Responses to ACSPC Request for Public Input
Question 29. If there is any other matter relating to the securities laws applicable to smaller companies that you wish to comment on or to bring to the Advisory Committee's attention?
The following answers have been received:
08/02/2005 13:57:44 Ask yourself, when you are reviewing the rules, whether you as a small business would endure the pain the SOX is causing, or whether it is easier to do a private offering. Ask yourself if capital formation in the public, as opposed to private, markets, is a worthy goal. Ask yourself why so many existing smaller public companies are going dark or seriously considering going dark pending the regulatory relief we hope this panel recommends. Ask yourself, finally, whether you really want the private angels and venture boys funding all the worthy businesses that are out there? If not, relief is needed, and fast.
08/02/2005 14:31:32 The way I see it, please exempt small public companies from SOX 404 compliance. I would leave in the attestation law that requires management to sign off on the authenticity of financial statements--this was a wonderful reform! It was simple, costs almost nothing and has had a powerful effect for the better! We need to vigorously prosecute the 2 % of small companies that are frauds; please relieve the burden on the 98% of small companies that are honest!
08/02/2005 18:15:55 the sec allows the dtcc to use a stock loan program that is detremental to all stocks, not just small, but, for small it is devestating. the dtcc loans shares that do not exist and they in effect enlarge the authorized float many many many fold. examples have been srci and cmkx, which have documented naked shares, via the loan program, that exceed the authorized by multi fold. this is in effect like printing money, counterfeiting. it needs to end. the sec turns a blind eye to the dtcc and allows them to in effect destory small companies at will. they loan stock that does not exist, and, when the companies are diluted into the ground and go bankrupt, the settlements are never made. the three day rule for naked shorting or any shorting needs to be enforced, but, it is not. the sec has a reputation of not helping companies, but, rather those that naked short companies, which in my book is more correctly called 'fraud'. if this were done with american money, it would be called counterfeiting and the secret service and fbi would be on top of it fast. since it is stock and sanctioned by the sec, the dtcc is authorized to kill.....small companies. small companies especially because they have the least to fight back with, but, small companies are america's hope and where new ideas and products come from. a negative attitude toward bb stocks and pink sheet stocks exist at the dtcc and the sec, which is determental to americas ideals and boarders on discrimination , monitary discrimination. senator shelby and his senate banking committee needs to pay attention in their oversight committee and if the sec will not reign in the dtcc, they must. it is a travesty of justice, that the rules that allow the dtcc to loan shares of companies,,,,shares that are not in existence...and then those that benefit from those loans never pay them back. never ever have to settle. this is fraud. grand larceny and the sec needs to act and stop it.
08/03/2005 01:39:17 The administration of 404 audits can be abused by auditors. Our firm decided to do the work ourselves and not to use a consultant. This angered our auditors and in turn, their administration of the audit became punative rather than constructive. In our case we had to conduct 6.7 million automated tests and 300,000 manual tests. The attitude of the auditors was terrible. The morale impact upon our company has been extremely destructive. We are losing employees over this. There is no way we can afford to conduct such a program in the future. The current environment is not sustainable. Auditors have become our enemy, whereas in the past they provided good balance in the review of our accounting. It is clear that noone in regulatory or legislative positions on a national level has the remotest undetstanding of the detail or content of current auditing. It is not possible to read even a few pages of the COSO documentation and remain supportive of this regulatory mess.
08/03/2005 07:01:34 make it easier for them to raise money already pursuant to exemptions or streamilined registration processes. open up 504 and 506. Investors today are like ciggarete smokers-all the publicity the last few years- no one can say they dont know the risks associated with investments in smaller companies.. We all do..that's a specious argument from a few sore losers. timning is more important than information when it comes to investing.
08/03/2005 08:55:04 Please consider banks with the regulatory agencies that already exam us and the fact we pay for that as well.
08/03/2005 10:40:26 Simply to say that not all large or small companies are alike. Financial institutions are not like paint companies. Consider what other regulatory burdens the company, large or small, are under and use common sense.
08/03/2005 10:50:30 After 30 years as an analyst and, more importantly, senior IR consultant to publc companies of all sizes, I can tell you as a member of the EBR Consortium that TWO crucial ingredients required by investors are missing from the SEC laundry list: First - Plain English use imperium to lawyers and accountants; Second - Prescribed structure of financial data to disclose the CFROI, EVA, MVA, Dupont and other metrics used by investors. As to Plain English, I have taken reports of the EBRC members and routinely reduced the text 50+% following PE principals!! Am available for discussion.
08/03/2005 11:03:25 Just the time it takes out of my day to answer a questionaire such as this, has a affect on my ability to to the tasks at hand, therefore I stopped at question 14, thogh I could go on and on.
08/03/2005 12:17:58 Main problem small companies are currently having is the naked shorting or counterfeiting of shares. the DTCC stock loan program is out of control. The DTCC claims it is not an enforcer of settlement of trades, and, it seems to be true. It also seems to allow companies to borrow nonexistent shares to more than hundreds of times the authorized shares made by the company. the loan program needs to end. the SHO regulation hilights the problem, but, alas, it has not solved it. SHO is a failure. Allowing unsettled trades to be grandfathered, those prior to SHO coming on line. that is like allowing all bank robberies to be dismissed. Amazing. Only in America. All unsettled trades under the DTCC stock loan program need to be addressed by either the SEC or Senator Shelby and the Senate Banking Committee. SHO has been a dismal failure, however, it has pointed out to the world, that not settling trades, even new ones since sho, can go on indefinitely. There are companies that have hundreds times their authorized shares sold and in peoples accounts as markers, as not enough shares exist. this keeps the share price of small companies downa and eventually runs them out of business completely, allowing those that borrowed those non existent shares through the DTCC stock loan program, to never settle or pay them back. this is not only naked shorting and counterfeiting of shares but, down right fraud. Time to clean up the DTCC. America is watching. How can you expect to want to invest your social security dollars in a market as corrupt and out of control as this? The seriousness of this problem of naked shorting and non settlement of trades, is growing and growing. I advise companies to move to an exchange that is transparent and doesnt allow this to occur. Gemran Chancellor Schmidt recently complained to President Bush on this very issue. It is effecting the world and needs to be fixed immediately.
08/03/2005 13:55:42 Many small companies, and even quite a number of larger companies are being sold short (naked short- selling with no way to cover). The stock borrow program needs some real hard adjustments. People who over sell need to be halted from trading until they cover any shorts. that would or should stop the Fails to Deliver.
08/03/2005 15:01:40 I do not like the COSO framework. Some of the big accounting firms (Coopers for one) have developed better internal contol evaluations for companies. The evaluation of internal controls and testing of internal controls for public companies should be a requirement of an annual audit. The results of this process should then determine how much additional audit work is done by the external auditor in performing other audit procedures and the type of opinions that are given on the financial statements. This new process seems cumbersome and redundant. The responsibility for good internal controls should be on the public companies, but their auditors need to make the evaluations and testing as part of the annual audit.
08/03/2005 15:22:49 Thank you for this opportunity of expression. SOX is overwheling us and most smaller banking instituions. I am not too sure we were the target of this legislation that no doubt was needed on the large cap level. Banks and samll companies under a certain market capitalization threshold need to be exempted. Our shareholders mostly know us from being customers and as a bank, we are already over regulated.
08/03/2005 16:30:25 YES, NAKED SHORT SELLING. As a way to stop this illegal practice by corrupt organizations and individuals along with financial terrorist like al-Queda, OUTLAW SHORT SELLING totally or atleast limit ability to do so to only government regulators.
08/03/2005 16:58:51 If we spend money to comply with SOX which should lead the auditors to rely on our internal controls, the subjective testing for the audit should go down which should keep audit fees in check.
08/03/2005 18:01:35 Hi Sit/Madam, I am Sorry , Byt I don't know what is "SOX". But kindly go through the following. If you need any further info from me please email at email@example.com Please stop the NSS and save small Companies and invenstors like me. I already invested $17,000/- in CMKX. The Short Sale is killing this Company. Please stop the process of Short Sale completely. That means one can sale the stock only if he/she owns the stock. With Regards, Raj.
08/03/2005 18:16:51 We need to make every Co. on the exchange reporting. No more Grey stocks. Even the pink sheets have to report. We need to know more about the O/S the A/S and the float of the pink sheet stocks. Why are we letting them trade without giving us information? Alot of these small Companies. need to start at the bottom and work their way up. That's how the country was built. They have to stop putting Billion and Billions of shares into the market. 0.0001 adds up. Someone has to keep track of this kind of trading. If a Co. can do it with a fix amount set by the SEC. then don't let them list. Thank You.
08/03/2005 18:29:12 It is of my opinion that the Sec. should enforce the original settlement dates for Marketmakers rather than allow them to continue and sell Company shares from the DTC barrowing pool rather than settle their positions in a timely mannor as the Rules have originally set. As long as the original deadlines to settle open positions is not met small (and larger) companies will always be at the mercy of the MM's and ultimately the shareholders will loose. A call to cover all open positions is required and an overturning of new rules to allow extended periods to cover. Also the elimination of the limited liability acts that allows even gross neglegiance to go with onlt limited punative actions. These actions are not benificial for small buisiness nor investors. There is an obvious trend by the Sec. to protect it's self at the expence of the investing public. It is time that the Sec. begin to concern it's self with the investors and the companies before the MM's, DTC and off shore hedge funds.
08/03/2005 18:30:29 stop allowing corruption with the sec, dtcc, hedges, and all other aspescts of naked short sahres, before you destroy the economy!
08/03/2005 19:54:33 1. Eliminate the practice of holding shares in "street name" at Cede and Co. Cede and Co can still be the repository for the shares, but all shares held must have a real person's name, SSN, etc, attached. 2. No more 'markers" in a person's brokerage account. A person either HAS the shares he bought, or it's a failure to deliver. 3. No more stock borrow program unless the person whose shares are borrowed has first OPTED IN to the stock borrow program. In writing. If a person has not opted in to the stock borrow program, his shares cannot be used to back a short sell. 4. Eliminate the grandfathering of uncovered shares. Set a date, within 30 days, to have all failures to cover COVERED. Call it a market call or whatever. ALL shares MUST be covered with a REAL share, with no exception. 5. Once all failures to cover are resolved, make the practice of shorting micro-cap and small-cap companies prohibited. As entrepreneurs, we all want the small companies to reach success status. Permitting short selling of these stocks is betting (nay, PRAYING) that these small companies fail. That is un-American in my opinion. 6. Finally, put in place enforcement officials who are beyond reproach and suspicion. It was once said that even the appearance of impropriety was grounds for dismissal in certain White House Administrations. Apparently, enforcement appears to be spotty and selective, with obvious frauds continuing to trade unfettered. There have been (perhaps coincidental) conflicts of interest brought to light, which may or may not have effects on SEC hearings. It is the APPEARANCE of impropriety which must be eliminated. I appreciate this opportunity to provide you with my opinions and comments.
08/03/2005 19:55:50 SEE ITEM #5 ABOVE!!!!
08/04/2005 09:39:15 None
08/05/2005 10:54:31 The comments by the SEC regarding too strict of interpetation by accounting firms is clearly politicaly motivated. It has not had any impact on what the PCAOB expects from the auditing firms. The firms are telling clients that they are not easing up on any of the previously implemented procedures because the PCAOB is telling the firms that they expect to see the same procedures documented.
08/05/2005 12:38:34 I have become somewhat of a cynic concerning whether the Regulatory System for public companies, as it currently is applied, can ever provide a level playing field for investors! This includes investors who have done DUE DILIGENCE!!
08/05/2005 12:44:28 It should be easier and cheaper for small foreign companies to gain access to US markets, perhaps with an accelerated filing process.
08/05/2005 15:43:46 none
08/05/2005 16:45:38 Sure, The SCO Group have vioated rule 33-7881 by not disclosing the fully well-known risks of the dispute of copyright ownership of the UNIX System V code, yet have never disclosed that fact in filing after filing for over two years now Although many letters of complaint have been filed, they continue to operate with impunity and arrogance, and their shills have stated that they have "insiders" in the SEC protecting this company from oversight. Is that an acceptable allegation, and why has no one brought those individuals to Justice yet?
08/05/2005 19:33:08 The relationships with both auditors and corporate attorneys are burdensome for small companies. SOX needs to be mitigated someway. Some of the question appear to indicate that someone is starting to think about the impact on small companies and may actually be willing to make some reasonable changes. Hope this is true.
08/06/2005 13:52:06 Access to audit firms by smaller companies is a real problem. The Big 4 often will not consider a smaller client. If they do, fees are outrageous because there are too few firms for there to be a free-market system to arrive at appropriate fees.
08/08/2005 09:29:48 Please establish for all edgar filers a section in each filer's data base to house all exhibits in one central location. Currently, it is very difficult to find exhibits, amendments therto, etc. Having a master would do wonders.
08/08/2005 14:06:10 None
08/08/2005 15:43:24 My personal bottom line request is for PCAOB to immediately grant relief from 2005 implementation of Sarbox 404 to 2004 non-accelerated filers who became accelerated filers in 2005. We are smaller companies who don't even have the smaller company rules yet. It is not fair and doesn't make good sense to require us and our auditors to comply with the larger company rules. These 200 to 300 companies need the same relief granted to the companies with under $75 million of public float at 6/30/05. Many of us have $76-100 million in public float at 6/30/05.
08/09/2005 09:30:31 1. The number of shareholders that trigger filing with the SEC should be increased from 500 to 2,000. More people than ever invest in the stock market, many buying small number of shares. As a result companies have many more stockholders. This number is out of date. 2. It's all burdensome...period!
08/09/2005 17:25:10 No.
08/10/2005 09:04:41 we believe the sec should change the 500 shareholder threshhold for registration, to something in the range of 3000 shareholders.
08/10/2005 16:00:18 Just please let rational thinking prevail and give smaller companies relief!!
08/10/2005 17:18:15 Only that section 404 can be better applied by the SEC and the auditors. Way too stringent in the first year of implementation.
08/11/2005 20:27:22 My view is that this whole process is a waste of time because at the end of the day, in my view, the SEC is not going to change the implementation of the rules. Most members of the Committee have axes to grind, they are either security lawyers ($$$); outside auditors (primary beneficiaries of SOX $$$); big corporate CFOs who don't have a clue as to the effect on smaller companies or CFOs from smaller companies that won't have much influence on the process.
08/12/2005 05:57:13 Audits of employee benefit plans that file on Form 11-K are now, thanks to Sarbanes Oxley, subject to duplicate effort in regulatory oversight - by the Department of Labor's Employee Benefit Security Administration (EBSA) and the PCAOB. I think PCAOB has enough on their plates without the benefit plan world, and suggest that legislation be introduced moving the oversight of these plan audits to the EBSA (members of whom are frankly more qualified to oversee such plan audits), while giving the EBSA similar "teeth" to what PCAOB has now to be effective.
08/12/2005 13:12:10 No.
08/12/2005 16:35:01 As a registered but non-listed small company (a master limited partnership), PLEASE, PLEASE, PLEASE EXEMPT US FROM SOX. THE RULES ARE DESIGNED FOR LISTED COMPANIES BUT WE INADVERTENTLY GET CAUGHT IN THE WEB.
08/13/2005 12:39:43 Wish that GASB pronouncements were available to the public on the GASB web site at no cost for the new pronoucements that GASB releases and expects the public and governmental entities to somehow figure out that a pronouncement was released.
08/15/2005 15:10:05 no
08/15/2005 15:14:45 No.
08/15/2005 16:33:43 We are a canned vegetable company supplying Americans and some 70 countries around the world with corn, peas and green beans. As you might imagine, it is a low margin business. We had to pack over 20MM cases of product or 480,000,000 cans of corn to pay our consultants and auditors to comply with section 404 of Sarbanes Oxley. That is alot of hard work for which the shareholders received nothing in return. We ask that the SEC give relief to small capitalization companies.
08/16/2005 09:51:21 No
08/16/2005 10:13:05 EDGAR is still much too cumbersome. Why can't a PDF file be accepted as a "filed" report?
08/16/2005 11:18:54 I believe it is unfortunate that our securities system has come to this. I believe the pendulem has swung to far in the direction of over regulation and it will ultimately hurt the markets, through disincentives for innovation and entrepreneurship. My managers and I spend far to much time working on and worrying about controls and documenting those controls that should be spent on growing our business and increasing the returns to our shareholders. Additionally, we are spending time researching the possibility of delisting to avoid the Sox requirements. We owe it to our shareholders to do this, since we are wasting resources that are rightfully theirs on documentation and reviews that add nothing to the bottom line.
08/16/2005 11:52:16 I believe that we have gone too far and need to come back a ways. Large companies need to be regulated closer than small cap companies - they can afford it. Other than that I think the accountant conversation rules need to be lessened so we can talk to our accountants. We simply do not have the resources or intellectual horse power to know everything. We therefore submit our filings to the accountants more or less in a crapp shoot. It is time consuming and difficult. The accountants are all afraid of their own shadows. They nit pick every little detail. I am not sure things are better for it nor do I believe the reporting better. To the contrary, if one reads all the footnotes and MD&A along with the financial statements they may be more confused than ever.
08/16/2005 12:15:34 We currently estimate that it costs our company around $750,000 per year to be a public entity (accounting fees, legal fees, Nasdaq listing fees, investor relations fees, consulting fees, etc. This amounts to almost 3% of our current annual sales. This is a high cost to bear to be a public company and that is why a lot of companies are looking at possibly going private. Anything that can be done to reduce these costs for small companies will be a big help in keeping small companies in the public realm.
08/16/2005 13:04:14 Only that accounting policy or financial reporting requirements should not be made by white papers from the big four CPA firms. There should be a comment period and the SEC should be part of the process of evaluating changes in accounting and financial reporting requirements.
08/16/2005 13:20:23 No
08/16/2005 13:25:32 I believe I've pounded enough on SOX folly, all other matters pale in comparison.
08/16/2005 13:27:00 I will summarize my thoughts. I think there should be the same standards for small and large companies. However, I believe the standards should contain more "common sense" and be more flexible. This will allow for proper scaling of the burden. Small companies should not be held to the same exact standard as large companies, but they should be held to the same relative standard. In addition, I believe the SEC should investigate the Big Four firms. They have too much power and small companies have very limited choices.
08/16/2005 14:08:05 The issue of whether or not the internal audit function should report to the audit committee should be addressed. It seems that auditors are reducing fees to companies with an audit committee relationship. Additionally, there have been rumors that auditors have left companies right before filing deadlines. The result is an almost certain delisting. The PCAOB needs to look at these situations if true.
08/16/2005 14:23:10 The most critical issue related to SOX 404 where the auditors are accountable only to the PCAOB and they have an open check book with unlimited budget funded by the public companies. The public accounting firms auditors are interpreting the SOX 404 rules. The large 10 accounting firms wrote thier own rules on 12/21/04 with respect to how to interpret deficiencies. The PCAOB is writing additional rules. None of the rules are subject to public comment or a legislative process. We need to instill an accountability at the audit firms and the PCAOB. Alternatively, we should just direct the PCAOB impose a tax on companies as a percentage of sales or earnings and to take total control of the auditing process - with a budget.
08/16/2005 14:54:27 1. There should be a variety of factors considered in deciding how SOX should apply to a company. We have a nine branch community bank in a MHC structure with revenue of $28 million. We haveonly four finance and accounting employees with college degrees yet we are an accelerated filer because of our market capitalization. We do not have the complexity of operations and controls of a large company and should not be an accelerated filer.
08/16/2005 15:15:12 No. Just please eliminate as much of the red tape as possible.
08/16/2005 16:16:04 The SEC will see a large exodus of smaller companies from the exchanges, without fast and necessary relief. There will also be an increase in frivolous shareholder suits due to 404 compliance as companies find a way to avoid this expensive, disruptive and time consuming over regulation.
08/16/2005 16:45:09 1. Through these questions is a reference to the impact on investors. While we think that reference is totally appropriate, we see many of the regulations and accounting pronouncements created in the "interest" of investors not being of any interest to investors. we need to look more closely and the true needs of the investor as opposed to the accountants and regulators perception of the investors needs. 2. The same rules today apply to public debt versus equity. We beleive the disclosure for public debt only should be reduced. 3. The cost of compliance of a large company as measured in the cost per share should bear some reasonable relationship to the cost of compliance per share for a small company. It does not. Why? The amount of reporting and cost of compliance falls disproportionally more on smaller companies. Read a Form 10-K on say General Electric and than one on a $50 million in revenues company. You know very little about the operations of General Electric when your done given its size but you know an awful lot more about the $50 million company. Is that the intent? Is that necessary? Is that the result of one size fits all? Should one size fit all? 4. Our experience shows that most investment decisions are made by professional investment managers. Either for portfolios they manage or clients they advise. They should be allowed to decide what they need and want rather than being given a 100+ page perspectus with data they have no interest in including a costly report on SOX 404. 5. Ask your friends and and associates how they make or get investment decisions. Do they read all of the disclosures provided. Do they read any of the disclosures provided? If 1 person out of a 1,000 people read an "important" fact about a company, is it truly an "important" fact?
08/16/2005 18:21:27 I will continue to push to remove the ability for public companies to issue earnings targets. I believe meeting published targets provides pressure to meet those targets. If you take away the pressure, I think you would reduce the incentive to fraudulently change results.
08/16/2005 18:35:41 No.
08/17/2005 12:36:00 I think the time frame for Form 4 reporting has been cut too close. The Edgar system is unwieldy for fast filing of single documents. Either more time or a more user-friendly system would be a big advantage.
08/17/2005 12:48:33 You are wasting shareholder money and executives time and prohibiting competent people from becoming Directors because of conflicts or liability.
08/17/2005 13:25:50 Public float should be considered in determining a "Public Company", not the number of shareholders. Perhaps a listing on some trading exchange should be the determining factor.
08/17/2005 18:49:20 I think we need to stay focused on protecting the investors which is where this all began. Management is the group that creates the frauds and erroneous financial statements and the poor business processes. Management is the group that spends the money that is raised from the public. Management should be held more accountable for the financials and the controls which is what SOX achieves and I would implore the committee not to get too caught up in making this easy - make it right.
08/17/2005 18:49:27 The single biggest thing the SEC could do to add value to stockholders is twist the FASB's arm to define EBITDA as a GAAP term
08/17/2005 21:27:12 No.
08/17/2005 22:55:14 Market cap is not the best measure for deteriming small vs large companies. Revenues are a much better measure, since companies typically set operating budgets and staffing levels as a function of revenue. SOX was an unfortunate over-reaction to misdeeds at large companies and has unduly burdened small companies.
08/18/2005 08:03:31 Yes, create a market for small size companies up to $500M, and the market for big size companies over $100M with different set of rules and regulations. For example, Nasdaq:below $500M, Wall Street:above $500M That makes sense, even for SOX.
08/18/2005 14:30:38 The dated an accelerated filer is determined (end of second fiscal quarter) should be changed to the end of the fiscal year with acceleration effective the 1st of the second fiscal year. Test 12/31/04, if qualify as accelerated filer it becomes effective starting 1/1/06. Without this change there is no deferral as SOX can not be complied with in six months.
08/19/2005 02:56:12 The SEC's publishing comment letters and criminal penalties for senior management will do more to improve public markets than SOX 404. Auditors are really taking advantage of SOX 404 - They blame the SEC and PCAOB for lack of guidance and are reluctant to integrate control and fiancial audits. While companies share some responsbility, the competition between firms is poor and they all have the same approach so corporations are between a rock and a hard place. Auditors tell us they can't help us evaluate accounting considerations (even with the new guidance) and yet they are really quick to point out issues once we've booked a transaction. I'd love to see increased individual partner accountability and responsibiltiy for their work as well as caps on partner compensation.
08/19/2005 11:44:44 Please consider industry specific relief to Section 404. The banking industry is heavily regulated and already has a record of strong internal controls, with regular audits and regulatory examinations.
08/19/2005 13:49:01 The principle issue that is most troubling to a small company in these regulatory times is the burden associated with SOX 404 Compliance. A company with revenues of $104M should not expect to pay 1.25% of revenue as a compliance cost; a major redirection of the audit efforts must be made to reduce this cost. For companies with an Internal Audit group the Company´s CPA firm must be directed to audit the work of this group rather than redo what they have already done and/or perform further testing to validate their work; this is merely redundant effort being expended with no value added.´ Additionally, audit firms must be allowed to give guidance to their clients. The auditor, through the course of auditing a client, obtains extensive knowledge about the Company and in doing so has the ability to offer advice that could benefit the Company´s operation. If a company has to go to a third party for advice in all likelihood the third party will not have the benefit that the audit firm has and will have to incur additional costs in getting up to speed.´ One of the major benefits of the SOX process is the creation and understanding of processes throughout the company; the result of now having documentation. Without SOX the effort to documents and understand all of the company´s processes would not have been accomplished. Through this process certain efficiencies were noted and changes made to controls that give management a greater confidence in the ICFR; however, this could have been accomplished without the extensive costs associate with having outside audit firms perform the current level of review over management´s assessment.
08/19/2005 14:50:07 Again, I'd like to emphasize that differential regulation by industry should be considered. As the holding company of a highly regulated thrift instituion, both the company and the bank are examined annually in addition to the annual audit. SOX 404 only adds to the burden and at a disproportiate cost.
08/21/2005 04:46:26 The regulations went too far and should return to normal. Put the villans in jail but do not punish every public company. The effects are more severe on small companies.
08/22/2005 14:21:23 No, I think you have put together a great questionnaire!
08/22/2005 15:47:02 We should be able to perform periodic audits without also performing rollforward assessment. the internal audits can not all be done during the last month of the fiscal year, and the rollforward requirement creates additional work. Why not allow auditing at any time, as long a key ares are audited with a certain frequency. Also, sample sizes should be smaller for small companies.
08/22/2005 17:54:28 The focus should be to create a vibrant economy, not punish or criminalize companies or their executives. The number of wrong-doers is extremely small, and can be more effectively and efficiently handled by less heavy-handed means than the currrent regulatory environment.
08/22/2005 19:13:09 I would love to bring the issue of "emerging securities markets" to the Advisory Committee's attention. We would like the committee to advice us on the existence of a "investment adviser" or "investment company" that specializes in the emerging capital market of third world stock exchanges especially African securities markets. There is a growing trend of immigrants of African decent that want to invest in the capital/securities market e.g. ghana, south africa, nigeria, kenya, mozambique etc. These markets are very profitable and investors need to and want to sieze the opportunities available. We have been talking to reputable investment firms in these countries and the talks are very encouraging. Our concern now is the modalities and process involved in establishing this market. Kindly help us with this as some of our investors are willing and ready to start investing. This company is a small business and there is the possibility of growth and expansion in this area as we have seen recently in the other aspects of emerging market including the housing sector. I have called the NASD for clarification but nobody seems to know how to go about this. Do the securities firms or investment firms need to affiliate with a USA investment firm? Does the advisor need to get the investment adviser's license (series 65)? Even though he won't be dealing in any registered securities traded in the USA.? The safety and protection of the investor is a priority and concern. Laws have been enacted to encourage such investing for economic growth in these emerging markets. We/I apologise if this not a part of the issues this committee is resolving at this point but your advice and consideration on this "upcoming new trend" is important. Kindly respond. Thank you.
08/22/2005 19:27:18 Focus on entity controls and making Board assess the culture of the company. They will know quickly by talking to a sampling of emplyees if they have an enviroment they should be concerned about. Make the directors confirm they have done this step. It would bring problems to light with very little costs! Also, you should allow this to spell check! I'm a horrible typist and this is too long to edit.
08/22/2005 20:10:17 There really needs to be some compromise to the one size fits all SOX and 404 rules. There is no way a small company can be in total compliance. Going private and diminished profits damage the shareholders you are trying to protect. There is no way to be in compliance, there is no way to survive as a small public company. And the shareholders are not just the "public" shareholders who purchased on a whim or after some research, the shareholders include insiders who have worked hard for many years to make the company successful and profitable. While there were people hurt by Enron and Worldcom, there are also people who have been made wealthy from reliable and legitimate public companies. Small companies as well as large companies have operated without scandal, so punishing every public company and making compliance with rules so obtuse they are not even understood by accountants does not restore public confidence. And it does not prevent another Enron. It only puts smaller companies at risk of not surviving.
08/23/2005 07:47:56 Just overall comment that the direction of SOX is positive however the current roles are too extreme and too much to handel for a small compny. It is time to do it a lot lighter
08/23/2005 15:56:30 Consider charging a fee to every small public corporation based upon market capitalization. Put the fee into an Internal Control Attestation fund. Use the money in this fund to periodically and randomly audit the effectiveness of the companies internal controls - similar to an IRS audit. This would force companies to document and self test their controls but would save substantial money in annual attestation fees.
08/23/2005 16:49:34 The overall reporting requirements could be modified so as to reduce the time involved and thereby reduce the cost.
08/23/2005 21:11:03 The SEC and PCAOB should become more aggressive in investigating and underanding the cost implications of SOX and related regulatory actions on all companies. The "law of unintended consequences" is nowhere better demonstrated than Section 404 of SOX compliance. Likely, compliance with Section 409 will have the same impact when the spotlight shines in that direction.
08/24/2005 16:19:27 The survey is good. I hope the business community at large is represented on the committee. I beleive SOX should be outlawed, Proxys are a waste of money and we need to simplify regulations. We need smarter auditors and more internal controls won't get us there. They need to be business smart and they would be more aware of people who are criminals.
08/24/2005 16:26:56 The above answers reflect both our view of the environment surrounding the implementation of Sarbanes Oxley for smaller companies and the experience of our company in particular.
08/24/2005 20:16:09 Increase the 500 shareholder limit to 2000. Change the definition of accelerated filer from 75MM to 500MM. Another comment: this survey was very good and I am pleased that you asked for our input. BUT, it was very long and I personally spent several hours thinking through my answers. I did not have the time to answer all your questions. The time I did take is time I can ill afford. I think the reason you do not hear much from small businesses as we do not have the staff nor the time to give our input on issues that effect us. We rely heavily on our inddustry representatives such as the Independent Community Bankers Association and the ABA. We hope you know they are our collective voice. Thank you for the work you are doing on behalf of the small business industry. We need your help on giving us some relief from the burden of SOX 404 and SEC reporting!
08/25/2005 15:23:41 No.
08/25/2005 16:04:36 The advisory committee should read our SOXlite white paper located on our web site. It demonstrates how smaller companies can comply with SOX for 50% of the cost they otherwise would have incurred. www.controlsolutions.com
08/25/2005 17:02:43 No.
08/25/2005 17:12:45 I have one question concerning "market capitalization" before I can prpoerly repond to the above questions. Does this encompass equity only? How about a JV that has only publicly traded debt? James A. Coomer firstname.lastname@example.org
08/26/2005 12:41:42 No.
08/26/2005 13:07:22 As referenced above CNB Corporation is a one bank holding company. We have about 1007 shareholders, none of whom own 10% of its shares. Citizens National Bank, chartered in 1931, is the only subsidiary of the holding company. The bank´s market area is three rural counties in northern Lower MichiganCheboygan, Emmet and Presque Isle counties. Our stock is traded through a procedure whereby we put seller and buyer together with the use of a notice that sets forth the seller´s name and phone number, number of shares, and price desired by the seller. All of our shareholders, and any third party requesting inclusion, receive notices. This procedure is the subject of a 1989 SEC no action letter. CNB registered with the SEC in 1995 when the number of its shareholders hit 500. We are a non-accelerated filer. Notwithstanding the additional burden this caused our staff, as well as additional legal and accounting fees we felt, at the time, that our desire to have broad community ownership and market for our stock warranted the additional cost and staff time. In 2002 when Sarbanes Oxley became law our board revisited the wisdom of continuing being a listed company. However, given the number of our shareholders we would eliminate in order to reduce their number to 300, the discussion was not seriously pursued. This discussion was recently revisited by our board when we fully realized the implications of Section 404 as well observing the number of Michigan banks in our situation that have delisted. However, with the SEC´s recent one year extension of the compliance date for internal control reporting and its creation of the Advisory Committee on Smaller Public Companies the delisting discussion is on hold. In its deliberations I encourage the Advisory Committee to focus on a number of points. First, how many smaller companies have delisted as a result of Sarbanes Oxley and as a result how many shareholders have been deprived of their ability to own shares in those companies? It is my understanding most companies to delist do so with a reverse stock split. This means shareholders are literally forced out of their holdings albeit for a fair price. The obvious question, is this good public policy? Second, should the number of shareholders which triggers SEC listing be increased from its present 500? Would that much shareholder protection be compromised if the number were increased to say 3,000? Have circumstances in terms of law, regulation, information flow, accounting practices, director oversight, and overall corporate governance changed enough since the 500 number was promulgated to assure protection short of Section 404 compliance? Would audited financial statements suffice? Third, is a carve out for insured depository institutions appropriate? As you are aware banks are heavily regulated to assure financial safety and soundness and appropriate corporate governance. While many companies are regulated banking is set apart by the examination regimen it comes within.
08/26/2005 16:22:08 None
08/27/2005 11:21:03 Yes: Smaller accounting firms lack adequate guidance to perform properly. It is not about intelligence or auditing skills. SEC rules are frequently too vague to understand without working with them a lot. Without clearer rules and more assistance, the current regulatory emphasis will fail. PCAOB and SEC will keep beating them up, and no clear improvements will occur. Many new smaller accounting firms are entering the market because of the greater fees (audits of public companies cost at least double what audits of similar private companies cost) obtainable, but their skill sets aren't any better.
08/29/2005 10:21:15 We have no other matters to discuss at this time. In summary, it is our contention that while admirable in theory, SOX Section 404 in particular does not solve the problem underlying capital market accounting and reporting failures, which is a lack of ethics within upper management of a small percentage of organizations. As such, we believe there should be a better and more cost-effective means of addressing these ethical failures, be that more stringent criminal enforcement of our laws requiring accuracy in reporting where gross negligence or willful fraud is identified or via some similar means to punish the guilty only, not the companies trying to compete and do the right thing. We thank you for the opportunity to voice our concerns relative to SOX, principally section 404, and other accounting and reporting issues.
08/29/2005 10:21:25 We have no other matters to discuss at this time. In summary, it is our contention that while admirable in theory, SOX Section 404 in particular does not solve the problem underlying capital market accounting and reporting failures, which is a lack of ethics within upper management of a small percentage of organizations. As such, we believe there should be a better and more cost-effective means of addressing these ethical failures, be that more stringent criminal enforcement of our laws requiring accuracy in reporting where gross negligence or willful fraud is identified or via some similar means to punish the guilty only, not the companies trying to compete and do the right thing. We thank you for the opportunity to voice our concerns relative to SOX, principally section 404, and other accounting and reporting issues.
08/29/2005 11:21:29 No.
08/29/2005 14:18:47 No.
08/29/2005 14:53:30 Yes. The definition of a small company should be at least a $300 million or preferably a $500 million market cap. It would be even better to define a small company in terms of its annual sales (something under the company´s control) rather than in terms of market cap. The market cap of small technology companies that are in cyclical businesses can easily change by a factor of four or five times in a few quarters. I do not know of any small public company that has had a problem, which had SOX existed, that SOX compliance would have helped or prevented.
08/29/2005 15:31:21 None
08/29/2005 16:20:53 No
08/29/2005 17:09:27 The listing fees of the exchanges have increased substantially and at the same time as our other SOX compliance related expenses.
08/29/2005 17:12:26 Nothing else other than I support the resolution that came out of the SEC Advisory Committee on Smaller Public Companies in Chicago on August 9, 10 and also the recommendations of the Size Subcommittee. I also strongly support permanently keeping the reporting deadlines at 75/40 days for accelerated filers (with higher threshold for who is an accelarated filer) and 90/45 days for small business issuers (with higher threshold for who is a small business filer). I beleive all these changes make sense and have with spread support. Thank you for the opportunity to provide our input.
08/29/2005 17:12:43 Smaller companies should be reviewed by the SEC on a longer rotation as the cost to respond to an SEC comment letter is significant.
08/29/2005 17:36:32 The curent rules are simply to burdensome for small comapnie sand we need relief to survive and prosper.
08/29/2005 19:02:32 No.
08/29/2005 19:05:24 The primary concerns we have are summarized as follows: Inappropriate risk focus Significant accounting failures, such as Enron, WorldCom, HealthSouth, etc. generally relate to tone at the top. Under SOX 404 rules, other processes, such as transaction processing, receive as much emphasis as tone at the top. We are a relatively straightforward small company (market cap under $500 million, 3 primary locations, no manufacturing or distribution), yet, to comply with SOX 404, we identified 66 sub-processes, 350 risks, and 2,770 controls (of which approximately 1,600 were tested). We believe our resources would be better utilized through a tight focus on tone at the top issues rather than a diffused focus on numerous sub-processes which, based on experience, are unlikely to be the cause of a significant accounting failure. Form over substance The testing emphasis is on mechanical compliance. For example, historically our CFO gave her verbal approval to file SEC documents. In a small company environment with daily interaction between the CFO and the internal preparer of the document, this informal approval process works well. However, in order to provide evidence of approval, we are now required to maintain a written and signed approval to file. This is one of many examples where the key to passing our SOX 404 testing work was to have initials on a page. This regulatory overkill provides little benefit to investors, but takes tremendous time and effort to collect, file, and monitor all necessary initials. Limitations on interaction with auditors A small company is unable to hire expertise in all areas. As a result, we rely on advice from various outside professionals on a variety of topics, such as insurance, tax, legal issues, and accounting issues. Although we value the advice received, in all cases management is responsible for the final decision. We believe this model, which we use with other professionals, should also be the model used with our auditors that we have unfettered access to their advice, but management accepts responsibility for the final decision. Volume and complexity of accounting literature The volume and complexity of the accounting literature represents a challenge for any company, let alone a smaller company. While the analysis and disclosure related to any one standard may be manageable, the extensive analysis and disclosure required by many recent FASB, EITF, and other pronouncements places an undue burden on companies in general and smaller companies in particular. Despite the best efforts of companies to fully comply with the standards, this proliferation of needlessly complicated accounting standards will inevitably result in numerous restatements. As an example of the complex standards, for share-based compensation we are now working to digest a 286 page pronouncement, a 64 page SAB, and a 193 page interpretation from our audit firm. In closing, we believe the one size fits all approach has created a bureaucratic nightmare for smaller companies that has resulted in significant costs and inefficiencies. Furthermore, the current form over substance approach of SOX 404 compliance provides limited assurance to investors. We believe a more tailored approach that focuses on a few high risk areas, such as tone at the top, can provide substantial assurance to investors without damaging the entrepreneurial spirit of smaller companies.
08/29/2005 21:00:01 No, but thank you for the opportunity to share our views.
08/29/2005 22:40:58 Small Companies should be exempt from SOX 404, the high costs far exceed any tangible benefits. These high costs will have a negative impact on earnings and the stock price of small companies. The results will be a decline in shareholder value, and a decline in the stock price, which was not the intention of the SOX 404 Act.
08/30/2005 15:04:16 The SEC review of regulatory filings focuses on the trivial and mundane. One could reason that if all comments from the SEC were ignored and not addressed - the investor would be "none-the-worse". The SEC should be required to provide a more meaningful beneficial role, not the role of the nit picker. In general, the SEC website could also be improved with better search engines and current forms that can be automatically downloaded.
08/30/2005 17:08:46 No.
08/30/2005 18:26:14 Our company was classified as an issuer under Section 15(d) of the Securities Exchange Act of 1934 (Exchange Act) following our filing of a registration statement which required us, under the Exchange Act, to file periodic information and reports during the fiscal year in which the registration statement was declared effective. We were classified as an issuer until the Section 15(d) statutory suspension of reporting obligations came into effect, January 1, 2005. Thereafter, we have been considered a voluntary filer because our indenture requires us to comply with the reporting requirements of the Exchange Act. Our securities are not listed on a national exchange and are offered only to qualified institutional buyers. Our investors tend to have longer-term investment objectives and obtain little benefit from shorter deadlines and extensive interim reporting. As a voluntary filer, we are required to adhere to most of the requirements of the Sarbanes-Oxley Act (SOX) including section 404 and feel that the substantial cost and burden of complying with section 404 outweigh the intended benefits. In anticipation of the new requirements of SOX, we have hired consultants to assist us and started our compliance work. The need for consultants was due to limited internal resources and the substantial amount of work anticipated in complying with section 404. This initial consultant engagement is estimated to cost approximately $1,500,000, which excludes additional costs for our external auditors´ assessment and opinion on the effectiveness of our internal controls, related internal costs, and on-going costs for the future maintenance related to compliance with section 404. We understand the need for section 404 and its well-intended benefits, but are not convinced a one-size fits all approach is appropriate. We appreciate the efforts of the SEC and PCAOB in trying to address some of the section 404 issues with new guidance for small companies.
08/30/2005 18:48:02 There is the whole question of naked shorting but that is too long to discuss, here.
08/30/2005 21:07:56 no.
08/30/2005 21:39:41 Not at this time.
08/30/2005 23:57:28 No
08/31/2005 08:31:59 The concept of tightening controls is good. However, the documentation requirements are extremely burdensome and do distract management away from operating the business. We do think the SEC should reconsider the filing deadlines for all SEC companies. It will be very difficult to meet the shrinking deadlines without a significant increase in staffing costs.
08/31/2005 10:19:14 In summary, large and small companies need independent directors that are representatives of the shareholders (not management)and are focused on shareholder value. Smaller publicly traded companies need to comply with SOX but should have a longer time to perform the implemention and less frequent auditor testing of controls (every 2-3 years). The auditors should be allowed to help these companies with the implementaion project - this does not present a material risk for the shareholders. Non-publicly traded companies should not be required to comply with SOX; accredited investors or private investors should be able to keep a handle on what is going on regarding their investment in a non-publicly traded company.
08/31/2005 14:00:12 Currently the 404 audit for nonaccelerated filers is for year-ends after July 15, 2006 and may possibly be extended to July 15,2007. These dates cause uncertainty and hardship for small companies with July or September year-ends. Those companies still do not know if a 404 audit will be required for fiscal 2006, which has already begun for 7/31 year-ends. Therefore, small companies with a July to September year-end are already expending sums on consultants and internal resources to comply. The SEC should consider year-ends after December 15 as the starting point for compliance with 404 as the FASB generally does for accounting pronouncements. Also, the SEC should be aware that some small companies could exceed the $75 milliom threshold for the first time in fiscal 2006 and thus have both their initial 404 audit and their initial 60 day ( down from 90 curently) 10-k at the same time. Even the largest public companies were not required to accelerate their filings for the first time and perform their initial 404 assessments in the same year. Further, a small cap on the cusp of $75 million would not be certain of this until the end of it's second quarter. The SEC needs to ensure no company is required to perform an initail 404 audit and initial accelerated filings in the same year (proboably by delaying the accelerated filing requirement).
08/31/2005 14:25:37 The SEC should: 1. Work to get a small company exemption to SOX. 2. Revise the registration or deregistration threshold to 3,000 shareholders and market capitalization to $100 million or more. 3. Set new minimum standards for 10Q and 10QSB to remove alot of excess verbage used for the institutional investors and make the report so the average investor can understand.
08/31/2005 14:32:46 I find it interesting to note that reform under SOX stems from fraud and misconduct resulting in company failures, situations that could have potentially been discovered through better auditing procedures. Who are the monetary beneficiaries of SOX so far? The same auditors that failed to find fraud and misconduct in the first place. Instead of one financial audit, they now are required to perform an internal control and financial audit simultaneously, resulting in substantial increases in audit fees. They can also be retained by non-audit clients to assist in their 404 compliance efforts, creating additional revenues. Who is the real winner, the investor or the auditor?
08/31/2005 16:05:33 Public reporting and SOX compliance is very costly for small companies such as ours. To have small companies and large day trade companies in the same catagory seems very excessive to the smaller companies. The SOX regulation was put into place to make sure auditors and legal councils do there job in a proper manner. Now that more regulations are put into place the accounting and legal firms are the ones that are benefiting from the items that should be done. More regulations should be imposed on them not companies that have to fund the expense of the programs.
08/31/2005 16:13:45 The Advisory Committee should examine the reporting requirements as they pertain to company size and number of stockholders. These requirements have not been adjusted since their enactment during the 1960's.
08/31/2005 16:16:33 29. Most of our thoughts and opinions have been answered throughout this questionnaire. However, we would like to reiterate certain points to emphasize our position relating to SOX and other regulations. First of all, reducing the amount of time required to file 10-K and 10-Q creates a major burden for our company, as well as many other companies. Decreasing this time frame does not lead to an increase in reliable financial statement information. It does however, lead to increased estimates and judgments. Investors generally prefer reliable information as opposed to quick information. Also, the market capitalization limit should be raised to $1 billion to reflect current market conditions for non-accelerated filers. Materiality limits should be analyzed in greater detail for SOX compliance. In the first year of implementation, auditors would discuss minor findings that would have very little impact on our financial statements. Based on our own materiality assessments, our company allocates our resources based on risk and exposure. Therefore, we find it counter productive to document and test immaterial processes, sites, and controls. The PCAOB should continue to disseminate guidance to auditors and public companies for SOX compliance. Finally, we believe that the accounting rules have become extensive and difficult to understand. Though certain companies and individuals have compromised the system, the rest of the law-abiding companies should not be penalized. Throughout history, people have circumvented systems and committed fraud and other scandals. The control environment is the most important aspect of all companies to help deter individual wrongdoing. It is much more difficult for smaller companies to absorb the costs of increased regulation to deal with this issue.
08/31/2005 17:16:33 Internal control certification requriements potentially hinder communciations between management and the outside auditors resulting in potential inefficiencies. I don't see how that serves the shareholders.
08/31/2005 18:22:30 The SEC independence rules can create an unnecessary burden on smaller public companies in an initial public offering. Many smaller companies use their auditor for services permitted under AICPA independence rules but not permitted under SEC independence rules. They may use such arrangements for years, with no thought of going public. If a need, or opportunity, to go public arises, those audits cannot be used because the auditor is not independent. We suggest that smaller public companies be able to include in offering documents auditor reports where the auditor was independent under the standards that applied when the audit was conducted. This approach would reduce cost, enhance speed to market and not pose undue risks to investors.
08/31/2005 18:23:08 1. Yes, we believe the definition of a smaller company needs to be re-defined promptly. The current public float test of less than $75M includes less then 1% of all U.S. public company´s total market capitalization. In comparison, fund managers often consider a company with a market cap of less that $1B to be a smaller company, which is significantly larger than $75M. There is still time to impact filers for 2005 if the definition is modified soon; otherwise internal resources will continue to be spent and additional audit fees will be incurred. I do believe Market Cap is the measurement to use, as that is what is at stake in the market place. 2. SOX has impacted the availability of and competition for qualified candidates in accounting, IT, internal audit, etc. Smaller companies can´t compete with the salaries larger companies can afford to offer to attract good candidates.
08/31/2005 20:55:07 Not at this time.
09/01/2005 14:30:54 This question raises the question, How small is small? In the stock market of 2005 one could make the case that a company with a market value of under $100 million has no business being publicly traded. However, many companies were already public before SOX was instituted. These companies are between the proverbial rock and a hard place. There is now no escape from the burdens of SOX and other stringent regulations. The escape from these burdens, that is, going private, is also difficult and expensive and lawsuits are almost a certainty. The additional demands on management time of small companies cannot be over emphasized. One must be aware that in small companies executives often wear more than one hat. The CEO is often also the most important and busy marketing person, the COO also deals with customer relations, the CFO is involved in nearly every facet of operations and acts as controller as well, and so on. Adding the additional burdens of complying with SOX means that more outside help must be paid for. Accountants and lawyers must be paid for additional advice and counseling. Nearly every decision made must be run by these two groups to make certain management is not making a mistake. The penalties for even inadvertent mistakes are heavy. The reader of this paragraph should ask themselves how many more hours would be added to their week (or subtracted from constructive work) if they had to document nearly every decision made, concern themselves with every E-mail sent, not by just themselves, but others as well and spend extra time with lawyers and accountants. This list could be expanded, but the point is obvious. A CEO of a public company is now responsible for actions or inactions for employees who are not, and cannot be, in daily direct contact. He is responsible for bookkeeping mistakes far outside his purview. And, his company cannot afford the highly trained people a large company can afford. In a large company more personnel can be hired to oversee and double check on lower level employees - more money can be spent on lawyers and accountants, without a large percentage impact on profits. Lawyers, accounts and consultants charge just as much per hour to small companies as large ones. In conclusion, most small companies have relatively simple businesses. They do not have multiple divisions and far-flung operations. Management of these companies, particularly those that are growing, is spread thin just managing day-to-day operations. The small additional comfort and information that SOX might give to the public market is not worth the cost in and management time and company expense. In the end, honest people behave honestly and dishonest people will behave dishonestly. Generally, the managements of small companies are also owners. Twisting facts and figures for the next quarter, lying in press releases and otherwise misleading the investment community does not profit them in the long run. It is far better for investors and the US economy to relieve these managers from the burdens of SOX and let them get back to running their businesses. There were sufficient controls and procedures in place before SOX to protect investors in small companies. Just imagine how much time the members of top management of our company spent completing this questionnaire since there is no second level to whom the job could be delegated!