President Barack Obama on July 21 signed into law one of the biggest pieces of financial legislation in the nation's history. H.R. 4173, the "Dodd-Frank Wall Street Reform and Consumer Protection Act," became law at 11:30 a.m. on that Wednesday morning.
          The document is 2,319 pages long, which is roughly two Stephen King novels, or almost five reams of paper.
          The legislation is so broad that it leaves to regulators the task of conducting pivotal studies, defining core terms and drafting comprehensive rules, regulations and exceptions that will answer many open questions the bill raised. The bill calls for 47 studies, 74 reports and seven new government bodies or departments.
          But, even in the face of its almost overwhelming scope and two-year time frame to implement, there's at least one piece of immediate relief - and it could help stimulate the elusive economic recovery.
          That relief is that non-accelerated filers (companies with a market capitalization of less than $75 million) are now exempt from Sarbanes-Oxley 404(b) compliance.
          The exemption should reduce administrative compliance costs for smaller public companies, and generate a renewed willingness to raise capital through initial public offerings.
          In the wake of the Enron, Tyco, WorldCom and Global Crossing accounting scandals, the Sarbanes-Oxley Act ("SOX"), was created in the hope of increasing control over financial reporting.
          While many of SOX's requirements are considered to have been in the interest of investors and companies, Section 404 placed a disproportionately large expense burden on smaller public companies. These cost burdens redirect scarce resources away from job creation and investment.
          Sarbanes-Oxley Section 404(a) requires a management report on internal controls and Section 404(b) requires an external audit of internal controls.
Companies of all sizes currently provide the Section 404(a) management report on internal control.
          However, small public companies haven't been subject to the Sarbox 404(b) requirement.
          About one-half of the approximately 10,000 public companies in the United States fall below the $75 million market cap threshold, and won't have to engage (and, of course, pay) their independent auditors to attest to the adequacy of their internal controls.
          Note: Market cap is the total dollar market value of all of a company's outstanding shares. It's calculated by multiplying a company's shares outstanding by the current market price of one share.
          In 2007, Financial Executives International, a 15,000-member organization of financial executives and policy makers based in Florham Park, N.J., with additional offices in Washington, D.C., and Toronto, reported that:
          o Companies were required to dedicate an average of 11,100 people hours internally to comply with Section 404. (That equates to more than five full-time people.)
          o An average of 1,244 external people hours were required to comply.
          o Accelerated filers paid an average of $846,000 in external auditor attestation fees in 2007.
          Even the Securities and Exchange Commission was concerned about the possible burdensome nature of the cost of compliance. According to a 2009 SEC study, Section 404 costs companies an average of $2.3 million each year in direct compliance costs.
          Moreover, the study found that the long-term burden on companies with less than $150 million in public float is greater than seven times that imposed on large firms.
          In other words, the burden on smaller companies is proportionately seven times larger than on larger firms. Many investors would rather see the smaller company's resources be expended toward growth, not section 404(b) compliance.
          In addition to reducing administrative costs for smaller companies, it's hoped that this permanent exemption will re-motivate capital acquisition by increasing the number of IPOs.
          Renaissance Capital of Greenwich, Conn., in a 2009 report said IPO issuances in 2008 and 2009 were lower than in any period since the 1970s, when business creation struggled against inflation, high interest rates and the Vietnam War.
          Additionally, data compiled by Jay Ritter, an economics professor at the University of Florida, show the number of U.S. IPOs was lower in every year after SOX was enacted in 2002 (2003 to present) than in every year of the decade from 1991 to 2000, including the early 1990s recession years. For instance, in the boom post-SOX year of 2006, there were 162 U.S. IPOs. Yet in 1991, a year when the U.S. was mired in recession but didn't have SOX, there were 295 U.S. IPOs.
          As the mammoth work commences to implement the new Dodd-Frank bill, this tiny, one-sentence exemption may provide one of the most powerful economic incentives yet.