09/11/08 Business Start-up Hurdles in Underserved Communities: Access to Venture Capital and Entrepreneurship Training Hearing
09/09/08 Opportunities and Challenges for Women Entrepreneurs on the 20th Anniversary of the Women's Business Ownership Act Roundtable
07/30/08 S.3362, A bill to reauthorize and improve the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs Markup
06/25/08 Examining Solutions to Cope with the Rise in Home Heating Oil Prices Hearing
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Press Room: Statements
April 18, 2007
Kerry Opening Statement on Sarbanes-Oxley
I would like to thank SEC Chairman Cox and PCAOB Chairman Olson and all our witnesses for taking time out of their busy schedules to testify at this hearing today on the effects that the Sarbanes-Oxley regulations have had on small businesses and how we can help small businesses comply with the law.
The United States has the fairest, most transparent and most efficient financial markets in the world. Our nation achieved this status by developing a regulatory approach that insures investors around the world have confidence in our markets.
However, between the years 1998-2000, there were 464 financial restatements by public companies, a number that was higher than the previous ten years combined. Too often, these public companies were overstating their income to attract investors. The trust and confidence of the American people in their financial markets was dangerously eroded by the actions of WorldCom, Inc., Enron, Arthur Andersen and others. The shocking malfeasance by these businesses and accounting firms put a strain on the growth of our economy, cost investors billions in assets and hurt the integrity of our financial markets around the world.
By all accounts, the Sarbanes-Oxley Act has brought back accountability to corporate governance, auditing, and financial reporting for public companies. The audit of internal controls over financial reporting has produced significant benefits and public company financial reporting has improved. As a result, investor confidence in our capital markets has been restored and our nation's economic growth continues. Recent published reports show that accounting restatements on large companies' financial results declined by 20 percent last year. This is important evidence that Sarbanes-Oxley is working.
These improvements, however, have not come without some drawbacks. Too many small public companies who played by the rules are now expected to deal with the time and financial burden required to comply with the Sarbanes-Oxley law. Last year, small businesses with less than $75 million in assets saw the number of financial restatements increase by 46 percent. This shows that small businesses getting ready to comply with Sarbanes-Oxley are having trouble. I believe that we will all benefit when small businesses eventually comply with Sarbanes Oxley. According to a recent United States Government Accounting Office (GAO) study requested by Senator Snowe, the cost of compliance and the time needed for small public companies to comply with Sarbanes-Oxley regulations has been disproportionately higher than for large public companies. Firms with assets of $1 billion or more spend just thirteen cents per $100 in revenue for audit fees, while small businesses are forced to spend more than a dollar per $100 in revenue to comply with the same rules.
As we will hear from the witnesses on the second panel today, this disproportionate burden faced by small public companies may be a deterrent to other small businesses interested in going public. These small businesses aren't resistant to fair and open financial reporting—but they are hesitant to make this transition because of the burdensome costs involved with compliance.
Small businesses are vital participants in U.S. capital markets and play a critical role in future economic growth and high-wage job creation. I have no doubt that our small public companies will be able to comply with the Sarbanes-Oxley law, just as big businesses are doing today. All small public companies know it is in there best interest to have regulations in place that provide transparency and accountability. These are the qualities that encourage investor confidence in U.S. markets. It gives them access to more investors and increases the pool of available capital while keeping their competitors from manipulating the marketplace through faulty accounting.
But, we need to assist small businesses, the backbone of the American economy, in making this transition. To that extent, I am pleased that the U.S. Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) are currently considering final rules and guidance on the implementation of Sarbanes-Oxley that will make it easier for small businesses to comply with the law. While I acknowledge that the intent of the rule changes is to make it easier and less burdensome for small businesses to comply, I think we all know that the devil is in the details. I am looking forward to hearing from Chairmen Cox and Olson on the status of the rulemaking process as well as how the regulations will take into consideration the concerns of the small business community.
As we move forward, there are additional steps that can be taken to assist small business. First, I recently wrote to the SEC and PCAOB with Senator Snowe, urging the regulators to give small businesses up to an additional year to comply with the pending changes to the Sarbanes-Oxley regulations. I believe this added time will help small businesses adapt to the changing regulatory structure and make it easier for those who lack the expertise or financial resources to comply with the law. I want to thank Chairman Cox for his previous support in providing small public companies with additional time to comply with Sarbanes-Oxley.
As Chair of the Committee on Small Business and Entrepreneurship, I will continue to closely follow the impact of Sarbanes-Oxley on small firms and look forward to working with Senator Snowe and my colleagues on the Committee to determine what necessary steps Congress can take to help small public companies abide by the law while simultaneously allowing them to focus on what they do best – creating jobs and growing our economy by participating in our capital markets. This will help small businesses achieve the American dream of becoming innovative public companies.
I look forward to hearing from the witnesses on what we can do to help our small public companies and what we can do to encourage additional small businesses to become public companies -- while ensuring transparency and honest accounting. This will help ensure that the United States continues to have the fairest, most transparent and most efficient financial markets in the world. I would like to now turn to Ranking Member Snowe for her remarks.