N.Y. Congressman Leads Effort To Amend Sarbanes-Oxley Act
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With post-Enron reporting regulations driving some American companies overseas, a New York lawmaker is backing a bill to ease the burden.
Rep. Gregory Meeks, a Democrat of Queens, is leading a bipartisan push in the House to amend a 2002 law that imposes strict and expensive reporting requirements on public companies.
Along with two House Republicans, Mr. Meeks, who represents the 6th District in southeast Queens, is sponsoring a bill that would exempt smaller public companies from a disputed provision of the Sarbanes-Oxley Act of 2002, which aimed to curb corporate malfeasance in the wake of the Enron and World-Com accounting scandals.
The provision, Section 404, requires companies to report on their internal financial controls and to hire an external auditor to verify that data.
Critics of Section 404 say the costs of complying – especially the hiring of external auditors – can run in the millions of dollars, hitting smaller companies much harder than Fortune 500 firms.The result, Mr. Meeks said, is that emerging firms are heading overseas to public markets in London and Tokyo, and hundreds of already public companies each year are buying out stockholders and reverting to private ownership.
“We cannot lose our lead in America, and particularly here in New York,” Mr. Meeks said. The congressman was meeting in Midtown yesterday with minority business owners to hear their feedback on his proposal. Mr. Meeks’s bill, which is co-sponsored by Reps. Tom Feeney of Florida and Pete Sessions of Texas, would exempt companies that have a market value of less than $700 million, annual revenue of less than $125 million, and fewer than 1,500 shareholders.
The proposal would also change auditing requirements so that after the first year of compliance, companies would be subject only to random audits. The Securities and Exchange Commission would administer audits to at least 10% of public companies.
The lawmakers introduced their bill in the House last week only hours before the SEC announced it would issue guidelines aimed at making compliance with the Sarbanes-Oxley act easier and less expensive. The Public Company Accounting Oversight Board also announced changes to the auditing rules. In neither case, however, will smaller companies be exempt from complying with Section 404. “I don’t believe they’ve come far enough,” Mr. Meeks said.
The sponsors of the original legislation, Senator Sarbanes of Maryland and Rep.Michael Oxley of Ohio,are both still serving in Congress and are opposed to changing the bill,making it unlikely that an amendment would pass this year, Mr. Meeks said. Both lawmakers, however, are retiring at the year’s end.
The idea of altering the provisions of the Sarbanes-Oxley bill received praise from the executives who met with Mr. Meeks yesterday. While several voiced support for the intent of the original law, they also testified to the stifling impact its high-compliance costs were having on smaller public firms. “It’s in desperate need of reform,” the president of Toussaint Capital Partners, Paul Williams Jr., said. “It’s literally driving companies overseas.”
Mr. Williams, whose company helps launch initial public offerings, estimated that it costs businesses an initial $3 to $4 million to prepare to comply with the reporting requirements of Section 404, plus an additional $1 million to $2 million a year.
The president of the insurance and risk management firm J.P.West Incorporated, Eileen Frank, said she agreed that legislation was needed after the corporate accounting scandals early in the decade, but that the Sarbanes-Oxley bill had not had the intended impact. Lawmakers, she said,should be wary of changes to the law that could make it even harder for companies that already played by the rules. “The idea is, ‘Yes, fix it, but don’t fix it by making worse.'” Ms. Frank said.