I just read an article on CFO.com. It talks about an alleged 31 million dollar embezzlement in a company that reports only 38 million in sales each year. According to the article,

The auditor’s response has been to highlight the fact that Koss is one of the companies that are not yet subject to Sarbox’s Section 404(b), which requires an auditor sign-off of internal controls. “The company did not engage Grant Thornton to conduct an audit or evaluation of internal controls over financial reporting,” says a spokesperson for the accounting firm. “Establishing and maintaining effective internal control is management’s and the board’s responsibility.”

This comes at a key time as congress is considering a law that would permanently exempt small filers from being subject to SOX 404(b) requirements. The article continues,

The Securities and Exchange Commission has allowed nonaccelerated filers — companies with market caps below $75 million — to only self-report on the effectiveness of their internal controls for the past two years. But the regulator has continually delayed the auditor-attestation portion of Section 404 for those filers. If there are no more delays or exemptions, companies like Koss will have to get their auditors to review their internal controls starting this summer, depending on their fiscal year-end.

However, the major regulatory-reform bill passed by the House in mid-December would permanently exempt small businesses from 404(b). Small-business proponents have pushed for the exemption, saying audits of internal controls over financial reporting are disproportionately costly and perhaps even unnecessary since, individually, small companies represent only minuscule blips of total market capitalization in the United States.

Still, it’s debatable whether small businesses will get the exemption after the Senate works on its version of the bill later this month. Investor advocates are hoping they won’t. “Investors believe that auditor’s expertise can provide management with additional perspective on the quality of its system of internal control, which can have a positive impact on the quality of a company’s financial reporting,” wrote four investor groups, including the CFA Centre for Financial Market Integrity, in a recent letter to House members. The Koss case could bolster such arguments against the exemption.