STATEMENT
of the
Honorable Nydia M. Velázquez, Chair
Committee on Small Business
        Full Committee Hearing on the Implementation of
Section 404 of Sarbanes Oxley Act
Tuesday, June 5, 2007

I call this hearing to order.  This afternoon the Committee will examine the implementation of Section 404 of the Sarbanes Oxley Act and consider whether the new standards that the SEC and PCAOB approved last month will lower compliance costs for smaller companies.

Small firms continue to be supportive of the intent of the Sarbanes-Oxley Act and many have benefited from the stronger corporate governance culture that it encouraged.  However, what we have continued to hear is that these benefits – and particularly those associated with Section 404 – come at a very steep cost.  This continues to make me believe that these new regulations should be delayed.

This additional time is especially important for smaller companies, which often operate with limited human and financial resources – and are disproportionately burdened by these high costs. We may jeopardize some of our country’s most innovative endeavors if we fail to adequately balance investor protection with the associated regulatory burden.    

Last month, new management guidance and an auditing standard for Section 404 were approved.  The result of nearly 2 years of work, these new standards seek to make Sarbanes-Oxley compliance more efficient and cost effective for companies of all sizes.  While I am encouraged by this, I am concerned about the proposed timeline under which small firms would have to comply with the new regulations.

Earlier this year, Ranking Member Chabot and I wrote to Chairmen Cox and Olson and expressed our concern that the proposed implementation timeline was inadequate to assess its effectiveness.  Postponing the December 2007 and December 2008 deadlines by at least one year would allow for the new standards to be tested and for evidence to be collected that could confirm that the new standards do, in fact, lower costs for small firms. 

Small businesses are significant sources of research and development, job creation, and innovation in our economy.  It is critical that the SEC and PCAOB work to ensure that SOX 404 is implemented in a way that contributes to increased investor confidence – but that also does not hamper America’s competitiveness.  Postponing the compliance deadlines for at least an additional year would allow us to make this determination. 

A delay would also provide for the training for small companies and also for auditing firms.  It would also permit the PCAOB’s efficiency inspectors to assess whether audit firms are implementing the new standards in the manner intended.  At a minimum, these steps would help ensure a more effective implementation of these new standards – and recognize the unique situation that many companies find themselves in.

These new standards come at a time when small businesses are already spending 45 percent more than larger firms on regulatory compliance.  To ensure that these burdens become more manageable, we should not be piling new regulations on until they have been thoroughly reviewed.  Today’s hearing will help us accomplish this – and by doing so – it will demonstrate that a delay is necessary to better balance the costs and benefits of these new standards.

I now recognize Mr. Chabot for his opening statement.