A recent study by PricewaterhouseCoopers showed European stock exchanges for the first time in recent history outpacing their U.S. brethren when it came to initial public offerings (IPOs), in both volume and value. Whether or not the desertion can be attributed to the rigors of complying with Section 404 of the Sarbanes-Oxley Act, as critics charge, the Securities and Exchange Commission is clearly starting to take the threat seriously.

Last month the SEC proposed giving all newly public companies and foreign private issuers listing on a U.S. exchange a one-year reprieve on compliance with 404. In effect, IPOs and foreign private issuers would not have to comply with requirements for a management assessment of financial reporting internal controls or an auditor attestation confirming the assessment until the company files its second annual report with the SEC. "Giving new public companies an extra year after going public to comply with the internal control assertion and audit requirements will give them some breathing room," says R. Trent Gazzaway, managing partner of corporate governance at Grant Thornton LLP.

But Gazzaway stresses that this "transition period," as the SEC refers to it, is not a free pass. "It is important to note that companies that intend to go public must be prepared to issue complete and accurate financial statements coming out of the gate," he asserts. "They don't get an extra year to put good internal controls in place; they just get an extra year to complete the self-evaluation and independent audit." In other words, even if the SEC is willing to back off, the investment community is not necessarily as patient.