February 23, 2005
First of all I would like to applaud the SEC for convening a meeting to discuss the effects of SOX 404. Second I would like to encourage the SEC to allow additional time for smaller filers to comply as I believe I have read this is under consideration.
One very large problem for small filers, SB and small cap regular filers, is the lack of much guidance for these companies that may have segregation of duty issues, lack of formal policies and controls, and heavy management involvement in the day to day affairs of the business. COSO has promised a small business version this summer and hopefully that will shed some light. As you know auditors have put little reliance on internal controls in these types of companies and done entirely substantive audits, compared to the more risk based approach in larger audits. The concern is how to comply with the securities laws and still keep the cost of compliance reasonable enough so these companies can raise capital in the markets. My sincere hope is that an internal control standard will evolve for small companies that makes sense in their environment and yet will satisfy the concerns of the SEC of protecting the investing public. I think the most fruitful thing to come out of this meeting is progress toward a workable standard for small companies.
Michael McConnell, CPA