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The top SEC accountant has defended the decision to make small companies comply with the Sarbanes-Oxley Act. He cited the real benefits the regulator is seeing from companies.

Scott Taub was talking at conference in New York on financial reporting. To back up his argument he quoted figures on the decrease in companies reporting ineffective internal controls.

He contradicted the recommendation from an advisory committee that microcap and smaller companies should be exempted from certain parts of the law.

Particular concer has been expressed about the costs of complying with the infamous Section 404. This deals with internal controls over financial reporting. The clause has been blamed for the huge increase in auditing costs since the legislation was passed in 2002.

"I also find it difficult to conceive of a system of regulation whereby we tell people if you invest in a small company you are going to get less investor protection per dollar invested than if you invest in a large company," Taub said. "That is not a mind-set I've ever really been able to get around.

The SEC.s Advisory Committee on Smaller Public Companies last month voted for a proposal exempting 80% of U.S. companies from some of the acts audit requirements.

"I think all public companies of any size would tell you they recognize the need for internal controls," Taub said. "But then when we get into evaluating the effectiveness of that internal controls system ... they believe the costs outweigh the benefits."

On the subject of costs he blamed the current increase in costs on the basis of extra work over and above required for compliance.

Instead, the evaluating focus of internal controls should be based on areas of greatest risk.

"Chairman (Christopher) Cox has said a couple of times, what he's really focused on is trying to figure out what can we do to make 404 implementable for all companies, so that all investors will receive the type of protection that the Sarbanes-Oxley act envisioned," Taub said.

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