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Responses to ACSPC Request for Public Input

SOX Section 404/Internal Controls

Question 13. Is the cost and timing of SOX Section 404 certification a deterrent to smaller companies going public? Are there companies where this deterrent is appropriate? (I.e., are there companies that should not go public and is SOX Section 404 one appropriate control on the process?) If there is such a deterrent, would it be appropriate to provide some exemption or special consideration to companies that have recently gone public, and for how long would you extend this special treatment?

The following answers have been received:

08/02/2005 13:57:44   The certification is not going to stop any company from going public. The main deterent is extra costs that SOX has or will impose, especially 404.

08/02/2005 17:44:12   Yes it is a deterrent. Yes it can be appropriate. The primary reason to go public is access to large capital to grow. If there is not a need, a company should not go public. Two year exemption would work.

08/02/2005 18:15:55   yes

08/02/2005 23:36:32   SOX should not prevent companies from going public.

08/03/2005 01:39:17   Clearly there have been a number of small companies, and large companies, that have not been good investments. The answer is not expanded auditing. The problems run much deeper. Also, it is important to remember the observations of democracy, "it may be messy, but it is better than any other form . . . ." The US entrepreneurial engine has been the envy of the world. It is now being killed.

08/03/2005 08:55:04   Yes, why would they want to incur that expense? Larger companies of course could better afford the expense.

08/03/2005 08:58:39   yes it is a deterrent. Banks that are regulated should be at least $1,000,000,000 in size and at least $75,000,000 in capital before they are forced into SEC requirements. Are stock is not traded.

08/03/2005 10:40:26   Absolutely! As said before, we are in the process of considering delisting. Why would a company want to go public unless they plan to sell the company? Why exempt some company that has recently gone public? Are you just sucking them in?

08/03/2005 11:03:25   I would certainly think so...but much of it determines on what the company is trying to achieve by going public. If it is to raise a large amount of capital from the public and dramatically grow the company, SOX 404 makes sure their are better controls. If it is a company, whose sharehlder base is expanding just through stock being passed and split up through inheritance as we have, it is time to look hard at doing a reverse split.

08/03/2005 12:17:58   very detremental to small companies attempting to go public. other means are being sought. regulation is strangling america at the small level

08/03/2005 13:55:42   Sox is expensive, Special treatment is not the answer, a more better approach is needed.

08/03/2005 15:01:40   YES, It is a deterrent. The PCAOB or SEC should require the external accoutning firm to perform an internal control review and testing as part of the normal audit rather than creation of a new monster. This is the way we audited at Coopers & Lybrand back in the 1970's.

08/03/2005 15:22:49   Absolutely. As previously stated, if we could go non-public, we would. We have too many shareholders to accomplish this nor do we want to, but if today we were looking at going public with the current SOX rules, we would not.

08/03/2005 16:58:51   yes, SOX is s deterrent to small companies going public. Admitedly some companies don't have good management and don't have good/accurate financial statements. However, auditors audit they financials and should be able to catch material differences. Arther Andersen knew about Enron and their fraudulent accounting, they just didn't do anything about it.

08/03/2005 18:01:35   Please look into item no 29

08/03/2005 18:05:44   SOX Section 404 certification is a deterrent to smaller companies going public. I suggest that micro-cap companies be exempt for Section 404 compliance. The costs to very small companies greatly outweigh any benefits to investors.

08/03/2005 18:30:29   x

08/03/2005 19:54:33   I have no opinion on this question.


08/04/2005 09:17:19   Absolutely! The cost of 404 is having an impact on going public versus private. I think that there should be a threshold on 'existence' not based on value for exemption. The company needs to get its feet wet and get processes in place before they should be held to the standard. I think they should go into the venture with 404 in mind, but like a restaurant often works out the kinks before a grand opening. I think the same thought process should be used when applying exemptions.

08/04/2005 09:39:15   I don't believe it is a deterrent. There are however many small companies which should not be public. I company with $25 million in revenue which is a mature company with very little growth opportunities should not be a public company. But, we seem them everyday.

08/04/2005 10:40:16   If we could have controlled it, we would have suppressed our stockholder base growth to avoid 404.

08/04/2005 12:09:05   Definitely a deterrent!

08/04/2005 13:38:24   No comment.

08/04/2005 14:20:27   I would definitely think twice as a small company prior to going public in the current SOX environment.

08/04/2005 18:05:44   Yes

08/05/2005 10:54:31   I would not exempt any companies that have recently gone public. We knew this was coming there is no reason to give them a pass.

08/05/2005 12:38:34   This may be the case, but, so what, it all boils down to integrity.

08/05/2005 12:44:28   Section 404 could be a deterrent if I understood how it works and where the thresholds are.

08/05/2005 15:34:53   Yes - Especially for banks that are already so regulated.

08/05/2005 15:43:46   As previously stated, start-up banks are being discouraged because raising strong capital ($10-15mm) requires a number of shareholder that will push it into the registration range. Also attempt to obtain braod ownership so there will be more owner/customers is discouraged because of the higher costs of business at startup if the burden of SOX is laid on top of all the other start up costs.

08/05/2005 16:45:38   I do think that section 404 is necessary and is an effective gate for companies that should remain private. I reaslly don't see a need to breed inefficienct businesses in the spirit of giving weaker businesses the ability to deny responsibility for their reporting. That is a disservice to investors.

08/05/2005 19:33:08   Yes, the cost and timing will have a negative effect on small companies going public. I do believe that there should be a group of public, small companies that are exempt and thus carry a seperate designation or trading symbol. Existing public companies should be given a 3 year time table to enact specific portions of the law. This would be preferable to an all or nothing approach and would supply the appropriate guiadance from the SEC.

08/06/2005 13:52:06   The SOX certification is a deterrent. It should not be used as one. Underwriters need to act as the screen, and not take on companies that do not belong public. Auditors can do their part too.

08/08/2005 11:10:11   yes. no, the market will weed those out.

08/08/2005 11:39:29   I do not think one particular control is a overriding factor. It is the entire SOX process taken together that will elimnate the many companies from the public arena. It is ironic that many small banks that we compete against sell stock local or are owned by ESOPS. I guess because they are small their owners are less important? They certainly get less attention and have not shared in the bad press or pain that SOX companies have.

08/08/2005 14:06:10   The answer to the first two questions is yes. There are companies that should not go public and this requirement I believe makes them at least think twice about the process. I think the exemption should be based on the company's market cap as that is where there is the greatest exposure tot he investing public. I think we have to accept the fact that there will be instances of financial fraud and we cannot expect controls and regulations to stop all fraud. If regulation is to be imposed, it should be imposed at levels where the risk of significant financial loss can happen. I am the chairman of the audit committee of a small public company whose total market cap is less than $25,000,000. Why should we be put in the same basket as IBM, GE, Microsoft, etc? There should be a level under which compliance with SOX would be optional and that level should be at least $1 billion. Let the marketplace tell the regulators whether or not they value any perceived benefits from investing in companies that are SOX compliant. I can almost guarantte you that the other traditional metrics that the investing public uses to make investment decisions are far more prominent than an unqualified opinion on one's internal control structure.

08/08/2005 15:43:24   It is definitely a deterrent. Yes, there are companies where the deterrent is appropriate. There are instances where the deterrent is appropriate. All smaller companies need relief from the reporting requirements in 2005. New registrants should have two to three years.

08/08/2005 21:39:10   SOX 404 certification and compliance are definite deterrents to smaller companies going public. If the intent of SOX is to reduce the number of public companies, or to restrict the ability for small companies to raise capital via public markets, then SOX 404 will insure that this is the case. We believe that an active market that supports small companies and that allows them to raise capital is in the long-term a benefit to the U.S. economy and competiveness.

08/09/2005 09:30:31   Yes. A constructive regulatory process should not deter a company from going public. Why should a new bank, already highly regulated, be subject to SOX?

08/09/2005 16:26:34   I would believe that most smaller companies are not going to be driven by considerations of SOX...it is not going to be understood or appreciated until undertaken.

08/09/2005 17:25:10   Yes. See answers above.

08/10/2005 09:04:41   the cost of SOX certification is certainly a deterrent to our company going public.

08/10/2005 13:44:39   Sure this is a deterrent to go public, due to costs. But to use it as a deterrent is like spraying your whole yard with round-up, it will certainly kill the weeds, but it's not good for the grass either. The deterrent may stop some companies that maybe someone thinks they should not go public, but it will hurt all the companies.

08/10/2005 16:00:18   We never should have gone public and now regret it.

08/10/2005 17:18:15   Yes and I believe it is a good deterrent for such smaller companies. I do NOT believe that there should be an exemption. All public companies need to adhere to the same general rules, even though certain smaller companies may have a different criteria to meet than the largest companies.

08/10/2005 22:09:27   Good question....I'm not sure there will be as many companies (small) going public. If any small company goes public today I think they will have considered the implications of SOX. It's a matter of raising capital.

08/11/2005 20:27:22   Why don't you focus on smaller companies prior to SOX, I don't recall that there was a big faud problem with smaller companies. Our controls worked well prior to SOX 404 and then SOX 404 was created by two legal minds in Congress and disrupted the operations of most smaller companies. The effect on our company was, besides the disruption, cost our shareholders 20% of earnings ($500K).

08/12/2005 13:12:10   It is in the case of banks and probably other companies, as well. There are companies that should not go public because of their strategy and SOX might serve the purpose of pointing that out to them. Most of them would probably know it anyway. Special consideration should be given to already heavily regulated banks, and it should be tied to size...a fairly large size, say $5-$10 billion in total assets. There is a huge difference in bank regulatory effectiveness in a bank that size and the CitiCorp, BankAmerica, Wells Fargo's of the world.

08/12/2005 14:46:45   Not if the documentation and testing is performed in relation to the size and complexity of the company. A standard approach should be established for smaller. Guidance should be given to help smaller companies and train management to isolate only the key controls. Many larger companies floundered in the number of controls they identified and were then tested by the external auditors.

08/12/2005 16:35:01   Section 404 should not be a deterrent to going public but, in fact, it is.

08/13/2005 12:39:43   Don't know

08/15/2005 14:27:30   I don't have an issue with a reasonable 404 requirement being applicable to newly public companies and actually think that the process of going public offers one of the better opportunities to get the job done. What is important is that 404 be reasonably implemented and understandable.

08/15/2005 15:10:05   Yes it's a deterrent and it should be if they can't have basic controls over financial reporting/disclosures, cash, etc. No, when they first go public is when the huge expenditures are made with typically NO controls.

08/15/2005 15:13:01   Absolutely!!! See above responses. I believe that there needs to be a special class of companies (maybe it's companies with market caps of less than $100 million, I don't know), and these companies are exempt. Investors and all interested parties would know that these companies are exempt and they can chose to invest or not. Certainly the exemption status would need to be evaluated every year.

08/15/2005 15:14:45   Yes..........five years.........

08/15/2005 16:33:43   No comment

08/15/2005 16:41:14   It must be. No private company in its right mind can afford the start-up costs of SOX compliance as it also grapples with the basic struggles to grow

08/15/2005 18:59:52   404 certification is a deterrent to going public. As indicated above, I think full disclsoure on the state of internal controls should be provided by management for SB filers.

08/16/2005 09:51:21   Yes, but it is probably a fair deterrent. If a company has a limited operating history as a private company some additional focus on controls might be warranted in.

08/16/2005 10:13:05   Yes, SOX 404 is a deterrent to small companies going, and remaining, public.

08/16/2005 10:21:17   Yes.

08/16/2005 10:26:28   depends on company strategy, who owns it and what they want to achieve (eg VCs wanting an exit) exempt to be applied for first three years to let them get on their feet

08/16/2005 10:42:02   already answered...twice

08/16/2005 10:44:16   Certainly.

08/16/2005 10:45:16   yes

08/16/2005 11:18:54   Obviously Sox is a deterrent for smaller companies. Why increase your audit costs two or three times if you have access to cheaper sources of funding? Access to capital would be the only reason a smaller company would consider going public now.

08/16/2005 11:52:16   The cost and timing of SOX 404 is a definate deterrent for companies who want to access the public markets.

08/16/2005 12:14:10   There will be more not going because of the cost. It has already been shown that you can go public with a number of material weaknesses. The investment community notes that the material weakness designation has been put on some very insignificant items and therefore doesn't know how to use them, so far they pretty much ignore them.

08/16/2005 12:15:34   I think that the cost and timing is going to be a big deterrent to small companies going public. SOX 404 is a very burdensome process on small companies and takes a lot of time to implement.

08/16/2005 12:40:54   YES, yes, No

08/16/2005 12:42:56   SOX404 has singlehandedly raised the IPO bar arbitrarily by at least $100 million in annual revenues. This is wrong. Smaller foreign companies would be crazy to go public on U.S. markets in the current environment.

08/16/2005 13:04:14   I believe the cost of having basic internal controls is a must for any business and is justified. It is the overly burdensome SOX audit requirements and lack of guidance as to what is an adequate system of internal control that is the problem.

08/16/2005 13:12:04   If this company were not already "public" we would not go public ... never... in the present SOX enviornment. The cost of SOX is only part of the reason to say that; included is the competitive disadvantages, cost of lost oppportunity, loss of IP, etc.

08/16/2005 13:19:29   The cost of SOX 404 is too much of a deterent. SOX 404 doesn't gauge whether a company is well run - it gauges whether a company's controls match one universal standard (read "cookie cutter") that may or may not be the best set of controls for that individual company. Yes, the regulatory requirements of being a public company should deter companies that are not well run from being widely traded. The current burden of SOX 404, however, seems to be taking the "zero tolerance" approach - the goal is to ensure absolutely no chance of another Enron, and accomplishes this by accepting that it will be ruinous to many smaller well-run companies for whom the burden of proof of being well run is simply to much.

08/16/2005 13:20:23   I don't think so. And if this is so significant that it deters companies going public, I would be more worried about that company's commitment to proper accounting and reporting (in which case they shouldn't be public). There is no logical basis for an exemption for "newly public" companies, and in fact this is worse. You want them compliant before they become public so that this is not a "new burden". An exemption allows for different statuses of public companies which only confuses the public market further and is a bad idea.

08/16/2005 13:25:32   It is a deterrent. There are companies where this is appropriate (the Dot.Com bubble comes to mind). But there are probably good businesses with valuable products that will be strangled for capital also. The "guilty until proven innocent" nature of 404 is a burden for all public companies, it's just that bigger companies can more easily absorb the waste.

08/16/2005 13:27:00   SOX is a deterent to companies becoming public. However, once public, I believe all companies should be held to the same standard. If some of the items discussed above were fixed it would be less of a burden for smaller companies.

08/16/2005 13:30:33   I would think this is a deterrent.

08/16/2005 14:08:05   The cost and timing of SOX Section 404 certification is the biggest reason that companies might not go public. It is very expensive and time consuming and requires an audit function to maintain. An exemption could possibly be given based on company size, rather that time elapsed after going public.

08/16/2005 14:23:10   Small companies are more likely to sell to private equity investors or other companies than to go public in the current environment. This does create an arbitrage opportunity for private equity investors to buy small companies at a discount relative to their valuations negatively impacted by SOX costs.

08/16/2005 15:15:12   Without question SOX has detered companies from going public. Whether this deterrent is appropiate or not, I cannot say, but if I had it to do all over again I would avoid going public if at all possible. As for special exemptions, I don't think they are necessary. What needs to be done is to move the requirements for going public to different levels to eliminate the need for many small companies to register. Then under the new requirements, company's that become public would be given two fiscal years before SOX requirements would have to be met.

08/16/2005 16:09:47   Yes. No. An exemption should be for companies with less than 25,000,000 in assets

08/16/2005 16:16:04   Yes of course.

08/16/2005 16:45:09   SOX 404 is a deterrent for smaller companies going public. If there is a value to SOX 404, it forces companies to do what they and their auditors were always required to do in a much more detailed and costly way. If with the new oversight over the auditors, they are still consider to be incapable of doing their job as it relates to smaller companies, than that problem should be fixed. Creating exemptions or special considerations fails to deal with the real issue.

08/16/2005 18:21:27   ABSOLUTELY!!

08/16/2005 18:35:41   We would not go public now, under current SOX 404 requirments. Our controls are and have been perfectly adequate to enable us to produce trustworthy financial reporting, and there is no reason (other than SOX 404) why we should not be public.

08/17/2005 12:28:22   Cerification is not a problem, we stnad behind our financials and everyone should.

08/17/2005 12:36:00   You would think so, but I can't speak from experience.

08/17/2005 13:25:50   Absolutely. Numerous WV small bank holding companies are reducing shareholder base solely to stay under the 500 shareholder level.

08/17/2005 18:49:20   Companies that have a good story to tell and a good future will not see SOX as a deterent, but simply a cost of doing business as a public company. I agree it will be and should be a deterent to a company looking to go public, use public money and still operate like a candy store.

08/17/2005 18:49:27   There should be controls on reporting, they should be certified by the CFO annually and these proceedures should be audited externally every three or five years. It is not the ideas of SOX that are bad (quite the opposite) it is the cost vs. the benefit. The cost alone should not be a deterant to going public. However if a company has no controls over its reporting it should not be public in the first place.

08/17/2005 19:31:08   Yes, it is a deterrent. SOX keeps both good companies and bad companines from going public. I would carry the exemption indefinitely, unless an material internal control problem with a small company is discoved. Then I would make them subject to 404.

08/17/2005 21:27:12   Unsure.

08/17/2005 22:55:14   One could make an argument that SOX 404 could be an appropriate deterrent to some smaller companies going public. A SOX 404 "light" for smaller companies that was a requirement of the listing process would be a more effective deterrent than the current SOX 404 post-IPO requirement.

08/18/2005 08:03:31   Yes, it is a deterrent. Any company should have chances to become public - but rules should apply different to different sizes of companies. If SOX has to remain as it is, companies below $500M should be prevented from the market.

08/19/2005 02:56:12   There should be a high level of control confort when a company goes public, but from there, the complliance work should be more rotating than annual. Once a company has good controls, it is more likely to keep them in place and they can move to a maintence mode unless an event triggers a change.

08/19/2005 11:44:44   Yes the costs will act as a significant deterrent to going public. This in not appropriate for any young or start-up business in our free market economy.

08/19/2005 13:49:01   It is felt that SOX Section 404 certification is a deterrent to smaller companies going public; however, it is also felt that compliance with Section 404 is also appropriate because it helps to instill a better level of discipline within the company. Compliance with the provisions of Section 404, if done appropriately (in terms of cost and auditor effort) is good and should not be exempted. The major factor, as stated previously, is to be able to accomplish compliance more cost effectively.

08/19/2005 14:40:28   It is definitely a barrier or major challenge for some. During the S1 process, there should be some consideration to disclosure of SOX compliance progress rather than full compliance at date of issuance. With full disclosure, the investor would be aware of the risk involved and can make an educated investment decision.

08/19/2005 14:50:07   I certaining think SOX 404 will be/is a deterrent to smaller companies either considering going public or remaining public. While I have no opinion whether certain companies should or shouldn't go public, I do not believe it is the government's role through 404 to be that judge. The marketplace generally is an adequate arbiter.

08/19/2005 17:03:28   It is a deterrent to some companies, and appropriately so as I've discussed above.

08/21/2005 03:34:34   I believe the SOX section 404 is a deterrent, and sometimes an appropriate deterrent. I believe companies that just went public went through a massive due diligence process, and therefore should be exempt from SOX section 404 for at least 2 years following the IPO.

08/21/2005 22:19:50   Yes - I think there should be at least a 2-3 year phase before compliance is required.

08/22/2005 14:21:23   Lets put it this way, if we were private, I would certainly stay that way! I have no knowledge of a company that has decided not to go public due to SOX

08/22/2005 15:20:23   I am not familiar with the current rule on SOX compliance for newly public companies, but I do believe that there should be a grace period of at least one year after going public before compliance is expected.

08/22/2005 15:47:02   Absolutely. Reduce requirements for companies with annual revenue below $100 million, and market capitalization below $50 million.

08/22/2005 17:54:28   The decision about going public should be made by the company and its potential investors. It is exceptionally negative to use a punitive control process to determine this. And yes, SOX will have a deterrent effect because being a public company has become less attractive.

08/22/2005 17:56:59   I believe it is a deterrant, but making an exemption the answer would only serve to differentiate companies based on SOX certification, not on the merits of the business.

08/22/2005 19:27:18   I would allow companies below the $100 million market cap not to be bound by SOX. Companies under $500 million to only be tested at the entity control level and more fully required to implement SOX above that level.

08/22/2005 20:10:17   I don't think "special treatment" should be provided to a small company contemplating going public. Section 404 needs to be rewritten in a form for smaller companies, with a guidline based on revenues, staffing, or other criteria. There needs to be many different compliance/testing guidlines instituted based on company size. One size fits all is not a fair measure, and a small company that cannot comply should not be painted as a bad investment.

08/23/2005 00:42:38   absolutely a deterrent. deterrent is not appropriate. pre-existing laws about fraud, along with the appropriate auditor client relationship that existed in 99% of the cases was sufficient. the additional 1% does not merit the cost.

08/23/2005 15:56:30   Same rules should apply to all small companies. The market can determine if a company should be public.

08/23/2005 16:06:08   There is no question about it. The 404 certification deterrs people from going public. Having said that I think the waiting period is inappropriate.

08/23/2005 16:49:34   Yes - Most definitely

08/23/2005 18:10:00   Yes. At least 2 years. It's a minimum of a full years work to do the documentation and testing

08/23/2005 21:11:03   Yes, the cost of going public has had an impact on companies going public. Many of the current crop of small companies went public between 1993 - 2000....just because they could. Many of these will fail as a result of the compliance cost burden. As to who should not be allowed to go public. For what purpose would the regulatory environement be empowered to provide a "filter" to the market place ultimately restricting in an abritrary fashion who can and can not be public? Short term exemptions do not fix the underlying problem of inequitable financial burden and minimizing entrpreneurship in favor of risk avoidance dominance as a guiding regulatory climate.

08/24/2005 08:50:18   I believe so. Newly public companies should be granted at least a 2 to 3 year waiver so that they can get the capital they need yet move towards the internal control structure that they'll need to comply. Companies NEED that capital to even be able to comply.

08/24/2005 10:14:02   Absoloutly a deterent. In fact, we will go private ratehr than attempting to comply. The requirement to comply should be incrementally applied based upon annual revenues of the company or market cap.

08/24/2005 11:28:21   Yes. I do not believe there are times when it would be appropriate for companies to not go public based on SOX 404 compliance. Investment bankers today will not take on a new client unless they are confident that the business will be able to succeed as a public company.

08/24/2005 14:30:13   Yes, SOX404 is a large project and there should be phase in period rather than having to be compliant the first year after going public. The issue is that it will cause companies to delay offerings to the 1st quarter so that they have a whole year to get SOX compliant.

08/24/2005 16:19:27   Yes, Five years

08/24/2005 16:26:56   Consider making compliance with SOX 404 voluntary for companies with a market capitalization under a certain dollar amount, say $250 million. The marketplace (investors, investment bankers and others) could decide, through the multiples assigned to share prices, whether SOX 404 compliance is beneficial (i.e., estimated cost of compliance is less than estimated increase in multiple).

08/24/2005 16:51:40   If they will have to comply after going public, then the same rule should apply immediately, so that they and their accountant's will plan accordingly

08/24/2005 16:54:47   Absolutely!

08/25/2005 15:23:41   It is a deterrent due to the cost both in time and value. I believe a new public company should have at least a 1 year exemption due to the newness of the demands of all other regulatory requirements. The marketplace, analysts etc. should weed out an 'unfit' company wishing to go public, rather than relying on 404 to do this.

08/25/2005 16:04:36   It would not be appropriate to have special exemptions and different rules for different companies.

08/25/2005 17:02:43   Yes. See above answers. However, I don't think there should be a special exemption for recently public companies. If companies are going to be public, they should be subject to the same rules as other public companies.

08/26/2005 12:41:42   SOX is an inappropriate roadblock to going public. The ability to produce an audited financial statement should be adequate to be a public company. I would do away with SOX 404 completely.

08/26/2005 13:07:22   Absolutely, companies won't go public to avoid Section 404 and other aspects of SOX. The deterrent probably has, and will, keep some companies from going public whose conduct could be harmful to the public.

08/26/2005 15:10:01   Absolutely. The only companies that the deterrent is appropriate are companies that have no other regulatory controls in place AND whose customers or shareholders could stand to lose more than just their investment in that company. The banking industry is already HEAVILY regulated.

08/26/2005 15:31:29   The current 1 year window should be sufficient.

08/26/2005 16:22:08   Yes. I don't think an extension should be granted. If a company goes public, it ought to go ahead and comply.

08/26/2005 17:46:13   Yes - it is a deterrent. Many companies cannot afford to go public with these regulations. It would be appropriate to provide exemption to smaller companies until they reach a certina size, and ones that have recently gone public for at least 3 years.

08/27/2005 11:21:03   No - SOX 404 certification just means more costs. No company goes public now whose books aren't auditable. Whether controls can be documented is just more expense on a go-forward basis, or an audit disclaimer is published.

08/29/2005 07:07:37   Yes. 2-3 years.

08/29/2005 10:21:15   It is certainly a deterrent given the cost, manpower and overall effort for compliance involved. Certainly, SOX 404 helps control the entry of certain companies that are not prepared to be public, but we would propose identifying other less costly ways to perform this control, be it more stringent IPO requirements, more detailed reviews of newly public companies, etc.

08/29/2005 10:21:25   It is certainly a deterrent given the cost, manpower and overall effort for compliance involved. Certainly, SOX 404 helps control the entry of certain companies that are not prepared to be public, but we would propose identifying other less costly ways to perform this control, be it more stringent IPO requirements, more detailed reviews of newly public companies, etc.

08/29/2005 11:21:29   Yes, it is a deterrent, but was SOX's purpose to keep small companies out of the open market place? There should be no special consideration to newcomers. However, there should be a different level of documentation and testing for smaller companies.

08/29/2005 14:18:47   The cost and timing of SOX Section 404 certification may well be a deterrent to smaller companies going public, and I do not view this as a bad thing. Much has been made in the press about the same requirements for small firms as big firms when it comes to internal controls, and it´s largely false. Small companies are required to have a functioning internal control system just like a large firm, and that´s pretty much the spirit of Section 404. The statute doesn´t prescribe a stifling bureaucracy; firms are left to create an internal control system that takes into account their own particular set of circumstances. The burden on them is to design one that works - and puts the interests of their shareholders first. After all - the shareholders are providing them with capital. Why shouldn´t their interests as owners of a firm be considered important enough to protect? If firms don´t find that a particularly inviting bargain, then I don´t believe the public markets are worse off without them. And I don´t believe exemptions should be made.

08/29/2005 14:53:30   Yes. I do not feel that this first question is an appropriate question for any third party to answer. For me it raises the following much broader question for our society: In a free market system, who should have the authority and therefore take the responsibility to answer this question? Rules and Laws that apply to small companies that are already public and have not had problems should not be so drastically changed because of the crimes of a few in a few very large companies. Companies who are contemplating going public should know what rules will apply to them for the foreseeable future. Had SOX been in place and had I known its awful impact, I would never have recommended going public.

08/29/2005 15:31:21   The cost and timing of SOX 404 compliance is clearly a deterrent, whether it should be or not. I think a fair argument can be made for a bank who is considering going (or has recently gone) public, simply because of the vast level of regulatory examination to which the bank is already subject.

08/29/2005 16:10:53   Yes on the first question. No on the seconde question---the deterrent appropriate? In other words it would be better to have a company operating under the radar then it the light of the public arena?

08/29/2005 17:09:27   Yes - SOX 404 is definitely a deterrent for the smaller company that is considering going public.

08/29/2005 17:12:26   There may be some credence in the thought of it being an appropriate deterrent, but I think great care needs to be shown in order to not discourage legitiment smaller companies who need to be public to fufill their strategic growth plans.

08/29/2005 17:36:32   Unable to comment

08/29/2005 19:02:32   SOX compliance is a deterrent to any small going public. It would probably have kept us from going public and right now I would be grateful for that.

08/29/2005 19:05:24   The cost and timing of the SOX 404 testing is a deterrent to smaller companies going public. Although we agree that companies which wish to access public markets should have to satisfy some threshold level of controls, the current SOX 404 are excessive and represent an unnecessary deterrent. An exemption or special consideration for companies that have recently gone public is not appropriate; rather, SOX 404 for all smaller companies should be restructured to better balance the cost to the company with the benefit provided to investors.

08/29/2005 21:00:01   I believe that for smaller companies the cost of SOX is an unnecessary deterrent to going public. I think that a less rigorous set of guidance could be applied. Then if the company qualifies as a small company, special rules would apply (which will hopefully be an outcome of this task force). I wouldn't necessarily set a time limit for the special treatment, but have it be based upon some type of size restrictions.

08/29/2005 22:40:58   No exemption should be given to small new public companies, all small public companies should be treated the same.

08/30/2005 15:04:16   Anytime additional costs are added to the administrative side of an organization it is burdensome. Quite frankly, the costs of being public are already high enough. The current rules for companies going public are sufficient

08/30/2005 15:07:00   The cost and distraction of 404 is definitely a deterrent to smaller companies goig public.

08/30/2005 17:08:46   We believe that the cost and timing of SOX Section 404 compliance and certification is a deterrent to smaller companies going public. Do not know whether there are companies where this deterrent is appropriate. Do not know whether it would be appropriate to offer an exemption to recently public companies.

08/30/2005 18:26:14   N/A

08/30/2005 18:48:02   Yes, it is a deterrent. Although there are companies that should not go public Section 404 is not an appropriate control on the process. If there should be controls, the SEC should draft controls, not depend on the "side-effect" of another bill. If SOX cannot be amended then any company which has recently gone public should be allowed to operate under the old rules for a total of 5 years. In other words, if they went public 1 year ago they would get the special treatment for 4 more years. If they went public 2 years ago, they would have 3 more years. Etc.

08/30/2005 19:47:16   Please see the answer to question 1 above regarding SOX as a deterrent to smaller companies going public. In our opinion, the "special treatment" should be granted permanently to smaller companies, not just the companies that have recently gone public.

08/30/2005 21:07:56   Yes.

08/30/2005 21:39:41   As discussed above, we believe that the high cost of SOX compliance costs has discouraged smaller companies from becoming and remaining a public company. Exemption should exist simply because the auditing firms and the consults do not have the bandwidth to work with smaller companies and as a result, time should be given to all smaller companies because of the resource strain. Let the large companies work it out, have the small company guidance be issued and interpreted, then once the standards have experienced, move to smaller companies, similar to the Canadian model. The small companies do not have the personnel and financial resources to work side by side with the auditing firms to help them figure it out. The big companies have the leverage, once they do something which the big firms like, they push down to the smaller companies, and a lot of work gets redone.

08/30/2005 23:57:28   Yes. It is a deterrent to smaller companies going public.. Should at least give 3 years extention to new public companies.

08/31/2005 08:31:59   Yes, the cost is a deterrent. However, we don't believe there should be an special treatment.

08/31/2005 10:21:37   Obviously, SOX related expenditures are a deterrent to going public. Personally, I am against an exemption. Companies considering going public, or recently gone public, need the controls more than mature companies do. There is more pressure on these companies to meet investor expectations.

08/31/2005 14:00:12   It is a deterrent to going public. I don't see how a window of noncompliance would affect a decission to go public - the expense and managemnt time would be required eventually, and would be factored into the going public decission.

08/31/2005 14:00:16   Absolutely! Regulation and compliance should not be the determination of what companies should or should not go public. The market itself should decide.

08/31/2005 14:12:37   We believe that the costs of SOX 404 are most certainly a deterrent to smaller companies going public. In some cases, this deterrent is appropriate. For example, companies with a management team that displays a disregard for an appropriate internal control environment should not go public. However, in our experience most private companies with lacking internal control environments are such simply because the company does not have the resources to put into place the personnel and systems necessary to ensure effective internal controls. Oftentimes, the proceeds from the public offering provide some of the capital and equity liquidity needed to hire additional finance personnel and improve IT systems. However, the process of hiring these individuals and implementing these systems takes time. In order to provide newly-public companies sufficient opportunity to put these internal controls into place, we believe that a one year exemption would be appropriate (i.e. compliance with SOX 404 not required until the filing of the second Annual Report following the completion of an IPO).

08/31/2005 14:25:37   The threshold to deregister should be raised and any company should be allowed to make their own decison about deregistration and the SEC should approve that decision for new companies and old companies. The SEC should approve that decision wihtin 30 days.

08/31/2005 15:19:27   Yes. Yes, companies that provide monetary based services to the public (i.e. banks, investment companies, credit card companies, etc.) should certainly have internal control requirements. Of course, many of these companies are already subject to regulatory monitoring and compliance.

08/31/2005 16:13:45   SOX 404 is a deterent to smaller companies going public. Excessive and unreasonable regulations and costs should not be used to deter smaller companies from going public. The purpose of financial reporting should be to insure that investors are provided with information to make informed decisions. Not punitive.

08/31/2005 16:16:33   13. Companies that go public should have a 1-year exception to SOX compliance. This time period should only include the first fiscal year-end. For instance, if a company goes public in the summer months, but has a fiscal year-end of Dec 31, then the company should be compliant as of the following Dec 31st. Companies going public have a large amount of work to complete as is. The extra workload of SOX compliance is difficult for a new public company, especially since it may not have the in-house expertise to comply with all the new regulations required by public companies. This is consistent with the exception that could be granted to current public companies, if a new acquisition is made during the year.

08/31/2005 16:29:59   yes

08/31/2005 17:16:33   Of course it is a deterrent. Small companies are an important driver of the US economy. They create jobs and drive innovation. SOX is forcing more companies (mostly small ones) to go private or cease reporting requirments with a retreat to the pink sheets. Why would a small company go public in the current envrionment?

08/31/2005 18:22:30   The cost and timing of SOX Section 404 is considered a deterrent to smaller companies going public. The number of public companies that have changed their shareholder structure to allow deregistration is evidence of this conclusion. Section 404 could cause certain companies with ineffective controls to appropriately remain private, thus reducing wide shareholder risk. However, it is at least as likely that certain companies may remain private to avoid the cost of Section 404, even though their controls are adequate, and this decision could impact the company´s future direction (expansion plans, etc). Allowing newer registrants to avoid Section 404 for some time period would not, in our view, be sufficient to influence companies that otherwise are deciding to not go public. We think that both investor and company interests are best served by a permanent but less rigorous internal control assessment requirement for smaller companies.

08/31/2005 18:23:08   Yes it is a deterrent but it should not be. It is a deterrent because the scope is so much to cover all at once. Maybe the assessment could be phased in – first year deals with Entity Level, Mgmt Override, Fraud controls; then the next years includes controls on processes; then the next years includes IT General Controls – then the rotation that was addressed in question #11 could be incorporated.

08/31/2005 19:16:05   13. It is up to individual companies to decide whether they can make an acceptable return after the cost of SOX and other regulations. I believe that many will decide that the cost is too high, including many companies that are public now. For the question of what companies should be allowed to go public, this is a question for the markets to decide and not regulators.

08/31/2005 20:55:07   All small companies should be treated the same. Need definitions for companies to follow.

09/01/2005 00:55:31   The costs and timing of a SOX 404 certification can be a dterrent to any size company wanting to go public. If the comapny going public is a hevaily regulated entity like a bank, etc. there shoud be some sort of exemption or a "SOX light" approach.

09/01/2005 11:40:19   Yes, I believe 404 has impacted many plans to go public.

09/01/2005 14:30:54   The burdensome costs in money and management time that is required to comply with Section 404 is definitely a deterrent for smaller companies to go public. If SOX remains in force, there should be some threshold on size of companies subject to it. Size should probably be based on sales, not market cap. A company with a low level of sales cannot afford the cost or the time to comply.

09/01/2005 17:12:34   Yes it is a deterrent to smaller companies going public. In general it is not appropriate. Again I believe that fraud is the key issue. In small companies tone at the top is the most important thing. I think an exemption for all companies under $100 million is sales would be appropriate.

09/04/2005 07:42:16   N/A

All Survey
Main Survey



Modified: 10/13/2005