Sarbanes Oxley Act and Small Businesses Owners


Tim J. Smith, PhD
Founder and CEO, Wiglaf Pricing

Published September 1, 2004


Your financial business infrastructure needs to be made aware of the SOA “role” of its Internal Auditor, who has primary responsibilities of gathering, reviewing and analyzing its financial papers, as it relates to approvals or detailed reasons of disapproval. Here lies the beginning of internal control of financial reporting, as it interfaces with Section 404.

  • Does it begin with the SEC requirements?
  • Does it begin with your Certified Public Accountant or Internal Auditor?
  • In reality it pragmatically begins with an internal document known as the Small Business’s Code of Accounting Ethics. The Code documents your internal control of financial reporting, in compliance with key sections of the Act
    • Section 302 – CEOs and CFOs must personally certify their companies’ financial results.
    • Section 409 – real time issuer disclosures are required for system integration and implementation
    • Section 404 – auditors are required to certify the underlying controls and processes that companies use to report financial results
  • You need to promulgate and understand rules of the SOA road, as it may apply to your business

Assumptions and Constraints

Section 404 applies to all companies that file Exchange Act periodic reports, regardless of their size. SEC recognizes “small business issuers are companies that have a public common stock capitalization that is less than $75 million and are eligible to file annual reports on Form 10-KSB.

To facilitate the financial approval and reporting process, it may become temporarily necessary to perform the auditing process on a monthly basis; as it pertains to month-end closing, and preparation of its P&L statement and Balance Sheet and supporting accounting work papers. It may be considered an on-going building-block endeavor.

Glaring accounting problem areas are to be identified, documented and referred to your CFO.

Monthly corrections, updates are to be reflected in the corporate SOA policies and procedures and discussed with the CEO and CFO. Preventive measures are to be implemented accordingly and monitored by the Auditor and approved by the Head of Accounting, to thwart future replication of the same or similar problems.

Minor accounting transaction imbalances are to be reported corrected and approved by the responsible corporate department head.

It becomes the responsibility of the President or his/her designee to provide “documented” assurance that the transactions have been accurately recorded and processed in manifest the data in preparing and approving financial statements; as attested by the company’s Code of Accounting Ethics.

This is to include reasonable financial expenditures authorized by certifying officers and major stockholders or external Board of Directors. Detection of unauthorized expenditures that may impact the statements require investigated, and remedied according to the Code of Accounting Ethics. Final SEC annual reports are to be filed on Form 10-KSB.

This Code is to include references to the SEC “disclosure controls and procedures” that are reflected in your company’s Exchange Act reports, time frames and SEC rules and forms plus references to your firm’s responsibilities of its “certifying” officers. These measures are a safeguard to the overall accuracy and completeness of the certification statement, reflecting a true presentation of the financial statements.

To monitor the effectiveness of disclosure controls and procedures, your Owner or President may designate a Board of Directors committee to ensure appropriate SEC compliance.

So you say that our corporation doesn’t have any promulgated accounting rules or procedures to facilitate Sarbanes-Oxley Act compliance. And if you do have such a document, have you tested it?

Has your CPA contacted SEC regarding Section 404 and his/her role in monitoring internal reporting and filing compliance?

What you really need is a management consultant who has worked with small businesses and can expeditiously develop a customized SOA accounting compliance policy and supporting procedures.

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About The Author

Tim J. Smith, PhD, is the founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, and the author of Pricing Done Right (Wiley 2016) and Pricing Strategy (Cengage 2012). At Wiglaf Pricing, Tim leads client engagements. Smith’s popular business book, Pricing Done Right: The Pricing Framework Proven Successful by the World’s Most Profitable Companies, was noted by Dennis Stone, CEO of Overhead Door Corp, as "Essential reading… While many books cover the concepts of pricing, Pricing Done Right goes the additional step of applying the concepts in the real world." Tim’s textbook, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, has been described by independent reviewers as “the most comprehensive pricing strategy book” on the market. As well as serving as the Academic Advisor to the Professional Pricing Society’s Certified Pricing Professional program, Tim is a member of the American Marketing Association and American Physical Society. He holds a BS in Physics and Chemistry from Southern Methodist University, a BA in Mathematics from Southern Methodist University, a PhD in Physical Chemistry from the University of Chicago, and an MBA with high honors in Strategy and Marketing from the University of Chicago GSB.