April 3, 2006
As any small company (less than $75M market cap) poised for significant growth, Softbrands must strike a balance between responsible governance and profitability. We believe that this balance can be achieved through the combination of a strong foundation of governance and effective internal controls and does not require external auditing for Sarbanes Oxley Section 404 compliance.
SoftBrands has laid the foundation for responsible governance through the maintenance of a strong, effective audit committee and the employment of an experienced internal auditor. Although not required to obtain external auditor testing for Sarbanes Oxley Section 404 compliance in either 2005 or 2006, the company has implemented Section 404 internally. Documenting our internal controls and performing managements assessment of the design and operating effectiveness of those controls has resulted in SoftBrands incurrence of approximately $2M in consulting fees over the past two years. The company took this approach (and absorbed the resulting expense) in order to understand its control strengths and weaknesses for its Section 302 certification process and to build the foundation for a strong control system. Adding external testing would significantly increase these costs, and we do not believe the result would justify the expense.
We have reviewed the Exposure Draft of the Final Report of the SEC Advisory Committee on Smaller Public Companies and whole-heartedly agree with the committees recommendations to:
--Establish a system of scaled securities regulation for smaller public companies
--Stratify mircrocap and smallcap companies
--Exempt microcap and smallcap companies from external 404 testing
--Require management to assess its internal controls and
--Achieve certain governance standards
We believe that the cost relief in not requiring external control testing will assist companies in achieving their growth and profitability targets while the remaining requirements will provide standardized governance.
We appreciate the committees willingness in providing us with an opportunity to comment on this exposure draft.