May 18, 2006
SEC Declares on Section 404
The Securities and Exchange Commission has rejected the recommendations of its small business advisory panel and declared that it will not exempt any publicly traded businesses from Section 404 of the Sarbanes Oxley Act of 2002. The SEC will, however, issue new guidance on how companies can asses the adequacy of their internal control systems and the PCAOB will amend its rules on auditing such systems that will attempt to make the rules less costly and cumbersome. The SEC has put the ball squarely back in the Congress's court, which makes sense. Without solid Congressional backing the SEC cannot modify Section 404 on its own; it would be political suicide for the agency. Senator Jim DeMint (R-SC) followed through on his plans to introduce a bill in Congress exempting any company with a market value of less than $700 million or revenue of less than $125 or owners of record fewer than 1,500 from Section 404.
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