(San Antonio Express-News (KRT) Via Thomson Dialog NewsEdge) Feb. 16--When the two legislators responsible for the Sarbanes-Oxley Act of 2002 retired last month, it looked as though U.S. businesses might get their demands met for a watered-down accounting bill.

But meaningful change now seems unlikely based on comments from congressional leaders and growing signs that U.S. businesses are adapting to the law's tougher accounting standards, financial experts say.

Starting Dec. 15, small publicly traded companies will probably have to begin certifying that their financial records are in order. Companies with market caps of less than $75 million have received four reprieves from the law.

"This has been a really costly piece of legislation -- affecting compliance expenses dramatically," said U.S. Global Investors Inc. Chief Executive Officer Frank Holmes.

Because of a recent run-up in its share price, his San Antonio mutual fund company began having to comply with the new accounting standards 14 months ago.

Holmes has repeatedly called for reforms because of the new auditing costs.

U.S. Global's expenditures due "mostly to Sarbanes-Oxley" exceeded $900,000 in fiscal 2006, up from $554,000 a year earlier, according tocompany officials.

Congress passed Sarbanes-Oxley, named after Sen. Paul Sarbanes, D-Md., and Rep. Michael Oxley, R-Ohio, in response to accounting scandals involving Enron Corp., Worldcom and accounting firm Arthur Andersen. The law was designed to make auditors more independent of their clients and to increase the transparency of records at publicly traded companies.

Sarbanes-Oxley set waiting periods for auditors who want to work for former clients and made company executives personally liable when financial records are inaccurate. The Securities and Exchange Commission was authorized to ban violators from serving as officers or directors of publicly traded companies. And it now imposes criminal penalties for destroying, hiding or altering records to obstruct a federal investigation.

The law took effect in 2003, with large companies having to comply by '05. Companies with less than $75 million in market capitalization were given extensions.

Opponents say the law's requirement that all "internal controls" be audited is much too vague, requiring costly review of items that don't appear on financial statements. The Competitive Enterprise Institute, a limited-government think tank in Washington, D.C., has suggested that annual audits are not required by the law.

In 2005, companies with less than $1 billion in revenue spent an average of $2.9 million to comply with the requirements, up 174 percent from 2003, according to a survey of proxy statements conducted for the Milwaukee-based law firm of Foley & Lardner.

The record-keeping requirements may have discouraged some initial public offerings and sparked some joint ventures, mergers and acquisitions, according to a 2006 study by Eastern Washington University.

Some companies have delisted from U.S. exchanges and moved to the London Alternative Investment Market.

A New York City-funded report released last month showed the city had lost 0.7 percent of its financial jobs between 2002 and '05 while London gained 4.3 percent.

Other public companies have just gone private, said Steven Jacobs, a Sarbanes-Oxley attorney at Jackson Walker's San Antonio office.

"There's a huge amount of private equity dollars looking for companies and converging with companies who are seeing their audit expenses rise," Jacobs said.

The drumbeat for looser standards has been greatest for smaller companies. Because of their size, they experience some of the largest percentage increases in expenses, according to the Foley & Lardner survey.

The SEC is supposed to release guidance soon telling small-company managers how to prepare for audits.

Congress held hearings on reform last year but has skipped it as a priority on the 2007 agenda.

"I don't expect Sarbanes-Oxley legislation," said Mark Peterson, vice president of congressional and political affairs at the American Institute of Certified Public Accountants.

The new chairmen of both congressional oversight committees have said they will not consider bills to weaken the act.

"I'm not quite as convinced as others are that there is as big a problem associated with Sarbanes-Oxley as some have suggested," said Sen. Christopher Dodd, D-Conn., in November. He took over as chairman of the Senate Banking Committee last month.

There are signs that U.S. companies are adjusting.

Among technology companies that were most leery of the changes, 35 percent said they were considering going public last year, according to the Eastern Washington University study.

A 2006 study showed that as companies get accustomed to the new auditing requirements, the costs drop because accounting consultants are no longer necessary: Expenses dipped 31 percent for midsized companies (between $75 million and $700 million in market capitalization) and 44 percent for companies larger than $700 million between the first and second years of audits, according to the Federal Reserve Bank of Philadelphia.

And, most of all, the 41/2-year-old law is having the desired effect: For instance, while nine companies in a sample of more than 30 had major weaknesses in their internal controls in 2004, just two companies had similar problems in 2005, according to the Federal Reserve report.

"Despite the increased costs, it's improved public perceptions about the markets," said Sharad Asthana, a University of Texas at San Antonio associate professor who has studied the law's impact. "Investors see requiring the signing off by the CEO and CFO as being positive and that they can feel more secure in the quality of earnings." asidime@express-news.net Reform to hit small biz nextreform keyword: Sarbanes-Oxley Head: Sarbanes-Oxley's hear to stay Summary: The legislators responsible for this landmark in corporate governance and accounting have retired, but their 2002 law -- although controversial -- has dodged calls to be watered down.

Web sites: www.sec.gov, www.aicpa.org, and www.phil.frb.org

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