Summary of Proposed Committee Agenda of Advisory Committee on Smaller Public Companies, 22378-22380 [05-8622]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 82 (Friday, April 29, 2005)]
[Notices]
[Pages 22378-22380]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-8622]


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SECURITIES AND EXCHANGE COMMISSION

[Release Nos. 33-8571; 34-51610; File No. 265-23]


Summary of Proposed Committee Agenda of Advisory Committee on 
Smaller Public Companies

AGENCY: Securities and Exchange Commission.

ACTION: Request for comments.

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SUMMARY: The Advisory Committee is soliciting public comment on a 
summary of its proposed Committee Agenda. The Committee Agenda sets 
forth the specific issues that the Committee proposes to address in 
connection with its evaluation of the current securities regulatory 
system for smaller public companies, including the impact of the 
Sarbanes-Oxley Act of 2002 on areas under consideration.

DATES: Comments should be received on or before May 31, 2005.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet submission form (https://
www.sec.gov/info/smallbus/acspc.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number 265-23 on the subject line; or
     Use the Federal eRulemaking Portal (https://
www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Committee Management Officer, Securities and Exchange Commission, 450 
Fifth Street, NW., Washington, DC 20549-0609.
    All submissions should refer to File Number 265-23. This file 
number should be included on the subject line if e-mail is used. To 
help us process and review your comments more efficiently, please use 
only one method. The Commission will post all comments on the 
Commission's Internet Web site (https://www.sec.gov/info/smallbus/
acspc.shtml). Comments are also available for public inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20002. All comments received will be posted without 
change; we do not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly.

FOR FURTHER INFORMATION CONTACT: Questions about this release should be 
referred to Kevin M. O'Neill, Special Counsel, at (202) 551-3260, or 
William A. Hines, Special Counsel, at (202) 551-3320, Office of Small 
Business Policy, Division of Corporation Finance, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0310.

SUPPLEMENTARY INFORMATION: At the request of the SEC Advisory Committee 
on Smaller Public Companies, the Commission is publishing this release 
soliciting public comments on the issues that the Committee proposes to 
address. The Commission announced the establishment of the Advisory 
Committee on December 16, 2004.
    The Committee was officially established on March 23, 2005, with 
the filing of its Charter with Congress. The Charter provides that the 
Committee's objective is to assess the current regulatory system for 
smaller public companies under the securities laws and make 
recommendations for changes. The Charter directs the Committee to 
consider the following areas of inquiry, including the impact in each 
area of the Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 116 Stat. 745 
(July 30, 2002): (1) Frameworks for internal control over financial 
reporting applicable to smaller public companies, methods for 
management's assessment of such internal control, and standards for 
auditing such internal control; (2) corporate disclosure and reporting 
requirements and federally-imposed corporate governance requirements 
for smaller public companies; (3) accounting standards and financial 
reporting requirements applicable to smaller public companies; and (4) 
the process, requirements and exemptions relating to offerings of 
securities by smaller public companies, particularly public offerings.
    In accordance with these Charter directives, the Committee approved 
a proposed Committee Agenda at a public meeting held on April 12, 2005. 
A summary of the Committee Agenda is set forth below. The full text of 
the Committee Agenda may be found on the Committee's Web page at http:/
/www.sec.gov/info/smallbus/acspc.shtml. The Committee Agenda identifies 
in general terms the subjects that the Committee proposes to address. 
All interested parties are invited to submit their views, in writing, 
on any or all of the subjects identified, or on any other matter 
relating to the current regulatory system for smaller public companies 
under the securities laws that the Committee should consider 
addressing. The Committee specifically seeks public comment on the 
following questions relating to the proposed summary of the Committee 
Agenda:
    Question 1: Are the subjects identified in the summary of the 
Committee Agenda the right subjects for the Committee to consider?
    Question 2: Should the Committee consider subjects not identified 
in the summary of the Committee Agenda in order to properly fulfill its 
mandate?
    Question 3: Should the Committee not consider some subjects 
identified in the

[[Page 22379]]

summary of the Committee Agenda for any reason, such as to conserve 
resources, to focus resources on other, more critical subjects, or 
because of the limited length of the Committee's 13-month term?
    The Committee is interested in receiving comments identifying 
problems, but is most interested in receiving comments proposing 
solutions to problems.

Summary of Committee Agenda

1. Definition of ``Smaller Public Company''
    1.1. Develop preliminary observations to be used for analysis of 
each substantive area under items 2 through 7 below.
    1.2. Examine appropriateness of existing definitions.
    1.3. How do existing definitions work? Are they meaningful and 
effective? Are they practical? Is it possible to develop risk-based or 
other definitions? Seek economic analysis.
2. Internal Control--Section 404 of Sarbanes-Oxley; S-K Item 308, S-X 
Reg. Sec.  210.2-02(e)
    2.1. Evaluate first quarter 2005 reports.
    2.1.1. Effective control.
     Size/characteristics of company.
    2.1.2. Ineffective control.
     Size/characteristics of company.
     Reasons for failure.
     Materiality of failure.
    2.2. Evaluate benefits and costs/burdens for smaller public 
companies, including disproportionate costs/burdens, competitive 
disadvantages and effectiveness in preventing fraud.
    2.2.1. Seek economic input.
    2.2.2. Consider impact on ``tone at the top.''
    2.2.3. Versus private companies and foreign companies.
    2.3. Evaluate procedures used in first quarter reports.
    2.3.1. Company procedures.
    2.3.2. Auditor procedures.
    2.3.3. What worked well.
    2.3.4. What worked less well or did not work.
    2.4. Mechanisms to evaluate.
    2.4.1. Questionnaires prepared by FEI, NASDAQ and others.
    2.4.2. One or more roundtables held by SEC and PCAOB.
    2.4.3. Other written or oral input.
3. Corporate Governance Standards
    3.1. Review and catalog.
    3.2. Evaluate impact of requiring independent directors for smaller 
public companies.
    3.2.1. Boards themselves and Committees.
    3.2.2. Impact on controlling families or other controlling 
shareholders.
    3.2.3. Impact on other stakeholders.
    3.2.4. Impact of stakeholders on effectiveness of independent 
directors.
    3.2.5. Loss of market and company knowledge and experience.
    3.3. Evaluate impact of independence definitions.
    3.3.1. Boards themselves and Committee.
    3.3.2. Adequate supply of competent directors.
    3.3.3. How are boards/committees performing?
    3.3.4. Cost of board operation.
    3.3.5. Other.
    3.4. Evaluate impact of special requirements on audit committee 
make-up and operation.
    3.4.1. Special independence requirements.
    3.4.2. Financial expertise requirements and disclosure 
requirements.
    3.4.3. Loss of operational knowledge, experience and depth.
    3.5. Recommendations.
4. Effects of other Statutory Requirements and Commission Regulations, 
including under Sarbanes-Oxley, on Smaller Public Companies
    4.1. Officers' certifications.
    4.2. Auditing firm's standards and requirements.
    4.3. Prohibition of loans to executive officers and directors.
    4.4. Other.
    4.5. Recommendations.
5. Disclosure Requirements
    5.1. How do disclosure requirements affect smaller public 
companies?
    5.2. Analyze Regulation S-B (including seeking economic input).
    5.3. Analyze forms and requirements.
    5.3.1. Exchange Act periodic reporting forms (10-K, 10-KSB, 10-Q, 
10-QSB).
    5.3.2. Special Securities Act forms (SB-1, SB-2).
    5.3.3. Are S-B forms helpful, beneficial, effective or negative, 
both for the issuer and the investor market?
    5.4. Identify other aspects of disclosure regime that might be 
modified for smaller public companies.
    5.5. Identify other possible scaling standards.
    5.5.1. Is size the most appropriate standard or is risk?
    5.5.2. Are revenues a better scaling standard for some disclosure 
rules and other regulations?
    5.5.3. Should other alternatives be considered?
    5.6. Liability concerns.
    5.7. Consider issues of delinquent and deficient micro-cap 
disclosure.
    5.8. Evaluate the balance of disclosure to protect investors with 
the competitive needs of smaller public companies.
    5.9. Recommendations.
6. Accounting Principles
    6.1. Evaluate ``one size fits all'' vs. ``Big GAAP-Little GAAP.''
    6.2. Identify priority accounting principles, if any, where 
modifications might be considered for smaller public companies.
    6.3. Emphasize importance of cash in many smaller companies.
    6.4. Analyze overlay and impact of other regulatory schemes 
(financial institutions, insurance, government contractors, etc.).
    6.5. Analyze role of outside audit firms with respect to smaller 
companies, e.g., environmental shift in role of auditors, 
communications with outside auditors, concentration of Big Four 
accounting firms, difficulty in switching audit firms.
    6.6. Analyze whether extended effective dates for smaller companies 
are appropriate for future accounting principles.
    6.7. Recommend changes, if any.
7. Capital Formation
    7.1. Analyze existing structure.
    7.2. Analyze selected exemptions from registration and subsequent 
reporting.
    7.3. Evaluate Regulation A.
    7.4. Analyze investment banker roles.
    7.5. Analyze analysts' coverage.
    7.6. Costs and timing to get access to markets.
    7.6.1. Broader access to capital, including foreign markets.
    7.6.2. Possible roles of capital formation specialists, including 
brokers and ``finders.''
    7.7. Cost of and ability to exit the markets.
    7.8. Possible improvements in interaction and interplay between 
federal law or SEC, state laws or state regulators, and self-regulatory 
organizations and rules (e.g., Rule 15c2-11).
    7.9. Liability issues.
    7.10. Recommendations.
8. Small Business Forums and Related Issues
    8.1. Analyze recommendations from recent SEC Small Business Forums.
    8.2. Review small business statutes (Regulatory Flexibility Act and 
1980 Small Business Investment Incentive Act).
    General Request for Comment: Any interested person wishing to 
submit written comments on any aspect of the summary of the Committee 
Agenda, as

[[Page 22380]]

well as on other matters relating to this release, is requested to do 
so.
    Authority: In accordance with section 10(a) of the Federal Advisory 
Committee Act, 5 U.S.C. App. 1, Sec.  10(a), Gerald J. Laporte, 
Designated Federal Officer of the Committee, has approved publication 
of this release at the request of the Committee. The solicitation of 
comments is being made solely by the Committee and not by the 
Commission. The Commission is merely providing its facilities to assist 
the Committee in soliciting public comment from the widest possible 
audience.

    Dated: April 26, 2005.
Jonathan G. Katz,
Committee Management Officer.
[FR Doc. 05-8622 Filed 4-26-05; 3:07 pm]
BILLING CODE 8010-01-P