David Feldman's book, Reverse Mergers: Taking a Company
Public Without an IPO, now in its third printing, was published in 2006
by Bloomberg Press (available on http://www.amazon.com).
View David Feldman's reverse merger blog at www.reversemergerblog.com.
Joseph Smith and David Feldman are coauthors of PIPES:
Revised and Updated Edition - A Guide to Private Investments in Public Equity
(Bloomberg Press, 2005) available on http://www.amazon.com.
In the News
David
Feldman quoted in article from The Deal
on May 23, 2007 concerning SOX relief.
SEC:
Small Biz Gets No Sox Relief
by
Donna Block
While
the Securities and Exchange Commission
approved new management guidance Wednesday.
May 23, 2007 to help companies navigate
the most burdensome provision of the
Sarbanes-Oxley Act, it also said it
was not necessary to give smaller companies
additional time to comply with the law.
The agency approved, by a 5-0 vote,
guidance encouraging all companies to
take a more risk-centric and principles-base
approach to complying with the law's
bedeviling Section 404, which governs
internal auditing controls.
"Congress never intended that the 404
process should become inflexible, burdensome
and wasteful," SEC Chairman Christopher
Cox said at the agency's open meeting.
He added that Congress has been "attentive"
to the impact of the law on small companies.
Sens. John Kerry, D-Mass., and Olympia
Snowe, R-Maine, asked Cox in a recent
letter to provide more time for small
public companies to comply with the
latest rules.
Two lawmakers, who are the chairman
and ranking member of the Senate Small
Business Committee, respectively, said
an extension would allow companies to
properly design and test internal controls
measures, make adjustments for any difficulties
and bring company employees up to speed
on what is expected.
They also worry that with so many smaller
companies -- about 6,000 -- filing for
the first time too few qualified professionals
will be available to assist in preparing
the new reports.
"It will take some time to fully assess
how the EC's final rules will impact
small public companies, as the devil
is in the details. However, I am disappointed
that the SEC chose not to honor the
request Sen. Snowe and I made for an
extension of the compliance deadline
for small businesses," Kerry said in
an e-mailed statement Wednesday.
"It is not too late for the SEC
to change direction and grant small
companies the extension they deserve,"
Kerry added.
But SEC staff members dismissed concerns
that small companies could not comply
with new guidance.
Small companies with less than $75 million
in market capitalization are not scheduled
to comply with the management guidance
part of the Section 404 until the 2007
audit cycle.
Zoe-Vonna Palmrose, the SEC's deputy
chief accountant, said the guidance
was "doable and doable in 2007 for companies
of all sizes." Palmrose added that the
guidance s a good springboard for smaller
companies and "they have the information
they need to go forward."
Sarbanes-Oxley's 404 provision requires
companies to assess their internal controls
over financial reporting. It also calls
for external auditors to attest to management's
assessment on the control's themselves.
With the changes, regulators aim to
strike a balance between reducing the
costs of regulation and preserving safeguards
for investors, and to clarify how the
rules are interpreted and implemented.
The guidance "is intended to right-size
the evaluation and assessment efforts
of managements, and it's intended to
do that for companies of all sizes,"
Cox said, adding investors will benefit
from reduced compliance costs.
"This is very important for
small companies," said David Feldman,
managing partner of Feldman Weinstein
&Smith LLP, a New York-based law
firm.
Feldman added that the new guidance
will allow small companies to save valuable
resources since under it, "only those
things that could have a material impact,"
need to be tests. The new guidance
allows managers to focus on the riskiest
controls, results in less testing of
controls overall.
Originally, proposed in December, the
guidance applies to firms of all sizes.
Feldman said the agency may
institute a process by which some companies
could get an extension if they cannot
complete the assessment in time.
SEC commissioner Paul Atkins, who has
frequently been critical of SOX, said
Wednesday's vote does not "preclude"
the commission acting on provisions
of the law at a later time. Atkins has
expressed concern that some of SOX's
requirements were anticompetitive and
some companies may decide not to go
public under the existing rules. "I
think we have to play it by ear," he
said.
Bill Gienke, director of Technical Market
Intelligence for Jefferson Wells, a
professional services company, said
small companies have enough time to
work thorough the new rules but must
anticipate what will directly affect
the planning, testing and effort necessary
to comply with SOX.
"They should go through the whole
process and shouldn't shortchange the
process," Gienke said, adding that waiting
until the last minute can "put you behind
the 8-ball."
The Public Company Accounting Oversight
Board is scheduled to vote on Thursday
on its revised guidance for auditors,
which is also a more risk-based approach
to assessing a company's internal controls.
Separately at Wednesday's meeting, the
SEC adopted new rules giving it greater
authority over credit raint agencies
with a view toward increasing competition
in the industry.
The commissioners voted unanimously
to approve the regulations implementing
legislation Congress approved last year.
The companies now dominate the industry--Moody's
Corp. unit Moody's Investors Service
McGraw-Hill Cos. unit Standard &
Poor's and the Fitch Ratings unit of
France's Fimalac SA.
The new rules give the SEC clearer authority
over the agencies and detail requirements
for registration, record keeping and
financial reporting. The rules lay out
what the credit rates must do to become
"nationally recognized."
