Public companies aren’t the only ones struggling to get governance right. Would-be public companies appear to share their pain, according to surveys conducted by KPMG LLP.

In a series of polls conducted by the Big 4 firm, companies preparing for an initial public offering cited improving corporate governance as their top challenge.

Asked to name their top three challenges in preparing for an IPO, more than 100 senior executives of companies considering an IPO surveyed by KPMG listed improving corporate governance (64 percent), preparation of a robust business plan (40 percent) and preparation of financial track record (36 percent).

“Making the transition from private to public company and meeting both the SEC rules and public expectations involves many steps that need to be accomplished simultaneously,” said Aamir Husain, a partner in KPMG LLP’s Transaction Advisory Services practice focused on IPO services.

Many of the executives surveyed said their companies had already undertaken organizational changes in response to a planned IPO, including strengthening financial and accounting systems (69 percent), upgrading internal controls (52 percent), being accountable for quarterly results (40 percent), and developing a robust business plan (40 percent).

Husain says the small details that companies overlook can often cause headaches down the road. For example, while many companies realize that corporate governance is a demanding issue, when selecting board members, he says, “Many don’t consider that an important role for directors is working with management to ensure the right tone at the top for ethics and compliance.”

Good planning, including an assessment of the activities needed for the company to complete its IPO, is key. Although it may seem counter-intuitive, Husain says one of the best times to begin preparing for an IPO is when the market is slower, since a window of opportunity can appear or disappear within weeks. When the market is ripe, companies that are prepared can be the first in line to approach the limited number of parties that invest in IPOs, increasing the likelihood of attracting investors.

Among those polled, most executives (54 percent) believe it would take their company six to 12 months to prepare for an IPO, 15 percent thought it would require 12 to 18 months, and 10 percent thought it would take six months or less.

The surveys were conducted at KPMG-NYSE Euronext IPO Bootcamps held around the country between September 2009 and April 2010.

Gear up for more fighting on SOX 404: An amendment to Senate financial reform bill would exempt companies with less than $150 million in public float from Sarbanes-Oxley’s outside auditor attestation requirement, which would include some companies already complying with the provision.

Sen. Kay Bailey Hutchison (R-Texas) and Sen. Mary Landrieu (D-La.), chair of the Committee on Small Business and Entrepreneurship, have filed an amendment to S. 3217, the “Restoring American Financial Stability Act of 2010,” that would exempt public companies with less than $150 million in public float from complying with Section 404(b).

The amendment also calls for a study to see how to reduce the compliance burden for companies with public float of $150 million to $700 million, including recommendations about whether the
exemption should be extended to larger issuers.

Exactly when the measure would come to the floor for a vote is uncertain, but Gene Diamond, a spokesman for Senator Hutchison, says it could be next week.

Section 404(b), which is widely considered the 2002 statute’s biggest compliance burden, requires public companies to get an auditor’s attestation about the effectiveness of their internal controls over financial reporting. Under current SEC rules, companies with less than $75 million in public float (non-accelerated filers) are currently exempt from the auditor attestation provision, but are slated to begin complying with 404(b) for fiscal years ending on or after June 15, 2010.

The issue is a lightning rod for controversy. Most business groups and companies support measures to reign in 404(b). However, most investor and consumer groups strongly oppose any exemption from the provision.

Filers with more than $75 million in public float have had to comply with 404(b) since 2004. All public companies already comply with 404(a), the provision that requires management to review and report on the state of their internal controls over financial reporting.

The Senate measure filed by Landrieu and Hutchison is also broader than that included in the House financial reform bill passed last December. The House bill would provide an exemption from 404(b) for companies with less than $75 million in public float and would call for a study to determine how the SEC can reduce the burden of complying with Section 404(b) for companies with market caps between $75 and $250 million.

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The Securities and Exchange Commission’s bounty program for rewarding whistleblowers is sorely in need of an overhaul, according to the agency’s Inspector General, which issued nine recommendations for improving the program.

An OIG review of the program, which stemmed from an issue identified during its investigation of the SEC Madoff examination and investigations, concluded that the current bounty program “is not fundamentally well designed to be successful.”

The main problems with the program, as detailed in the March 29 report, are that no one is aware of it, and that it applies to too narrow a swath of cases to be of much use, according to the report.

Currently, under Section 21A(e) of the ‘34 Exchange Act the SEC is authorized to award a bounty to a person who provides information leading to the recovery of a civil penalty from an insider trader, from a person who tipped information to an insider trader, or from a person who directly or indirectly controlled an insider trader. Bounty determinations, including whether, to whom, or in what amount to make payments are within the SEC’s sole discretion, and the total bounty can’t exceed 10 percent of the amount recovered from a civil penalty pursuant to a court order.

“The SEC bounty program is limited to insider-trading cases and the stated criteria for judging bounty applications are broad, somewhat vague, and not subject to judicial review,” the report states. “Moreover, there is no entitlement to a reward even if the whistleblower’s information causes the government to recover money from wrongdoers.”

Among other things, the OIG report says improvements are needed to make the application process more user-friendly and help ensure that applications provide detailed information about alleged securities law violations.

Among the issues identified, the OIG said the criteria for judging bounty applications are broad; the SEC hasn’t put in place internal policies and procedures to assist staff in assessing whistleblower contributions and making award determinations, and the Commission doesn’t routinely provide status reports to whistleblowers regarding their applications, even if the information led to an investigation. While applications are generally acknowledged and forwarded to appropriate staff for further consideration, they aren’t tracked to ensure they are timely and adequately reviewed, and files regarding bounty referrals didn’t always contain complete documentation, according to the report.

Although the SEC has had a bounty program in-place for more than 20 years, there have been few payments made and few applications received, because the program isn’t widely recognized inside or outside the Commission, according to the OIG report.

Since the inception of the program in 1989, the SEC has paid a total of $159,537 to five claimants, all of which were for the 10 percent maximum amount permitted by statute. The SEC formally denied five bounty applications since the program’s inception.

According to the report, from Jan. 1, 2005, to Jan. 1, 2010, the SEC received approximately 30 other bounty applications, but didn’t formally take action to approve or deny them and didn’t notify the applicants. SEC staff said that’s because the agency only makes a formal determination and provides notice when the information results in the recovery of an insider-trading civil penalty in accordance with the Exchange Act.

As noted in the report, the SEC is seeking expansion of its authority to permit bounties for any judicial or administrative action brought under the securities laws that results in monetary sanctions exceeding $1 million. Proposed legislation was included in the Investor Protection Act (H.R. 3817) introduced in the House last October and referred to the House Financial Services Committee. Variations of the bill are being considered by the House and Senate.

The SEC is already overhauling its entire system for handling all tips and complaints as part of its sweeping post-Madoff reforms. The SEC hired The MITRE Corp. last year to review its internal procedures for evaluating tips, complaints, and referrals. Last August, it created the Office of Market Intelligence, Enforcement’s liaison to the agency’s tip, complaint, and referral process and system.

The nine recommendations detailed in the report are:

(1) Develop a communication plan to address outreach to the public and staff about the bounty program, including efforts to make information available on the SEC’s intranet, enhance information on the SEC’s public Website, and provide training to employees who are most likely to deal with whistleblower complaints.

(2) Develop and post to its Website an application form asking whistleblowers to provide specific information, such as the facts pertinent to the alleged securities law violation and explanation as to why the whistleblower believes the subject(s) violated the securities laws and a list of related supporting documentation.

(3) Establish policies on when to follow-up with whistleblowers to clarify information and obtain available supporting documentation prior to making a decision on whether a complaint should be further investigated.

(4) Develop specific criteria for recommending the award of bounties, including a provision that where a whistleblower relies partially on public information, it won’t preclude them from receiving a bounty.

(5) Examine ways to increase communications with whistleblowers by notifying them of the status of their requests without releasing non-public or confidential information during the course of an investigation or examination.

(6) Develop a plan to incorporate controls for tracking tips and complaints from whistleblowers seeking bounties into the development of Enforcement’s tips, complaints, and referrals processes and systems for other tips and complaints.

(7) Require a bounty file to be created for each application, containing, at a minimum, the application, any correspondence with the whistleblower, documentation of how the whistleblower’s information was utilized, and significant decisions made related to the complaint.

(8) Incorporate Department of Justice and Internal Revenue Service best practices into the program with respect to applications, analysis of information, tracking complaints, recordkeeping practices, and continual assessment of the program.

(9) Establish a timeframe to finalize new policies and procedures for the bounty program that incorporates the best practices from the DoJ and the IRS as well as any legislative changes.

In his response, Enforcement Division Director Robert Khuzami noted that the Division’s independent findings and plans for developing a new whistleblower program are consistent with those set forth in the report.

Khuzami noted that the vast majority of insider-trading cases arise from routine surveillance performed by the SEC staff and the Self-Regulatory Organizations, not public tips. For example, 31 of the 37 insider-trading actions brought by the Commission in FY 2009 were the result of surveillance by the SROs or the Division.

“We believe the principal reason that the current bounty program has not yielded more rewards derives more from its relatively narrow scope and the confidential nature of insider-trading violations than from the procedural shortcomings we recognize exist,” Khuzami wrote. “… While we concur with the recommendations, it is our hope that pending legislation … will create a new program wholly replacing the current one.”

In that case, he noted, “We believe it would be appropriate to address many of the recommendations … through enactment of policies and procedures involving the agency’s new authority as opposed to embarking upon modifications of the current insider-trading bounty program, which we hope will soon be superseded.”

A key Senate committee has passed sweeping financial reform legislation, advancing the Dodd regulatory bill for consideration by the full Senate, moving lawmakers a small step forward in their effort to overhaul the U.S. regulatory system.

The Senate Banking Committee on Monday evening voted 13-10 along party lines to approve the controversial reform bill put forth by committee Chairman Chris Dodd (D-Conn.) without any Republican support.

Rather than offering a slew of amendments during the March 22 mark up, the committee’s Republican members decided to hold their amendments until the massive reform bill, “Restoring American Financial Stability,” which spans more than 1,300 pages, comes up for a vote before the full Senate.

In remarks during the brief markup, Ranking Committee member Richard Shelby (R- Ala.) said, “It is not our intention to turn this markup into a long march, offering hundreds of amendments that will inevitably be defeated. We don’t think that would be constructive or productive.”

Shelby ticked off a long list of issues Republicans want to see addressed in any final bill. Among them are the proposed Consumer Financial Protection Agency, new rules to regulate over-the-counter derivatives, corporate governance provisions he said, “would impose costs on shareholders and empower special interests,” and provisions related to credit rating agencies, securitization, and Securities and Exchange Commission funding, which he said, as drafted, “would not solve the problems they attempt to address.”

Among other items, Corporate America is waiting to see whether the Senate will deliver an exemption for non-accelerated filers from compliance with Section 404(b) of the Sarbanes-Oxley Act, the portion that requires companies to have an outside auditor sign off on their internal controls over financial reporting.

As previously noted, South Carolina Republican Jim DeMint is expected to introduce an amendment that would exempt small public companies from 404(b).

A provision that would exempt public companies with market capitalizations below $75 million from Section 404(b) made it into the final House reform bill passed in December. Unless the Senate acts (or the SEC, which seems unlikely) those companies are slated to begin complying with the measure for fiscal years ending on or after June 15, 2010.

Meanwhile, the bill’s final fate remains unclear. Lawmakers are expected to file hundreds of amendments to the current draft, so any final version could look vastly different from the one unveiled March 15. The legislation would need 60 votes to clear the Senate, and even then, both chambers would still need to reconcile their differences and approve a final bill to be signed by the President.

Compliance Week will continue to provide readers with ongoing coverage of the financial reform legislation as it progresses.

The Organization for Economic Co-operation and Development has issued new guidance on internal controls, ethics, and compliance to help its member countries implement anti-bribery strategies.

The OECD Working Group on Bribery has issued “Good Practice Guidance on Internal Controls, Ethics, and Compliance,” which calls for companies in the 38 countries that are party to the OECD Anti-Bribery Convention to put in place strict internal controls and establish ethics and compliance programs as part of a strategy to combat bribery in international business deals.

The March 3 guidelines “put further meat on the bones” of the Working Group’s November recommendations, which contained, among a number of key guidelines, “an important international recognition by 38 signatory countries of the need for companies to adopt proactive compliance and ethics programs to combat bribery and corruption when operating abroad,” says Donna Boehme, a principal with Compliance Strategists.

Specifically, the Guidance calls on businesses to: “Adopt a clear and visible anti-bribery policy that is strongly supported by senior management; instill a sense of responsibility for compliance with the policy at all levels of the company, as well as independent compliance structures; keep up regular communication and training on foreign bribery for all employees, as well as with business partners; and encourage observance of anti-bribery compliance measures, and disciplinary procedures to address their violations.”

The Guidance, which forms Annex II to the Working Group’s Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions, also recommends that business organizations play a leading role in providing information, advice, and training to companies, especially small- and medium-sized enterprises, on how to protect themselves against the risk of foreign bribery.

Boehme says the Guidelines not only incorporate the key principles of the Federal Sentencing Guidelines—including strong senior management tone and action, clear standards, protocols and internal controls, communication and training, and effective, appropriate disciplinary procedures—but in some respects, she says the guidelines “reach even further to validate the concepts of independent oversight and empowerment for the chief compliance officer.”

While the guidelines don’t have formal legal impact, the OECD Working Group will monitor each member country’s progress in encouraging companies to implement the guidance.

“We already have seen how this can be an effective change agent in how member countries approach anti-bribery and anti-corruption measures—expect to see more of the same as the Good Practice Guidelines are rolled out,” says Boehme. “It may take time, but this is an enormous step in ‘internationalizing’ the proactive approach of the FSG. Chief compliance and ethics officers should be proactive in educating their senior management and boards about this development and its impact on how countries beyond the United States are looking at bribery and corruption.”

Despite the progress made during the last year, both with respect to financial reform and reform of the Securities and Exchange Commission’s enforcement program, there’s more work to do, according to at least one SEC official.

While he praised some of the progress made to date, SEC Commissioner Luis Aguilar, in a Feb. 5 speech, said more change is needed, both by the SEC and lawmakers crafting regulatory reform.

“Whether reform legislation comes soon or not, the SEC must continue its own revitalization,” Aguilar said in remarks at the SEC Speaks conference in Washington, D.C. In particular, he flagged two issues he says would go “a long way to truly empowering our staff and removing barriers from their path.”

First, he repeated his call for the SEC to revisit its 2006 Penalty Statement, which he described as “a misguided approach to how to weigh factors one considers when deciding whether to seek a corporate penalty.”

“Every day these guidelines are in place they adversely impact the cases we are working on,” Aguilar said.

Under that framework, which prioritizes the presence or absence of a direct benefit to the company as a result of the violation and the degree to which the penalty will recompense or further harm the injured shareholders, Aguilar said, “the conduct itself becomes of secondary importance, and the Commission fails to appropriately focus on deterrence.”

He also called for the establishment of a uniform audit trail for securities trading to provide the staff quicker access to information regarding trades. Currently, the staff relies on information from the Electronic Blue Sheet system and information from the self-regulatory organizations, which he described as “an outdated, patchwork approach.”

Aguilar advocated replacing the current system with a searchable repository of trading data that would provide the staff with a “near real-time view of market activity.” He said such a system should be scalable to allow for the inclusion of new products and practices in securities markets, and ideally the derivatives markets.

As previously reported, SEC Commissioner Mary Schapiro noted in a speech at the same event that the commission will consider staff recommendations in the spring to have the SROs develop and implement a consolidated audit trail that captures customer and order event information across markets to help improve market surveillance.

Meanwhile, Aguilar noted that promised e-proxy changes and investor education efforts are coming. He said the SEC soon will establish educational efforts to help investors “understand e-Proxy and their rights” and amend its rules so that the process “is less confusing to investors.”

Under the current rule, companies can post their proxy materials online and send shareholders a notice that they’re available without sending a full set of paper materials unless requested. However, data showed that participation by retail investors plummeted at some companies that used the so-called “notice only” model, sparking criticism by some, including Aguilar, who urged the SEC to either fix or scrap e-proxy.

Aguilar said he’ll be “watching to see if the amendments result in real improvement.”

He also reiterated his call for the SEC to be self-funded. While an early draft of the Senate financial regulation reform bill provided for self-funding, it’s unclear whether that provision will make it into any final legislation. As recently reported, the President’s recent budget request of $1.258 billion for fiscal 2011 would increase the Commission’s coffers by roughly $139 million, or 12 percent over its fiscal 2010 funding level, and would enable the agency to add hundreds of staff positions.

In order for reforms to be sustainable, Aguilar said existing rules must be “implemented fully and enforced.” For example, pointing to the recently adopted Proxy Disclosure Enhancement rule, which requires greater disclosure about board member qualifications, Aguilar said the usefulness of that disclosure to investors will depend on how well the rule requirements are implemented.

“To that end, I commend those who will work to meet not only the letter of the law, but the spirit as well,” he said.

His remarks were part of a broader speech lamenting the lack of progress on financial regulatory reform. Despite the “intense focus” on financial reform over the last year, Aguilar said “very little has changed.”

“There have been many speeches given and many preliminary steps taken toward regulatory reform, but for all the activity, reform itself has yet to be achieved,” he said. For example, he said over-the-counter derivatives, hedge funds, and municipal securities markets “still lack appropriate regulation, and our inspection and enforcement efforts in these areas continue to be severely undermined.”

Aguilar also chastised the use of the reform process by some as an “opportunity to weaken strong investor-focused laws arising from lessons learned in prior crises.” In particular, he has criticized the Wall Street Reform and Consumer Protection Act passed by the House in December because it would exempt non-accelerated filers—which he says account for 50 percent of all U.S. public companies—from having an outside audit of their internal controls as required under Section 404(b) of Sarbanes-Oxley. The Senate draft bill was silent on that issue.

Meanwhile, he lauded two initiatives he advocated last year: the creation of the Investor Advisory Committee and the streamlining of the formal order process, which delegated the power to issue a subpoena to senior staff. Aguilar said the change has resulted in “a huge improvement in the speed and efficiency” by which the enforcement staff can conduct an investigation.

If it clears Congress, an amendment to pending legislation could roll back the auditor attestation requirement of Sarbanes-Oxley for more than 6,000 public companies, according to a Securities and Exchange Commission official.

SEC Commissioner Luis Aguilar, who railed against an amendment to The Investor Protection Act passed by the House Financial Services Committee last week, in a Nov. 6 speech cited staff estimates that over 6,000 public companies may fall under the threshold of $75 million or less in public float—and would therefore be exempt from the requirement for an independent audit under Section 404(b) if the act passes in its current form.

“The companies that would be exempted are not mom-and-pop neighborhood stores,” he said in prepared remarks. “These are publicly traded companies that offer their shares to all types of investors. And just so you know, this repeal has wide-ranging ramifications and would appear to affect the majority of public companies.”

Pointing to the numerous deferrals for non-accelerated filers and the work done by the SEC and the Public Company Accounting Oversight Board to reduce the compliance burden for smaller public companies, Aguilar said repealing that part of SOX now is “to throw away a substantial amount of work done by regulators, companies, and private organizations to make compliance with 404(b) more cost-effective.”

As reported previously, the SEC on Oct. 2 announced what it said was the last delay for smaller companies to comply with 404(b). Those companies are currently slated to comply with the provision for their annual reports for fiscal years ending on or after June 15, 2010.

“We should remember why 404(b) was passed, recognize the significant positive effects it has had for companies that have complied, and appreciate that a lot of careful work has gone into preparing the standards for use by smaller public companies,” he said. “When we do so, it is clear that repealing 404(b) as to the majority of public companies would be a mistake and inconsistent with the objectives of reform that strengthens investor protection.”

Of course, as Aguilar noted, there’s still time for the provision to be stripped out of the bill. “My hope is that the Senate will not include this deregulatory initiative as it develops legislation,” he said.

Aguilar also shared his views on other reform proposals currently being debated, including another provision in the legislation that would transfer oversight of a substantial number of investment advisers from the SEC to the Financial Industry Regulatory Authority Inc.

Noting that investment advisers will “need to be assessed a bill for this additional oversight,” he said, “if advisers have to write a check to someone, as the legislation would require, it makes much more sense for that check to go to the SEC—as the SEC already has the team and expertise in place.”

Oversight of the investment adviser community has been a partnership between state and federal regulators, and injecting an industry organization into the mix “dramatically changes the oversight structure in ways that do not make sense,” particularly given the other provisions in the proposed legislation, he said.

Meanwhile, Aguilar repeated his call for the SEC to become self-funded, which could be done by having the SEC retain the registration and securities transaction fees it collects. Those fees currently go to the Treasury.

In response to common misconceptions about his plan, he clarified that penalty amounts wouldn’t be used as a source of funding, and that as a self-funded agency, the SEC would still be subject to oversight by Congress and other federal entities, such as the Government Accountability Office, its own Inspector General, the Office of Management and Budget, the Office of Personnel Management, and the General Services Administration. The agency would also still be required to publish its strategic plan and to chart its progress against specific performance measures.

The House Financial Services Committee formally approved an amendment this morning to exempt small companies from Section 404(b) of Sarbanes-Oxley.

On a 37-32 vote—that, notably, went against the wishes of powerful committee chairman Rep. Barney Frank—the lawmakers approved an amendment to the Investor Protection Act that would exempt all non-accelerated filers from Section 404(b). The committee then went on to approve the entire Investor Protection Act by a vote of 41-28.

The amendment reportedly represents a compromise between anti-SOX lawmakers, who wanted to exempt a much larger group of filers, and the Obama Administration. But financial reporting executives shouldn’t rejoice yet: The bill must still be approved by the full House and then by the Senate to become law.

Section 404(b) requires companies to get an auditor’s attestation about the effectiveness of their internal controls over financial reporting and is widely considered the biggest compliance burden in the Sarbanes-Oxley Act. Large filers have had to comply with the provision since 2004, but the Securities and Exchange Commission has repeatedly extended the compliance deadline for non-accelerated filers.

The amendment, sponsored by New Jersey Reps. John Adler and Scott Garrett, also directs the SEC and the Comptroller General to conduct a joint study to determine how the SEC could reduce the burden of complying with Section 404(b) for companies with market caps between $75 million and $250 million.

Even if the measure does ultimately become law, non-accelerated filers (and everyone else) will still need to comply with Section 404(a), which requires companies to review and disclose the state of their internal controls. Section 404(a) went into effect for non-accelerated filers one year ago.

The committee’s action follows the SEC’s Oct. 2 announcement of one final delay for non-accelerated filers. Under that delay, the smallest public companies are supposed to begin complying with the provision beginning with their annual reports for fiscal years ending on or after June 15, 2010. The extension was granted at the same time the SEC released its study on SOX compliance costs and benefits.

An SEC spokesman said the Commission had no comment on today’s action by the committee, but referred to a letter sent by chairman Mary Schapiro on Oct. 16 to capital markets Sub-committee Chairman Paul Kanjorski.

That letter noted that, “According to our staff’s recent study of the costs and benefits of Section 404, surveyed investors indicated that Section 404 compliance ‘has significantly impacted their confidence in companies’ financial reports’ … Investors indicated that they have greater confidence when a Section 404 audit is performed.”

“… I believe that the enactment by Congress of Section 404 continues to significantly improve investor confidence in the integrity of companies’ financial reports and reporting,” Schapiro wrote.

Section 404 of the Sarbanes-Oxley Act has been in the legislative whirlwind this week.

Two amendments to delay or even rescind Section 404 for many companies came before the House Financial Services Committee on Wednesday, a surprise move that left investor advocates fulminating to anyone who would listen. One amendment to postpone Section 404(b) until 2011 for non-accelerated filers did pass on a voice vote, and will come before the full committee for a roll-call vote on Nov. 4.

The amendment, offered by Rep. Carolyn Maloney, D-N.Y., would require separate studies by the Government Accountability Office and the Securities and Exchange Commission to evaluate the costs and benefits of complying with Section 404(b) on issuers who aren’t accelerated or large accelerated filers—that is, the non-accelerated filers who have been excused from compliance for years already. Those studies would include recommendations, administrative reforms, and legislative proposals to reduce compliance burdens on those issuers and to determine the success of the SEC’s measures to limit the cost of compliance on smaller issuers.

The Maloney amendment would require separate reports by both agencies to Congress by June 1, 2010. Section 404(b) wouldn’t become effective for non-accelerated filers before the results of the report are delivered, and in no case before June 1, 2011.

A separate amendment, offered by Rep. John Adler, D-N.J., would have gone even further: exempting all companies with less than $700 million in market capitalization from Section 404(b), which would include many filers already complying with it. That idea, however, failed on a voice vote on Wednesday, although it too will come to a roll-call vote next week as a formality.

The moves to provide more SOX relief come on the heels of the SEC’s Oct. 2 announcement that it would delay Section 404(b) for small companies until fiscal years ending on or after June 15, 2010. That delay—which the SEC has firmly said will be the last—came at the same time the SEC published its study on the costs of Section 404 compliance.

Both amendments were slipped into legislative work the Financial Services Committee was doing to mark up the Investor Protection Act, HR 3817. Work on that bill is scheduled to resume Nov. 4.

Investor groups quickly voiced their opposition to the amendments in an Oct. 26 letter to several key members of Congress. Signed by leaders from the Council of Institutional Investors, the Consumer Federation of America, the American Association of Individual Investors, and the CFA Centre for Financial Market Integrity, the letter opposes any effort to further defer or exempt any public companies from the internal control requirements of Section 404, which they say “would do a grave disservice to investors whose trust in the markets is an essential ingredient in any financial recovery.”

“It is our view that the Section 404(b) requirements under SOX provide significant benefits to investors, are valuable regardless of a company’s size and represent an appropriate use of a company’s resources given the importance a strong system of internal controls has in producing reliable financial reporting,” the letter states.

Meanwhile, as Compliance Week previously reported, a separate bill, introduced this month by Rep. Scott Garrett (R-N.J.) dubbed the “Small Business SOX Compliance Relief Act” would permanently exempt non-accelerated filers from the reporting requirements of Section 404(b).

Here we go again. Roughly a week after the Securities and Exchange Commission announced what it vowed its last extension for non-accelerated filers to comply with the auditor attestation requirement under Section 404(b) of Sarbanes-Oxley, Congress has revived efforts to exempt those companies from the provision.

Rep. Scott Garrett (R-N.J.) on Oct. 8 introduced the “Small Business SOX Compliance Relief Act” to permanently exempt non-accelerated filers from the reporting requirements of Section 404(b).

Garrett has previously co-sponsored legislation to exempt and/or delay the provision for smaller companies.

“Although the stated intent of Sarbanes-Oxley was to provide investor confidence in our markets through greater accountability and disclosure, the Act has had the unintended effect of creating undue and often unbearable burdens on small businesses,” Garrett said. “It is diverting valuable resources away from other legitimate business needs; creating massive and tedious documentation requirements; and discouraging the public listing of both international and domestic companies on U.S. markets.”

“Especially now, as our country struggles to emerge from a recession, the last thing American small businesses need is another barrier to economic stabilization,” he continued.

A press release from Garrett announcing the move cites the SEC’s own SOX 404 study released last week. “Although reforms were made in 2007 to relax the guidelines for smaller companies, businesses of all sizes still report excessive compliance costs … In summarizing survey responses from businesses regarding the benefits of Section 404 compliance, the SEC wrote, ‘[A] majority felt that the costs of compliance outweighed the benefits. This was especially true among smaller companies.’”