Greenwood to Congress: Proposed Sarbanes-Oxley Reforms
WASHINGTON, D.C. (June 5, 2007) -- The changes proposed by the Securities and Exchange Commission (SEC) and the Public Companies Accounting Oversight Board (PCAOB) to modify the Sarbanes-Oxley Act of 2002 (SOX) provide a “marginal improvement” for emerging biotechnology companies, BIO President and CEO Jim Greenwood told a congressional committee today. Greenwood made his comments as he testified before the House of Representatives’ Small Business Committee on how the new rules governing implementation of SOX will affect the biotechnology industry.
Greenwood praised both agencies for recognizing the problems caused by the poor implementation of Section 404 of SOX and for acting with good intentions. He said he is hopeful that this is just the beginning of a process that will help keep American small businesses competitive.
“BIO commends both the SEC and PCAOB for taking the steps to address the critical compliance problems that Section 404 audits had been creating, particularly for small and newly public businesses,” Greenwood testified. “While the SEC’s final guidance appears to provide a more flexible, principles-based set of rules for management, the new standards adopted by the PCAOB, while an improvement over the current standards, could still be improved to enhance flexibility, auditor judgment and consistency with SEC guidance.”
Greenwood expressed particular concern that the PCAOB’s final recommendations left out the definition of a small company for use by auditors, even though it was included in the Board’s original proposal. By omitting the definition, Greenwood said, auditors are left without a clear tool to help them scale the audit properly. This lack of clear direction to auditors may lead them to seek more extensive audits in an effort to avoid criticism for being too lenient, potentially resulting in even more costs and burdens to small companies.
Greenwood, who helped draft the SOX legislation when he served as a member of Congress, said that Congress never intended for SOX to create such burdensome compliance costs for small businesses. He called on Congress to closely monitor the implementation of the latest revisions to ensure that the law’s original intent is achieved so that the new rules provide the greatest possible flexibility and scalability for small public companies.
“BIO believes that both agencies have taken important steps to get on the right track,” Greenwood said. “The stakes for getting this right could not be higher. Consistent oversight into the application of these new rules and consequent appreciation of how they are continuing to impact capital formation particularly for small companies will be critical to restoring the U.S. to its proper primacy in the global capital markets. We must ensure the rules provide the necessary flexibility to enable biotech companies to invest in what they do best – developing new technologies that extend lives and alleviate suffering from horrible diseases that affect families across the world.”