An advisory group is calling on the U.S. Securities and Exchange Commission to provide some relief from Sarbanes-Oxley for smaller companies.

The SEC’s Advisory Committee on Smaller Public Companies was established just over a year ago to assess the current regulatory system for smaller companies. Today, it submitted 33 recommendations to the SEC addressing a variety of issues.

Its primary recommendation concerns the establishment of a new system of scaled or proportional securities regulation for smaller public companies based on a stratification of smaller public companies into two groups, micro-cap companies and small-cap companies.

It the meantime, it calls on the SEC to provide exemptive relief from the internal control reporting requirements of the Sarbanes-Oxley Act (SOX 404) to micro-cap companies with less than US$125 million in annual revenue, and to small-cap companies with less than US$10 million in annual product revenue, that have or add certain corporate governance controls.

It also recommends that the commission confirm, and if necessary clarify, the application to all micro- and small-cap companies, of the existing general legal requirements regarding internal controls, including the requirement that companies maintain a system of effective internal control over financial reporting, disclose modifications to internal control over financial reporting and their material consequences, apply CEO and CFO certifications to such disclosures and have their management report on any known material weaknesses.

It also calls for exemptive relief from external auditor involvement in the SOX 404 process for small-cap companies with less than $250 million in annual revenues but more than $10 million in annual product revenue; and, micro-cap companies with between $125 million and $250 million in annual revenue.

It adds that if the commission reaches a public policy conclusion that an audit requirement is required, “we recommend that changes be made to the requirements for implementing Section 404’s external auditor requirement to a cost-effective standard”.

The group makes a variety of other “primary” recommendations dealing with scaled disclosure requirements; adopting policies that encourage and promote the dissemination of research on smaller public companies, adopting a new private offering exemption; spearheading a multi-agency effort to create a streamlined NASD registration process for finders, M&A advisors and institutional private placement practitioners; extending implementation of new accounting standards for micro-cap companies; implementing a de minimis provision in the application of the SEC’s auditor independence rules.

There are also a list of so-called secondary recommendations. “Although we have assigned these a lower priority than the recommendations set forth above, we do not in any way intend to diminish their importance,” it notes.

Following publication of the report, SEC chairman Christopher Cox said, “The commission will carefully consider these and other recommendations as we go forward. For now, as we receive this report, the commission can say with honest appreciation: thank you for a job well done.”

He noted that the committee’s final report, “includes a compelling affirmation of the Sarbanes-Oxley Act of 2002 and the improved corporate governance and accountability the Act provides.”