bottom 6 percent of total market capitalization;
· Exempt from having external auditors attest to internal controls. This would not exempt small public companies from complying with Sarbanes-Oxley as a whole.
· Allowed to take a risk-based approach to prioritizing their key financial controls and to alternate the frequency of control testing to every second or third year.
A copy of the letter can be viewed by clicking on BIO’s website, located at http://www.bio.org/tax/issues/LettertoSEC.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.