SEC's Latest Reprieve Opens Door For Better Automation

It probably didn't jump out as a big surprise when the SEC voted yet again to extend the Section 404 filing deadline for small-cap companies by yet another year. The commission's Advisory Committee on Smaller Public Companies investigated enough comments and complaints about the undue financial burden of SOX's Section 404 compliance on smaller public companies that a second extension was nearly a forgone conclusion.

Reaction to the decision has been mixed and regardless of whether you think small-cap companies were blowing smoke on their disproportionately higher costs of compliance or you believe them, they have almost two years now to figure out how to make it work or, as some have threatened, go private. Indeed, efforts to date by some smaller companies to comply with SOX would lead one to believe that the deadline was always two years out.It probably didn't jump out as a big surprise when the SEC voted yet again to extend the Section 404 filing deadline for small-cap companies by yet another year. The commission's Advisory Committee on Smaller Public Companies investigated enough comments and complaints about the undue financial burden of SOX's Section 404 compliance on smaller public companies that a second extension was nearly a forgone conclusion.

Reaction to the decision has been mixed and regardless of whether you think small-cap companies were blowing smoke on their disproportionately higher costs of compliance or you believe them, they have almost two years now to figure out how to make it work or, as some have threatened, go private. Indeed, efforts to date by some smaller companies to comply with SOX would lead one to believe that the deadline was always two years out.

Some have argued that the internal controls, and the proof thereof, mandated in Section 404 calls for little more than procedures that a respectable public company should have implemented all along. But others claim that the costs of proving the effectiveness of controls through internal and external audits weigh heavier on smaller companies.

Some will sit back and say "I told you so," and others will get busy. The extended grace period is a huge boon to small-cap companies if they play it smart. Even since the last one-year extension was granted in March, the technology tools to help automate many of the necessary procedures have grown more sophisticated. And more an more vendors are packaging these tools for smaller businesses at costs well below that of enterprise-level products.

Why is automation important? Because the manpower costs, factoring in the internal resources and external audit services, can be the biggest ticket in SOX compliance. And manpower costs have to be duplicated for every report, while automation can be sustainable.

So the big question around this latest reprieve is what are you going to do with it? If automation technology isn't one of your answers, think again.It probably didn't jump out as a big surprise when the SEC voted yet again to extend the Section 404 filing deadline for small-cap companies by yet another year. The commission's Advisory Committee on Smaller Public Companies investigated enough comments and complaints about the undue financial burden of SOX's Section 404 compliance on smaller public companies that a second extension was nearly a forgone conclusion.