Don't throw the baby out with the bath water. You've heard them all before, but this may be one of the times when those old adages actually do apply. Small and midsize companies are demanding relief from Section 404, and rightly so. Thanks to a one-size-fits-all approach to guidelines issued by the Securities and Exchange Commission (SEC), companies with less revenue and smaller capitalizations are being disproportionately burdened with the costs connected to 404 compliance. So what's the solution? Some would have the SEC throw out 404 with the bath water–at least for most small companies. While this sounds immediately appealing to executives at small companies, let's consider the fallout–particularly in the investment community. Small companies already must deal with a much thinner trading market than their larger counterparts and much less coverage by equity and credit analysts. How many more investors might avoid the sector if they no longer have a 404 seal of approval on controls? And what about the availability of credit? While one could argue that none of this information existed before two years ago, it's hard to imagine that investors and creditors will not weigh in their considerations the fact that certain-sized companies in the very segment where the majority of violations occur no longer need jump through hoops for controls testing. Rather than exempt companies, the SEC should do the job it should have done in the first place: Write clear, explicit guidelines for both companies and auditors and scale them downward to match the size and complexity of companies. Yes, it's the tax system all over again, but hey–it's the government.

Continue Reading for Free

Register and gain access to:

  • Thought leadership on regulatory changes, economic trends, corporate success stories, and tactical solutions for treasurers, CFOs, risk managers, controllers, and other finance professionals
  • Informative weekly newsletter featuring news, analysis, real-world cas studies, and other critical content
  • Educational webcasts, white papers, and ebooks from industry thought leaders
  • Critical coverage of the employee benefits and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.