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A key lawmaker on Wednesday expressed concern over the Securities and Exchange Commission’s decision earlier this week to give small businesses and non-U.S. companies an additional year to comply with an important provision of the anti-fraud Sarbanes-Oxley Act. “Unless we move forward we will have different companies operating with different standards,” Sen. Paul S. Sarbanes, D-Md., ranking member of the Senate Commerce Committee, told SEC Chairman William Donaldson at a hearing on the securities industry. This week the SEC gave companies with less than $75 million in market capitalization, and foreign public companies of any value, an additional year — until July 2006 — to develop systems to comply with the internal-control reporting aspects of the Sarbanes-Oxley Act, passed in response to the spate of recent corporate scandals and intended to improve internal controls over financial reporting. Companies capitalized at $75 million to $700 million will have an additional 45 days after their fiscal year ends to comply with the measure. Companies capitalized at more than $700 million are already expected to meet the requirements. Donaldson defended the delay, adding that small businesses generally have fewer resources to devote to meeting major regulatory changes. “Review of the first-year experiences of our larger registrants also should help smaller and foreign issuers in preparing their first reports,” he said. He pointed out that foreign European companies are already busy complying with new European Union accounting standards and that the delay will ensure that these businesses are not overwhelmed with reporting changes. On a separate issue, the SEC chairman also defended a controversial Financial Accounting Standards Board rule requiring companies to deduct the cost of employee stock options from profits starting June 15. “The valuation models used in the rule have been subject to a great deal of investigation by FASB,” Donaldson said. Sen. Robert Bennett, R-Utah, blasted the FASB rule, arguing that it will expose chief executives to legal liabilities and that analysts reviewing company financial statements will pay no attention to how corporations account for stock options. Bennett, who agrees that stock options should be expensed, also pointed out that the FASB plan to let different types of companies use different valuation models introduces complexity that will discourage companies from offering employee stock options, a critical form of compensation especially among high-tech companies. “You, sir, are the last gatekeeper protecting us from this insanity,” Bennett said. “I’m pleading with you to find some way through this thicket.” Donaldson said that the different valuation models generally produce similar results, indicating companies should have no difficulty picking a model. He said analysts normally read footnotes in annual reports detailing how stock options impact earnings, and therefore should be able to take into account the impact of expensing. The SEC, which oversees FASB, plans to issue guidance for implementing the expensing rule this month. Copyright �2005 TDD, LLC. All rights reserved.

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