House Weighs Regulatory Reprieve for Small Firms

WASHINGTON (TheStreet) -- The House Financial Services Committee plans to conduct a roll-call vote this week on an amendment that would give small businesses more time to adhere to the Sarbanes-Oxley Act of 2002.

The amendment, proposed by Congresswoman Carolyn Maloney, a Democrat from New York, would require the Government Accountability Office and Security Exchange Commission to investigate the benefits of requiring small public companies to adhere to section 404 of the law. Section 404 requires public companies to audit their financial reporting controls and share the conclusions in annual reports. If the amendment passes, small businesses wouldn't have to comply with these rules, which have been criticized as too costly, until June 2011.

Small businesses have kept the Sarbanes-Oxley Act at bay for seven years. The initial extension in 2002 gave them more time to meet the mandate, a decision that has been renewed every year since. But the SEC said last month that there would be no more extensions.

"It's important for all public companies and their auditors to act with deliberate speed to move toward full Section 404 compliance," SEC Chairman Mary Schapiro said in an Oct. 2 statement. Extensions for companies whose publicly owned shares total less than $75 million will expire next summer, starting with the annual reports of companies with fiscal years ending on June 15. Passage of the Maloney amendment would give small firms more time to comply.

Critics argue that auditing costs are a bigger burden for small firms than major companies like Wal-Mart Stores(WMT) or General Electric(GE). That said, many experts say seven years should have been enough time for small businesses to prepare. They say that all public companies must comply to prevent fraud.