Tech Trade Group Calls for 404 Modifications

AeA, a large trade association to the high technology sector, said that the impacts of the Section 404 requirements of Sarbanes-Oxley is "devastating" to small and midsized companies, and estimates its true implementation costs at $35 billion, compared to Congress' initial projection of $1.25 billion. In a report titled 'Sarbanes-Oxley Section 404: The 'Section' of Unintended Consequences and its Impact on Small Business,' the group makes a series of recommendations to the Securities and Exchange Commission, the Public Company Accounting Oversight Board and Congress, including suspending the 404 mandate for companies with annual revenues of under $1 billion and a proposal to allow companies to annually rotate the internal controls that are scheduled to be tested. "This is the quintessential example of the law of unintended consequences, and Section 404 of Sarbanes-Oxley is not meeting its objectives. It has been an unnecessary burden for small- and medium-sized companies throughout the United States, and while Section 404 is well intentioned, the tremendous increase in cost to smaller companies is out of control," said William T. Archey, president and chief executive of AeA. Alex Davern, chairman of AeA's Sarbanes-Oxley Advisory Committee and chief financial officer at National Instruments Corp., said, "Smaller companies neither require, nor can they afford, the same level of investment in internal controls as larger companies. Implementation of Section 404 needs to be reevaluated and modified to prevent permanent damage to the small- and medium-sized businesses that are the job growth engine of the U.S. economy." A copy of the report can be found at http://www.aea