You do not currently have the Adobe Flash player installed. Click Here to download and install.

Non-accelerated public registrants should expect to fully comply with SOX

New SEC chair plans shift in priorities

New SEC Chair Mary Schapiro wants smaller publicly traded companies to become fully compliant with Sarbanes-Oxley. Schapiro was unanimously approved by the U.S. Senate on Jan. 22 and was officially sworn in to office on Jan. 27.

The SEC has repeatedly granted non-accelerated filers one-year exemptions waiving the requirement to comply with SOX Section 404(b), requiring an auditor attestation regarding the effectiveness of internal controls over financial reporting. The Section 404 requirements have been at the center of feedback from the non-accelerated smaller public registrants that have argued that the costs are too great for compliance.

“Right now, we have a system where some issuers are complying with 404 and others are still exempt from it,” Schapiro said in letter responding to several questions from Sen. Carl Levin (D-Mich.). “It's time we bring uniformity to the system.”

The SEC is conducting a cost-benefit study of SOX as the basis for making a long-term decision about non-accelerated filer compliance with Section 404(b). The deadline to comment on the survey is Jan. 31.

New SEC chair sets new priorities

While waiting to be sworn in, Schapiro has already begun setting – rather shifting – the SEC’s top priorities for the near future. High among them is to address the internal enforcement issues at the SEC. Former SEC Chair Christopher Cox acknowledged the SEC’s failure to thoroughly investigate repeated allegations against Bernard Madoff’s securities investment firm dating back to at least 1999.

Reforming the SEC’s financial regulatory system is the second of Shapiro’s top priorities. While many believe the regulatory system played a role in the financial crisis, Schapiro doesn’t believe that fair value was a “significant factor” for the problems in the financial markets. Schapiro recently declined to comment on whether she believes banks properly applied mark-to-market valuations.

The SEC will be working to ensure that companies are properly using fair value accounting. Stephanie Hunsaker, SEC associate chief accountant, said, “We will drill down into the fair value valuations you are making,” when addressing a New York State Society of CPAs conference.

The SEC hired a valuation expert from Ernst & Young to help assess whether companies have properly figured the value of assets. The SEC will be casting a more skeptical eye on the justifications that companies and financial institutions give for why an asset shouldn’t be impaired.