After a seemingly endless series of postponements in deadlinesdesigned to help smaller public companies prepare forSarbanes-Oxley Section 404(a) compliance, a new study of 3,321smaller companies finds little evidence that they are any betterprepared now than when the delays first began. More than a third ofthe companies reviewed by SOX research and compliance firm Lord& Benoit, gave little or no consideration to the delays andcompleted assessments at the last minute–or not at all.

More disturbing is smaller companies' attitude. “About 700companies were completely noncompliant or they issued statementswith poor segregation of duties,” says Robert Benoit, Lord &Benoit president, noting that segregation of duties is not acontrol problem but, rather, a way to forestall financial reportingabuses. Even with just two people in a company, accounting andcheck signing duties can be divided. “These companies just decidedthey weren't going to do it,” Benoit says.

Good compliance at smaller companies is the exception, ratherthan the rule, agrees Peter Nelson, a partner at LBB &Associates Ltd., based in Houston, an audit firm specializing insmaller developing companies. One out of 40 client companies isprepared for 404, and a few are addressing it. As for the others?“I'm not sure what they're doing, but they're not worrying aboutit, that's for sure,” says Nelson. LBB advises the companies tostart worrying about 404(a compliance), but, he adds: “It's not ourjob to act as the management of the company.”

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