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AeA SOX Committee invades DC to ask for Section 404 relief

AeA member companies meet with the GAO at AeA's DC headquarters

Executive Summary: The March 1 Lobby Day that the AeA SOX Committee spent in Washington was the perfect example of the kind of effect executive involvement can have on critical public policy issues. The face-to-face interaction was significantly more powerful than just written words in conveying the overall impact that SOX 404 is having on small and mid-sized companies.

Key regulatory players saw the honest emotion and commitment from our executives as they explained the unreasonable burden that these regulations forced on smaller companies. Job creation is being delayed, shareholder value is being lost, and competitiveness is being weakened. This was the consistent and credible message that each executive on the SOX team communicated. And it was clear to AeA staff that the government audiences listened and listened hard.

The Lobby Day: AeA’s SOX 404 National Committee conducted a very successful blitz on Washington, DC on March 1 to make the case that the SOX 404 requirements are breaking the backs of small and medium companies across the country.

The 15 AeA member company executives traveled from across the nation for meetings with the following decision makers:

• Senator Sarbanes’ Office: Steven Harris, Senate Banking Committee Democratic Chief Counsel 

• Government Accountability Office (GAO) 

• PCAOB: Chairman William McDonough, Board Member Daniel Goelzer, and all the senior regulatory staff.

Senator Sarbanes: The committee started the day off by meeting with Steve Harris to discuss AeA’s report, "Sarbanes-Oxley Section 404: The 'Section' of Unintended Consequences and its Impact on Small Business." Mr. Harris made it very clear that Congress would not reopen the law for any modifications, but he also made it clear that he had heard numerous complaints about the implementation of SOX 404. He asked the AeA Committee to prepare a briefing paper summarizing the most important recommendations. The AeA delegation asked that the Senate conduct oversight hearings on the huge cost of implementing section 404. Mr. Harris encouraged the Committee to continue educating the SEC and PCAOB since AeA has caught the attention and ear of the very regulators who have oversight of section 404.

Note: Late on Wednesday, Mr. Harris contacted AeA asking us to prepare a one-page briefing paper for use with Sen. Paul S. Sarbanes (D-MD). The one-pager included a short statement of the problem that smaller companies are experiencing over compliance with Section 404 and AeA proposed actions to be taken by the SEC and the PCAOB to bring relief to our member companies.

GAO: Later in the morning, Directors and senior analysts from the GAO joined the committee at AeA to discuss the GAO’s study on Sarbanes-Oxley that they are writing. The GAO has been asked by the Senate Small Business Committee to study the cost of Sarbanes-Oxley for smaller businesses. This was the second time the GAO has met with AeA on this issue in about a month. The two-hour meeting flew by, with Committee members sharing their thoughts on the benefits and burdens of Sarbanes-Oxley in general, as well as on Section 404, and with the GAO asking pointed questions to assist them in completing their report to Congress. This report is critical to providing Members of Congress the necessary third party validation on the true impact of SOX 404 on smaller businesses.

PCAOB: Finally, in the afternoon, the Committee met for nearly two hours with the PCAOB for what was without question, one of the most professional meetings the executives had ever attended. The AeA Committee discussed its recommendations on how to improve Section 404’s implementation, and the group had a frank and lively exchange on how Section 404 is being interpreted in practice.

In their own written agenda for the meeting, the PCAOB explicitly used the AeA recommendations in their entirety. AeA executives used the opportunity to express their grave concerns with the way accounting firms were interpreting the PCAOB standards and the fact that auditing expenses and fees have gotten completely out of control. PCAOB Board members and staff took copious notes, asking probing questions about current accounting practices.

Several PCAOB participants commented that there was a great deal of common ground with AeA. The AeA Committee’s perception was that if relief is provided it will be only after the PCAOB works through its authority, the SEC’s authority, and the authority of Congress. Although PCAOB Chairman McDonough was non-committal as to specific action that the Board would take, he was clearly concerned that smaller companies were being adversely affected by the implementation of SOX 404.

PCAOB Board members and staff were visibly displeased upon hearing the dramatic stories recounted by company executives, and reiterated their own published guidance that the rules were never intended to be “one size fits all.”

To see a copy of AeA’s definitive white paper on Sarbanes Oxley 404, go to:

http://www.aeanet.org/soxreport

NEWS UPDATE: The day after our meetings, the SEC announced a one year delay in the section 404 filing requirement for many companies under $75 million in market capitalization. As some of you know, AeA has met twice with the Chief Accountant of the SEC. We believe that these meetings were not an unimportant factor in the SEC decision.

"Huge kudos, once again, to the AeA team for its incredible efforts and results vis-a-vis our recent SARBOX meetings.  We know that we would not have had either the access or the substance had it not been for AeA's efforts."

Carol Bernstein, Vice President, Secretary, General Counsel
Cabot Microelectronics, Inc.
Aurora, IL

"I want to extend my personal thank you to the entire AeA organization for the diligence and commitment that was exhibited in getting the SOX 404 rule postponed for small business filers. This news will positively impact our profitability this year, and for that we and our shareholders are grateful. Thank You AeA!"

Janet M. Biski, Chief Financial Officer
SRS Labs, Inc.
Santa Ana, CA 

For more information on AeA's Sarbanes-Oxley Section 404 grassroots initiative visit http://www.aeanet.org/sox or contact:

• Marie Lee
  Tax Counsel/Manager, Tax Policy
  202.682.4448
  
  
• John Palafoutas
  Senior VP, Domestic Policy
  202.682.4451

For more information on AeA contact:

• Rob Haralson
  Director, Public Communications
  202.682.4443

This page was last updated on 03/04/05.  
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