By Sen. John Kerry (D-Mass.) - 03/12/07 06:36 PM EDT
Just a few years ago, fraud at companies like Enron, WorldCom and Arthur Andersen shook the faith of the American people in their financial markets.
Thankfully, Congress took decisive action against such large-scale corporate malfeasance. The bill we passed, the Sarbanes-Oxley Act, by all accounts has been effective in bringing accountability to corporate governance, auditing and financial reporting for public companies.
But this success has come at a disproportionately high cost to small businesses. A recent Government Accountability Office (GAO) study found that firms with assets over $1 billion spend just 13 cents per $100 in revenue on audit fees, while small businesses spend more than a dollar.
Sarbanes-Oxley was designed to force big business to become more transparent — and it has. Accounting restatements on large companies’ financial results declined by 20 percent last year. But small businesses have struggled to keep up with the demanding new regulations. For firms with less than $75 million in assets, restatements increased by 46 percent.
Small businesses are the backbone of the American economy, and they need our help in complying with the Sarbanes-Oxley Act.
The U.S. Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) are currently considering final rules and guidance on implementing Sarbanes-Oxley regulations. I am hopeful that these changes will help make it easier for small businesses to comply with the law.
I recently wrote a letter to the SEC and PCAOB with my colleague Sen. Olympia Snowe (R-Maine), urging them to give small businesses up to an additional year to comply with the pending changes to the Sarbanes-Oxley regulations. This added time would help them adapt to the changing regulatory structure. I also intend to hold a hearing in the Small Business and Entrepreneurship Committee examining how these changes will impact small public companies and what can be done to assist them in complying with the law.
As the SEC and PCAOB consider the appropriate course of action, there are additional steps that can be taken to help small firms lacking the expertise or financial resources to comply with the law.
Last year, I introduced the Small Business Sarbanes-Oxley Compliance Assistance Act. It authorizes the Small Business Administration to award grants to small public companies and help cover the law’s compliance costs. My bill would also create a task force comprised of representatives from the SEC and other appropriate bank regulatory agencies to report semiannually on how to assist small public companies in complying with Sarbanes-Oxley. I intend to reintroduce similar legislation this year.
Congress can take steps to help small businesses abide by the law while simultaneously allowing them to focus on what they do best — creating jobs and growing our economy by participating in our capital markets.
Mega-corporations like Enron and WorldCom broke the rules and abused our trust. Now we must help small businesses to shoulder the burden of cleaning up a mess they didn’t make.
Kerry is the chairman of the Senate Committee on Small Business and Entrepreneurship.
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