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TheStreet Open House

Small Biz Sits Out Sarbanes-Oxley

One of the key provisions of the Sarbanes-Oxley Act was that corporate managers inform investors about just how well they were minding the store.

That provision, known as Section 404, requires companies' executives and their auditors to assess the state of companies' internal controls. Internal controls are a system of checks and balances over financial accounting that are designed to prevent corporate fraud.

But because of a series of delays by the Securities and Exchange Commission, small companies still don't have to comply with the provision, four years after President Bush signed the landmark law.

What's more, they may not have to anytime soon if their advocates in Washington, D.C., continue to have their way.

That notion has some corporate watchdogs worried. There's a growing buzz in Congress and in other political circles to revise, or even roll back, the internal-controls requirements, says Lynn Turner, managing director of research at Glass Lewis, a firm that advises institutional investors about how to vote corporate proxies.

"The real purpose behind the SEC effort is to delay long enough to prevent the law from ever becoming implemented," warns Turner, the commission's former chief accountant.

For the most part, small-business advocates who have pushed for the delays insist that repeal of Section 404 is not their goal. It's important not only for small companies to have internal controls but also for them to report on those controls, they say.

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