Subject: File No. 265-23
From: Paul Frenkiel
Affiliation: AICPA

March 13, 2006


I have never commented on policy exposure drafts in the past. However, as a result of the toll that the Sarbanes Oxley requirement is taking on small companies and the economy, I feel it is my duty to do so. Based upon 20 years of experience in public accounting and as a chief financial officer, the Sarbanes Oxley requirements are disproportionately higher in cost compared to effectiveness in preventing or detecting the types of accounting errors and intentional misstatements intended. The economics of preventing disasters on the scale of Enron and WorldCom clearly justify expenditures for additional controls at like size institutions. But there is no question that the hard dollar cost of Sarbanes for smaller companies, disproportionately exceeds benefits to the economy. Even in isolation, I am estimating that Sarbanes costs might range between 1-3% of small company profitablility, and in some cases much more, yet actual economic benefits would only offset a minute proportion of that drain on the economy. If those costs are added to current internal audit, external audit, and related legal fees, the amount of corporate productivity lost is staggering. For regulated industries, such as banks, which are also subject to regulatory exams, costs are further increased. The ultimate price we will pay as Americans, is that our economy will be less competitive than our more cost effective and savvy global competitors. The continuing deterioration or outright loss of some of our most basic industries calls for an immediate sense of urgency to determine the proper balance between regulation, based on a realistic cost benefit ratio. Gentlemen, you have the opportunity to do this right now, with this issue, and I urge you to do so.

In conclusion, I would request as much relief from Sarbanes Oxley for smaller companies as you are willing to cede. As an alternative, a standard , defined list of corporate controls could be formalized, which would necessarily limit costs. These could also be adopted for larger companies. Too much time and expense is incurred for items which are not material, which emphasize form over substance and which will not prevent the types of problems we have experienced.