SEC OKs easing of Sarbanes-Oxley

The Securities and Exchange Commission last week unanimously agreed to approve revisions to rules under the landmark Sarbanes-Oxley antifraud law that are designed to ease the compliance burden on public companies and allow them to tailor their internal inspections to the scale of a business. The 5-0 vote by the SEC commissioners was after business interests lobbied vigorously for a softening of the rules under Section 404 of the 2002 law, complaining that it is overly burdensome and costly.

For example, the National Venture Capital Association had been pushing for an elimination of the requirement for an audit of the effectiveness of internal controls, saying it burdens small companies. Such compliance costs reduce companies net incomes, disguising their value to potential investors in an initial public offering, the association said in a February letter to the SEC.

The 2002 Sarbanes-Oxley law requires company executives to assess at the end of each year the adequacy of internal controls over financial reporting. Many have argued that the rules are too costly and cumbersome.

Jack Lasersohn, a general partner of The Vertical Group, said that the costs associated with Sarbanes-Oxley have a significant impact on the ability of venture firms to take companies public and divert revenue away from research and development. —Alastair Goldfisher