Congress passed the Sarbanes-Oxley Act to help protect investors and restore investor confidence. While the act has generally been recognized as important and necessary, some concerns have been expressed about the cost for small businesses. In this report, GAO (1) analyzes the impact of the Sarbanes-Oxley Act on smaller public companies, particularly in terms of compliance costs; (2) describes responses of the Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) to concerns raised by smaller public companies; and (3) analyzes smaller public companies' access to auditing services and the extent to which the share of public companies audited by mid-sized and small accounting firms has changed since the act was passed.
Recommendations for Executive Action
|United States Securities and Exchange Commission||In light of concerns raised by the SEC Advisory Committee on Smaller Public Companies and others regarding the ability of smaller public companies to effectively implement section 404 of the Sarbanes-Oxley Act, the Chairman of SEC should assess the guidance available, with an emphasis on implementation guidance for management's assessment of internal control over financial reporting, to determine whether the current guidance is sufficient and whether additional action is needed, such as issuing supplemental or clarifying guidance to help smaller public companies meet the requirements of section 404.|
|United States Securities and Exchange Commission||In light of concerns raised by the SEC Advisory Committee on Smaller Public Companies and others regarding the ability of smaller public companies to effectively implement section 404 of the Sarbanes-Oxley Act, the Chairman of SEC should coordinate with PCAOB to (1) help ensure that section 404-related audit standards and guidance are consistent with any additional guidance applicable to management's assessment of internal control and (2) identify additional ways in which auditors' can achieve more economical, effective, and efficient implementation of the standards and guidance related to internal control over financial reporting.|
|United States Securities and Exchange Commission||If, in evaluating the recommendations of its advisory committee, SEC determines that additional relief is appropriate beyond the current July 2007 compliance date for non-accelerated filers, the Chairman of SEC should analyze and consider, in addition to size, the unique characteristics of smaller public companies and the knowledge base, educational background, and sophistication of their investors in determining categories of companies for which additional relief may be appropriate to ensure that the objectives of investor protection are adequately met and any relief is targeted and limited.|