Meeting requirements initiated by Sarbanes-Oxley Act of 2002
Help is on the way for small businesses struggling to meet stringent requirements initiated by the Sarbanes-Oxley Act of 2002. The Committee of Sponsoring Organizations-at the request of the Securities and Exchange Commission-launched a project this month to help small businesses comply with financial reporting regulations.
The COSO appointed Doug Prawitt, a faculty member in Brigham Young University's Marriott School of Management, to its 15-member task force responsible for the project.
"I'm excited because this is a practical project- helping small companies deal with problems," says Prawitt, professor of accounting.
Considered the most significant change in securities law since the New Deal, the Sarbanes-Oxley Act tightens accounting and financial reporting standards for all publicly traded companies by altering audit procedures, adding oversight and holding corporate executives personably accountable.
Members of the task force come from around the country and all have backgrounds in auditing or small business. Prawitt is one of two academics assigned to the project; he is especially qualified because of his close involvement with COSO's Enterprise Risk Management framework, which was published last fall. For the current project, one of Prawitt's specific responsibilities is to define what control activities small businesses must undertake to achieve accurate financial reporting.
Though all publicly traded companies have faced challenges in complying with the Sarbanes-Oxley Act, small businesses, which generally have simpler information systems and fewer built-in controls, have been especially hard hit by the expenses associated with implementing acceptable systems of internal control.
"You can't impose the same level of costs on small companies or they will fail," Prawitt says. "They need guidance so they can comply effectively but at a cost that won't put them out of business."
The new guidelines from COSO will not change the rules for small companies but rather help them reach the Sarbanes-Oxley internal control requirements in feasible ways. The project will have a fast turnaround, with an online version available for download by May. High demand for the help is expected since 5,000 of the 9,000 companies registered with the SEC have annual sales of less than $200 million.
The Committee of Sponsoring Organizations, an alliance of five major financial and accounting professional associations, was formed in 1985 with the goal of improving the quality of financial reporting. The committee developed an internal control framework in 1992, which has since become a standard in the financial world. The new guidance for small businesses will be an application of the established framework.
Writer: Sarah Chamberlin