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Smaller public companies may get a reprieve from a key provision of the Sarbanes-Oxley Act if an advisory panel to the Securities and Exchange Commission gets its way. The Advisory Committee on Smaller Public Companies voted Wednesday to recommend exempting about 80 percent of public companies from �404 of the Sarbanes-Oxley Act of 2002, a key provision requiring management to test its internal controls and then have an outside auditor attest to the assessment. The committee agreed with the smaller companies that have been complaining they are excessively burdened by the law’s requirements. The SEC’s advisory committee voted to recommend rolling back that requirement entirely for companies with a market capitalization of $125 million or less, which accounts for about half of the publicly traded companies. However, newly exempt companies would then be subject to stricter corporate governance requirements. Larger companies — those with a market capitalization of between $125 million and about $750 million and prior-year revenue of no more than $250 million — would also be exempt from hiring an outside auditor to test internal controls under the panel’s recommendations. Executives at larger companies would still be required to submit an annual assessment of the quality of their internal controls. All but one panel member agreed to the preliminary recommendations. The lone dissenting voice came from Kurt Schacht, the executive director of the CFA Centre for Financial Market Integrity, who said that while he agreed that something had to be done for smaller companies, such a wide-ranging exemption may result in a legal challenge. Schacht noted that exemptions from �404 may not be possible under the current legislation, which specifically excluded �404 from the Securities and Exchange Act of 1934. “As the full committee works toward final recommendations, it would be well served to resolve that issue, as I expect there will be legal challenges of this authority,” Schacht said. The SEC’s advisory panel is scheduled to next meet again in late January and will issue its final, nonbinding recommendations in the spring. The recommendations will be published for public comment before the SEC decides whether to adopt some or all of them. Meanwhile, at a separate meeting, the SEC voted to require some companies to file financial reports faster but pushed back implementation of the new schedule for large companies to early 2007, when most 2006 annual reports come out. The agency’s five commissioners all agreed that large companies, those with market capitalizations above $700 million, will have to issue their annual reports within 60 days after their fiscal year-end dates, shortened from an interim 75-day deadline. But they will not have to meet the new deadline until they file reports for fiscal years ending on or after Dec. 15, 2006, the SEC said. Midsized companies, those with $75 million to $700 million in market capitalization, will keep the 75-day deadline for annual reports that is currently in place. Both large and midsized companies must file quarterly reports within 40 days after their quarter ends under the new rules, compared with 45 days under the old rules. The smallest companies, those with market capitalizations of under $75 million, will see no changes and have 90 days to file annual reports and 45 days for quarterlies, the SEC said. Copyright �2005 TDD, LLC. All rights reserved.

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