The microprocessor, air conditioning, the pacemaker and the safety razor. All of these inventions were made by small firms that grew large due to their success, transforming their industries because of their superiority — and the existence of readily available capital markets. However, those markets could be closed to the next generation of small, innovative firms if regulators succeed in imposing costly reporting requirements that discourage a private firm’s decision to go public.
This is the situation the U.S. Securities and Exchange Commission (SEC) is confronted with as it considers how to implement section 404 of the Sarbanes-Oxley Act of 2002, which would require small companies to obtain expensive outside audits for reports on internal controls. The Office of Advocacy of the U.S. Small Business Administration strongly recommends that the SEC provide some flexibility for small companies to comply with the Sarbanes-Oxley Act without incurring costs that could inadvertently shut the door to capital markets.
