SOX News

CII Opposes Further Section 404 Delays

(Dec 13, 2007)-- The Council of Institutional Investors opposes any further delay in the date by which most U.S. public companies must comply with the internal control requirements of Section 404 of the Sarbanes- Oxley Act of 2002. The Securities and Exchange Commission (SEC) has repeatedly deferred audits of internal controls for small business, which comprise the vast majority of U.S. companies. The SEC today proposed yet another rollback, to 2010, almost eight years after the law was enacted.

"Further annual extensions are unwarranted, unwise and unacceptable to investors," said Ann Yerger, the Council's executive director. "There is no compelling evidence that small companies need more time to adjust to the internal control rules. These annual reprieves are starting to look like a de facto derailing of a critical investor protection."

The Sarbanes-Oxley Act was a response to a shocking series of corporate scandals, many of which were caused in part by lax or inadequate internal controls. The scandals cost staggering financial losses and a loss of confidence in the integrity of the U.S. capital markets. The internal control requirements of Section 404 are a core element of SOX and have played a vital role in restoring investor confidence. Studies show that compliance with Section 404 requirements by large corporations has resulted in stronger, more reliable financial reports.

The Council believes that any company tapping the public markets to raise capital, regardless of size, should have appropriate internal controls. Smaller public companies especially need sound internal controls over financial reporting because they are more prone to misstatements and restatements of financial information. Small companies have had several years to prepare to meet the internal control requirements of Section 404, and regulators have eased the way by streamlining the audit standard.

"The time has come for all companies to comply fully with this key investor safeguard," said Yerger.

The Council of Institutional Investors (CII) is a nonprofit association of public, union and corporate pension funds with combined assets that exceed $3 trillion. Member funds are major long-term shareowners with a duty to protect the retirement assets of millions of American workers.

The Council strives to educate its members and the public about corporate governance, and to advocate for strong governance standards at U.S. public companies. Corporate governance covers a spectrum of issues-from disclosure to enforcement-involving the relationship between shareowners, directors and managers of a company. Good corporate governance fosters transparency, responsibility, accountability and market integrity.

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