Small companies not doing enough on 404(b)

Are small companies facing a 404(b) nightmare?  

Well, there's a case to be made for that. It goes like this: Non-accelerated filers have gotten accustomed to the annual rite of a compliance "reprieve," which has spared them from detested auditor attestation of internal controls for years now. "These continual delays by the SEC have clearly had the impact of disintegrating any sense of urgency for these companies to achieve compliance," says Thomas A. Basilo, CEO of consultancy WithumSmith+Brown Global Assurance.

If 404(b) ever becomes a reality, you can count on a last-minute scramble that will be painful for many small companies, which of course are resource constrained. Most companies have not taken the many reprieves as an opportunity to move toward eventual compliance. Instead, they've taken a "wait-and-see" attitude, essentially counting on their friends in high places to win them another delay.

So what's a company to do? Voluntarily complying wouldn't be a bad idea. Small companies already have to comply with 404(a). So "theoretically, there should be little difference between what management believes is an adequately documented and performing system of internal control than what an independent auditor might require for certification, but we all know that in practice this may not be the case," Basilo says. No doubt companies have to bite the bullet to some extent.

So why not spare yourself a lot of pain and do it now? You just might discover the same benefits that large firms have. Certainly, it would be a marketable point to investors. - Jim