ICBA News Release
FOR IMMEDIATE RELEASE
ICBA Applauds Recommendation to Exempt Smaller Companies from SOX Section 404
Exemption Will Help Community Banks Better Serve Local Communities
Washington, D.C. (December 12, 2005) - The Independent Community Bankers of America (ICBA) applauded a government advisory panel's recommendation to exempt smaller companies from the internal control attestation requirements of the Sarbanes-Oxley Act (SOX) Section 404 which will help community banks better serve local communities.
"Reducing the SOX burden enables community banks -- which supply about a third of small business lending by banks nationwide -- to further support small business development in their local communities," said Chris Cole, ICBA regulatory counsel and a former banker.
The Internal Controls Subcommittee of the Securities and Exchange Commission Advisory Committee on Smaller Public Companies recommended exempting companies with market capital of less than $125 million and revenues no greater than $125 million completely from SOX Section 404. In addition, the panel recommended exempting smaller public companies with market capital of between $125 million to $750 million and revenues no greater than $250 million from the internal control attestation requirements of Section 404.
The panel concluded that the Section 404 compliance burden on smaller public companies has a negative affect on their competitiveness and capital formation ability which in turn hurts the national economy, Cole noted. The panel also found that internal controls over financial reporting are not as effective as other techniques to detect and prevent fraud by senior management.
The advisory panel's conclusions that smaller companies bear a disproportionate share of the costs of SOX Section 404 are correct. ICBA's recent survey of Section 404 costs for community banks reveals that the average community bank will spend more than $200,000 and devote over 2,000 internal staff hours to comply with the Section 404 - taking away resources that they could use to better serve their customers and their communities.
"Smaller companies are already subject to certain corporate governance standards and subjecting them to internal control audits by outside auditors raises the bar far too high for many," said Cole. "We urge the SEC Advisory Committee and the SEC to adopt the subcommittee's recommendations."