Until today, qualifying as a smaller reporting company, or SRC, also meant that a company qualified, by definition, as a non-accelerated filer.  That is, the company, by qualifying as an SRC, also qualified for exemption from the requirements of section 404(b) of Sarbanes-Oxley.  This provision, as we have heard this morning, requires companies to obtain an auditor attestation of internal controls.  The cost of this exercise is considerable.  In 2011, DERA estimated compliance at close to $1 million annually, although other estimates have placed the cost at several times that amount for smaller companies.[2]

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[2] U.S. Securities and Exchange Commission, Division of Economic and Risk Analysis, Study and Recommendations on Section 404(b) of the Sarbanes-Oxley Act of 2002 for Issuers with Public Float Between $75 and $250 Million, April 2011 (available at https://www.sec.gov/news/studies/2011/404bfloat-study.pdf).  Dhammika Dharmapala, of the University of Chicago Law School, has found, however, that for firms around the $75 million threshold, the costs are closer to $4 to $6 million.  Dharampala, "Estimating the Compliance Costs of Securities Regulation: A Bunching Analysis of Sarbanes-Oxley Section 404(b)," Harvard Law School Forum on Corporate Governance and Financial Regulation, Aug. 17, 2016 (available at https://corpgov.law.harvard.edu/2016/08/17/estimating-the-compliance-co…). 

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