The Institute of Management Accountants hailed Securities and Exchange Commission Chairman Christopher Cox's plan to delay implementation for one year of Sarbanes-Oxley Section 404(b) requirements for small public companies, but expressed some reservations.

The IMA pointed out that there are still no systematic changes to create a practical implementation framework of SOX 404 for small businesses, so they need to rely instead on consultants and other third parties. The organization complained that the management guidance is too vague and not truly risk-based.

In addition, the IMA pointed out that the one-year delay for small businesses actually creates a two-year time gap in which management is solely responsible for giving its opinion on the effectiveness of internal controls, creating potential legal liability. The IMA also has reservations about the cost-benefit survey that the SEC's Office of Economic Analysis is conducting.

The IMA helped lobby for passage earlier this year of the Small Business SOX Compliance Extension Act, as part of the Financial Services Appropriations Act for FY08. Sponsored by Rep. Scott Garrett, R-NJ, and Tom Feeney, R-FL, the amendment extends the amount of time by one year for small businesses to comply with Section 404 reporting requirements.

Feeney also praised the SEC's move. "By delaying this SOX requirement, we are giving our small businesses more time to ensure that they are not unfairly hurt without jeopardizing the accountability goals of the initial SOX legislation," he said in a statement.

Accounting firm Grant Thornton expressed sharper disagreement with Cox's plan, saying that the proposed delay was neither warranted nor prudent. Grant Thornton pointed out that few smaller public companies have taken advantage of the SEC's prior deferrals of the Section 404 effective date to properly prepare, so the SEC's ability to gather accurate cost statistics for smaller firms for its upcoming report will be impaired.

Grant Thornton also argued that there is evidence that Section 404 has improved the quality of financial reporting for companies that have implemented it, and that smaller companies are more prone to major internal control weakness, financial restatements and fraud.

The firm warned that an announcement of yet another delay would further bolster smaller public companies' expectations that Section 404 may never apply to them and thus reduce their willingness to invest additional effort in evaluating the effectiveness of their internal control systems.

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