The Securities and Exchange Commission (SEC) on Wednesday dismissed months of lobbying on the part of business entities, and said it would not exempt small public businesses from key provisions within 2002’s Sarbanes-Oxley Act, The Washington Post reports.
Under Sarbanes-Oxley, it’s mandated that all companies document the internal controls in place to prevent the mismanagement or manipulation of financial documents, and they’re also required to hire an external auditor to confirm those controls are efficient. The act was passed in response to the high-profile Enron accounting fraud scandal of the early 2000s, in which investors were bilked out of billions of dollars.
Since the act’s inception, business owners and lawmakers alike have questioned whether it should be applied to small or mid-sized public enterprises the same way it is to larger firms, according to the Post. Many such critics have requested that the SEC exempt small businesses completely, the Post reports.
In response, the SEC has decided to give the smallest firms a few additional months to be in compliance with the act, according to the Post.
Christopher Cox, SEC chairman, told the Post the commission will not release the proposed final rules for another few months due to their complex nature; however, the SEC did outline the basic rules so that companies would know there would be no exemptions for small firms. Even with the extension, all public companies will need to start documenting their internal controls by the middle of December, according to the Post.
The SEC will release a guidance to executives with small firms so as little time and money as possible will be wasted on compliance efforts, and to clarify how companies of varying size can meet the act’s requirements based on their specific situations, the Post reports.
Cox told the Post, “The ultimate objective is to improve the quality of financial statements.”
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