[Federal Register Volume 70, Number 150 (Friday, August 5, 2005)]
[Notices]
[Pages 45446-45449]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4232]


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SECURITIES AND EXCHANGE COMMISSION

[Release Nos. 33-8599; 34-52189; File No. 265-23]


Advisory Committee on Smaller Public Companies

subject: Request for public input by Advisory Committee on Smaller 
Public Companies.
AGENCY: Securities and Exchange Commission.

ACTION: Issuance of Request.

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SUMMARY: The SEC Advisory Committee on Smaller Public Companies is 
soliciting public input on issues related to the current securities 
regulatory system for smaller companies, including the impact of the 
Sarbanes-Oxley Act of 2002 on the system. The Advisory Committee is 
doing this by publishing a series of questions and asking interested 
parties to respond to the questions.

DATES: Answers to the questions should be received on or before August 
31, 2005.

ADDRESSES: The questions may be answered in either of the following 
ways:

Online Submissions

     Answer the questions online at (http://www.sec.gov/cgi-bin/acspc-questions) and follow the instructions for submitting your 
answers; or

Paper Submissions

     Send your paper submission, in triplicate, to Jonathan G. 
Katz, Committee Management Officer, Securities and Exchange Commission, 
100 F Street, NE., Washington, DC 20549-9303. You may also fax your 
submission to (202) 772-9324, Attn: Committee Management Officer. All 
paper submissions should refer to File Number 265-23.

FOR FURTHER INFORMATION CONTACT: Questions about this request should be 
referred to William A. Hines, Special Counsel, at (202) 551-3320, 
Office of Small Business Policy, Division of Corporation Finance, 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-3628.

SUPPLEMENTARY INFORMATION: The questions below are being published at

[[Page 45447]]

the request of the SEC Advisory Committee on Smaller Public Companies 
to solicit public input on the issues raised. All interested parties 
are invited to submit their answers to any or all of these questions in 
the manner described above. The text of the solicitation of public 
input is as follows:

Provide Input to the Advisory Committee

    The SEC Advisory Committee on Smaller Public Companies is 
seeking input from the public on ways to improve the current 
regulatory system for smaller companies under the securities laws of 
the United States, including the Sarbanes-Oxley Act of 2002 
(``SOX''). The Advisory Committee is especially interested in 
hearing from smaller companies and their managements about their 
experiences with the existing regulatory framework. The Advisory 
Committee is also very interested in hearing from investors. The 
questions set forth below have been prepared by the Advisory 
Committee. The questions and statements set forth below have not 
been prepared by and do not reflect any position or regulatory 
agenda of the Commission.
    You should not assume that there is a set cut-off in size of 
smaller companies in responding to the Advisory Committee's request. 
For example, answers reflecting experiences of management or 
investors regarding companies with sales or market capitalization of 
$100 million, or $750 million, or even more are appropriate where 
answers provide a basis for considering the company to be a smaller 
company. You should indicate in your answers the size of the company 
or companies and the basis of measurement (e.g., sales, market 
capitalization, number of employees) to which your answers relate.
    Answers should be received on or before August 31, 2005. 
Questions about this request should be referred to William A. Hines, 
Special Counsel, at (202) 551-3320, Office of Small Business Policy, 
Division of Corporation Finance, Securities and Exchange Commission, 
100 F Street, NE., Washington, DC 20549-3628.
    The Advisory Committee welcomes responses that answer any or all 
of the questions, and that provide answers in whatever order or 
format the responder chooses. Responders that prefer to provide 
general responses rather than responses to specific questions may 
prefer to respond in paper rather than online at this Web site 
address. Paper submissions should be sent, in triplicate, to 
Jonathan G. Katz, Committee Management Officer, Securities and 
Exchange Commission, 100 F Street NE., Washington, DC 20549-9303. 
You may also fax your submission to 202-772-9324, Attn: Committee 
Management Officer. All paper submissions should refer to File 
Number 265-23.
    The Advisory Committee intends to keep individual identifying 
information (such as names, personal phone numbers and e-mail 
addresses) confidential and publish only a compendium of answers 
given in response to these questions, without individual identifying 
information. However, you should submit only answers that you would 
not object to becoming publicly available.
    You are encouraged but not required to provide the following 
information:

 Name:-----------------------------------------------------------------

 Organization:---------------------------------------------------------

 Street Address:-------------------------------------------------------

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 City:-----------------------------------------------------------------

 State/Province/Country:-----------------------------------------------

 Zip or Postal Code:---------------------------------------------------

 Telephone Number:-----------------------------------------------------

 E-Mail Address:-------------------------------------------------------

    And for those responses that relate to a specific 
company:Company:

 Street Address:-------------------------------------------------------

-----------------------------------------------------------------------

 City:-----------------------------------------------------------------

 State/Province/Country:-----------------------------------------------

 Zip or Postal Code:---------------------------------------------------

 Company Market Capitalization:----------------------------------------

 Other Company Size and Basis of Measurement:--------------------------

General Impact of Sarbanes-Oxley Act

    1. Has SOX changed the thinking of smaller companies about becoming 
or remaining a public company? If so, how?
    2. Has SOX affected the relationship of smaller companies with 
their shareholders? If so, how?
    3. Do you believe SOX has enhanced, or diminished, the value of 
smaller companies? Please explain.
    4. Has the current securities regulatory system, including SOX, 
increased or decreased the attractiveness of U.S. capital markets 
relative to their foreign counterparts for companies? For investors? 
Please explain.
    5. Does the current securities regulatory system adversely impact 
or enhance this country's culture of entrepreneurship? Has the current 
system impaired or enhanced the ability of American companies to 
compete on a global basis? If so, how?
    6. Has SOX resulted in a diversion of the attention of company 
management away from operational activities, or otherwise imposed an 
opportunity cost on the management of smaller public companies? If so, 
have the benefits of SOX justified the diversion or opportunity cost? 
Please explain.
    7. Does the current securities law disclosure system properly 
balance the interests of investors in having access to complete and 
accurate information for making investment decisions with the need for 
companies to protect information for competitive reasons? Please 
explain.
    8. Has the current securities regulatory system had an impact on 
the amount and type of litigation to which smaller companies are 
subject? Has the overall impact on companies, investors and markets 
taken as a whole been positive or negative? Please explain.
    9. Has SOX changed the capital raising plans of smaller companies? 
If yes, how have those plans changed? Has SOX affected the thinking of 
smaller companies about buying or being acquired by other companies or 
looking for merger partners or acquisition targets? Explain your answer 
and indicate any way in which SOX has changed a smaller company from a 
buyer to a seller of a business, or vice versa.

SOX Section 404/Internal Controls

    10. In developing a ``risk-based'' approach for assessing and 
auditing internal control over financial reporting for smaller 
companies under SOX Section 404, what criteria would you use to 
categorize internal controls from the highest risk to the lowest risk 
controls?
    11. Do you believe that at least some SOX Section 404 internal 
controls for smaller companies can be appropriately assessed less often 
than every year? If so, what controls do you think need to be assessed 
by management every year? What controls do you think need to be 
assessed at least every two years? What controls do you think could be 
assessed only once every three years?
    12. Current standards require that the auditor must perform enough 
of the testing himself or herself so that the auditor's own work 
provides the principal evidence for the auditor's opinion. Are there 
specific controls for smaller companies for which the auditor should 
appropriately be permitted to rely on management's testing and 
documentation? Are there specific controls for smaller companies where 
this is particularly not the case?
    13. Is the cost and timing of SOX Section 404 certification a 
deterrent to smaller companies going public? Are there companies where 
this deterrent is appropriate? (I.e., are there companies that should 
not go public and is SOX Section 404 one appropriate control on the 
process?) If there is such a deterrent, would it be appropriate to 
provide some exemption or special consideration to companies that have 
recently gone public, and for how long would you extend this special 
treatment?
    14. Do the benefits of SOX Section 404 outweigh its costs for 
smaller companies? Please explain. Would you support a total exemption 
from SOX Section 404 requirements for smaller companies? Why or why 
not? Would such an exemption have a negative effect on investors' 
interests or

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perception regarding smaller companies? Why or why not?

Accounting/Auditing

    15. Has SOX affected the relationship of smaller companies with 
their auditing firms? If yes, how? Is the change positive or negative?
    16. Are the current accounting standards applied to all U.S. 
companies appropriate for smaller companies? If not, please explain 
what revisions to existing standards might be appropriate.
    17. For smaller companies, would extended effective dates for new 
accounting standards ease the burden of implementation and reduce the 
costs in a desirable way? How would such extensions affect investors or 
markets? Would allowing a company's independent auditors to provide 
more implementation assistance than they are able to currently reduce 
such burdens or costs? Would such a step positively or negatively 
affect the quality of audits? Please explain.

[The Advisory Committee is particularly interested in responses to 
questions 18-20 from companies with a market capitalization of $100 
million or less.]

    18. Would auditors providing assistance with accounting and 
reporting for unusual or infrequent transactions impair the auditors' 
independence as it relates to smaller companies? Would providing such 
assistance reduce the cost of compliance for smaller companies? What 
would be the impact on the quality of audits, investors or markets? 
Please explain.
    19. Is the quarterly Form 10-Q or Form 10-QSB information valuable 
to users of the financial statements of smaller companies? Would a 
system that required semi-annual reporting with limited revenue 
information provided in the other quarters reduce costs of compliance 
without decreasing the usefulness of the reported information to 
investors? Please explain.
    20. Is segment information useful for smaller companies? Please 
explain.
    21. Should accounting standards provide smaller companies with 
different alternatives for measuring accounting events that would 
reduce the amount of time that would otherwise be spent by smaller 
companies to comply with those accounting standards? If these 
alternatives were available to smaller companies, would smaller 
companies take advantage of them even if the results of the 
measurements obtained from the alternatives were less favorable to them 
in the short term? Why or why not?

Corporate Governance/Listing Requirements

    22. Are the listing standards of the New York Stock Exchange, the 
American Stock Exchange, other exchanges or Nasdaq that require a 
majority of independent directors and independent audit, nominating and 
compensation committees (or in the alternative, in the case of Nasdaq, 
that nomination and executive compensation decisions at a minimum be 
recommended or determined by a majority of the independent directors) 
creating a hardship for smaller companies? Are there benefits to 
companies and investors of these listing standards in the context of 
smaller companies? Do the hardships outweigh the benefits in the case 
of smaller companies? If so, should these standards be revised for 
smaller companies, and, if so, how? In each case please explain. Are 
smaller companies experiencing difficulty finding independent directors 
to satisfy these listing standards (including independent directors 
with the required level of financial literacy and sophistication for 
audit committee service)? What steps are being undertaken to meet these 
requirements?
    23. Other than director independence and concerns related to SOX 
Section 404-mandated internal controls, do you believe other aspects of 
governance and disclosure reform are unduly burdensome for smaller 
companies, taking into account the benefits they provide to investors 
and markets? If so, please explain which items are unduly burdensome 
and the extent of such burden. How could the burdens be appropriately 
ameliorated?
    24. Is the loan prohibition contained in SOX creating a hardship 
for smaller companies? If so, explain the manner in which this hardship 
is being created. Do the benefits to companies and investors outweigh 
the hardships? Should the prohibition be narrowed for smaller companies 
to exempt certain types of transactions where conflicts of interest or 
a likelihood of abuse may not be present?

Disclosure System

    25. Is the relief provided by SEC Regulation S-B meaningful? Why or 
why not? Should the SEC provide an alternative disclosure framework for 
smaller companies in the context of securities offerings and periodic 
reporting? Should the alternative framework be available to a broader 
category of companies than Regulation S-B is currently? Should the 
alternative framework be based on Regulation S-B or on a different 
approach? Could these steps be taken without impairing investor 
protection?
    26. Are the costs of preparing and distributing printed paper 
versions of proxy statements and annual reports to shareholders unduly 
costly for smaller companies? Describe the extent of such costs, and 
the amount that could be saved if the SEC allowed complete electronic 
delivery of documents.
    27. Will the phase-down to the final accelerated reporting 
deadlines for periodic reports under the 1934 Act for companies with 
$75 million market capitalization (ultimately 60 days for Form 10-K and 
35 days for Form 10-Q) be burdensome for smaller companies? If so, 
please explain the manner and extent of this burden. Does the burden 
outweigh benefits to investors and markets for smaller companies?
    28. Should the current limit on the amount of securities that may 
be sold under Securities Act Rule 701 or the $5 million threshold that 
triggers an additional disclosure obligation under that rule be 
increased or modified in any way? Please explain.

Miscellaneous

    29. Is there any other matter relating to the securities laws 
applicable to smaller companies that you wish to comment on or to bring 
to the Advisory Committee's attention?
    Privacy Act Disclosure: Pursuant to subsection (f) of the Privacy 
Act, 5 U.S.C. 552a(f), the Commission, on September 24, 1975, 
promulgated rules relating to records maintained by the Commission 
concerning individuals (40 FR 44068). The rules as amended (17 CFR 
200.301 et seq.) address an individual's rights to know what 
information the Commission has in its files concerning the individual; 
to have access to those records; to petition the Commission to have 
inaccurate or incomplete records amended or corrected; and not to have 
personal information disseminated to unauthorized persons. The full 
text of the Commission's rules implementing the Privacy Act can be 
found in 17 CFR 200.301 et seq.

    Authority: In accordance with section 10(a) of the Federal 
Advisory Committee Act, 5 U.S.C. App. 1, section 10(a), Alan L. 
Beller, Designated Federal Officer of the Committee, has approved 
publication of this release at the request of the Committee. The 
action being taken through the publication of this release, the 
solicitation of public input on various issues, is being taken 
solely by the Committee and not by the Commission.

    The Commission is merely providing its facilities to assist the 
Committee in taking this action.


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    Dated: August 2, 2005.
Jonathan G. Katz,
Committee Management Officer.
[FR Doc. E5-4232 Filed 8-4-05; 8:45 am]
BILLING CODE 8010-01-P