An SEC advisory committee has overwhelmingly recommended that the agency grant relief from Sarbanes-Oxley (SOX) reporting and auditing requirements for small companies, but the panel does not have the influence on the SEC that the pharmaceutical and biotechnology industries may believe, an agency spokesman says.
The SEC's Advisory Committee on Smaller Public Companies recently voted 18-3 to reduce SOX requirements as part of recommendations submitted to the agency. Those recommendations include a call for relief from external auditor reviews for smaller companies, such as those with less than $250 million in revenue. The report is available at http://www.bio.org/tax/sox/20060418.pdf (http://www.bio.org/tax/sox/20060418.pdf).
But this recommendation is not likely to have the same impact on SEC decisionmaking as advisory panels do at the FDA, agency spokesman John Nestor told FDAnews. Unlike at the FDA, where the advisory panels are the experts that the agency usually relies on for certain policy decisions, the SEC commissioners, not the advisory panel, are the experts, he said.
The advisory panel only serves as one of many sources of information that the SEC will consider, he added. Among these sources is a May 10 roundtable the agency is convening on the impact of Section 404 of SOX, which requires publicly traded companies to state and assess their internal controls and procedures for financial reporting. The SEC has not set a deadline on a decision whether to ease these requirements, Nestor said.
The panel's recommendations echo changes that the Biotechnology Industry Organization (BIO) had sought in the Section 404 SOX requirements. BIO has argued that the cost and time burden of meeting the requirements impede innovation by reducing the money these companies have to devote to R&D.
"After months of interviewing and meeting with stakeholders representing all industries, it is clear that the advisory panel understands the impact of the unintended consequences of the Sarbanes-Oxley Act," said Jim Greenwood, BIO's president and CEO. "BIO applauds the advisory panel's final report and recommends that the SEC expeditiously take action to incorporate the recommendations in reforming section 404."
However, the Consumer Federation of America, a vocal opponent of Section 404 exemptions, argues that sufficient oversight is the price that companies pay for the privilege of raising public funds. "These companies are risky enough for investors" without sufficient oversight, said Barbara Roper, CFA's director of investor protection.
The advisory panel's recommendation also has relatively little weight because several current and former SEC commissioners have come out against efforts to relax the Section 404 requirements, she said. Current commissioners, such as Cynthia Glassman, are opposing the move, and former commissioners, including Richard Breeden and Harvey Pitt, also oppose this, she added. (http://www.fdanews.com/did/5_80/)